Congress Takes Aim at Fannie Mae and Freddie Mac

With the housing market the only sector of the economy still thriving, Congress has turned its attention to tighter regulation of Fannie Mae and Freddie Mac, which together own or guarantee 47 percent of the nation’s $7 trillion mortgage market.

An accounting scandal at Freddie Mac came to light last month, forcing the ouster of the company’s top three executives. The company later admitted to tampering with its accounting to show positive earnings growth and was forced to restate its results. The two companies are shareholder owned and chartered by Congress.

Rep. Ed Royce (R-CA) introduced a new bill this week that would create a new regulator to watch over the two companies as well as the Federal Home Loan Banks. Royce, a member of the House Financial Services panel, introduced his bill a month after Rep. Richard Baker (R-LA) proposed doing away with the current regulator as well as the Office of Federal Housing Enterprise Oversight. Baker’s bill calls for a new office. Both bills would move the regulator from the U.S. Department of Housing and Urban Development to the U.S. Department of the Treasury.

Baker’s bill faces serious opposition from fellow lawmakers, many of whom count the two firms among their campaign contributors. Both Fannie Mae and Freddie Mac have strong political ties and lobbying arms. Royce’s bill could take the teeth out of Baker’s bill or derail it altogether.

"It seems that Congress doesn't have the stomach to do anything substantial," Marshall Front, president of Front Barnett Associates LLC, which manages $1.5 billion in Chicago, including shares of Fannie Mae, told Bloomberg. "The most likely change will be in oversight."

Congressional Democrats certainly don’t seem willing to enter the debate. "This bill is akin to throwing out the baby with the bath water by mandating sweeping and unneeded changes," Congressman Joseph Crowley (D-NY) and subcommittee member, said of Baker's proposal in a statement. "It is the housing sector that has kept our nation's economy as stable as it has been."

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