Politics

Dems Defeat a McCain Amendment to Wind Down Fannie and Freddie

By Sunlight Foundation & Participatory Politics Foundation

Senate Democrats beat back an amendment to their financial reform bill from Sen. John McCain [R, AZ] on Tuesday that would have required the government to release Fannie Mae and Freddie Mac from their control and force them to sink or swim in the free market like all the other financial companies. The amendment was defeated by a vote of 43-56, with all Republicans voting in favor along wit two Democrats — Sen. Evan Bayh [D, IN] and Sen. Russell Feingold [D, WI].

Annie Lowrey at Washington Independent explains the amendment in more detail:

The GSE amendment would effectively shutter the mortgage giants, which together backstopped 97 out of 100 new mortgages in the first three months of the year, according to Inside Mortgage Finance. It would keep keep the current government conservatorship in place for 24 months (or 30 months, if the Federal Housing Finance Agency determines that market conditions are 'adverse'). Then, it would begin begin the process of dissolution.

Were Fannie and Freddie to prove 'viable' as private institutions (a term left ambiguous) after 24 or 30 months, they would become highly regulated institutions for three years, before the expiry of their charters. They would have no affordable housing goals, would have to reduce their mortgage assets yearly, could not purchase mortgages exceeding median-home values and could only buy mortgages with certain minimum down payments — among other provisions. Additionally, they would have to pay taxes. Were Fannie and Freddie not 'viable' in two years — likely, given that Fannie reported yesterday that it does not see itself reporting a profit for the 'indefinite future' — the amendment puts them into receivership.

Most Democrats said that they wanted to reform Fannie and Freddie and end their conservatorship, but that the McCain amendment would have do so recklessly and would throw the already-fragile housing market into disarray. 'Don't tear down what you have without knowing what you're going to replace it with,' said Banking Committee Chairman Sen. Chris Dodd [D, CT] during the debate. “We could fall right back into a recession … It would be a drastic mistake.”

In attempt to show that they are serious about fixing Fannie and Freddie and ending their conservatorship status, all Democrats besides Russ Feingold voted to pass a separate amendment sponsored by Dodd to require the Secretary of the Treasury to study and make recommendations to Congress on ending the conservatorship of Fannie Mae and Freddie Mac. Six Republican sided with them — Scott Brown [MA], Susan Collins [ME], Mike Johanns [NE], Lisa Murkowski [AK], Olympia Snowe [ME], andGeorge Voinovich [OH].

The text of the amendment is not immediately available, but according to an email from the Senate Banking Committee, here’s what it asks the Treasury to look at, more specifically:

The amendment requires the Treasury to specifically look at a number of options for ending the conservatorship of Fannie and Freddie, including;

• the wind-down and liquidation of Fannie and Freddie;
• the privatization of the 2 GSEs;
• the break-up of the GSEs into small companies; and
• other options that may be available.

Full post as published by Open Congress on May 12, 2010 (boomark / email).