Reforming Fannie and Freddie: A Mid-Year Check-In

Housing finance reform has been at the top of the Congressional agenda for some time, however experts feel that passing any new legislation in the near future is unlikely.

Despite seeing housing finance reform as a major item on the Congressional agenda, the likelihood of reform legislation passing in the near future seems unlikely, hindered by a volatile mix of competing financial priorities, a lack of political will, and old-fashioned DC-style politics.

The fate of Fannie Mae and Freddie Mac—the now-government held mortgage underwriters who represent one of the government’s largest stakes in the housing market—is particularly precarious, with both Democrats and Republicans saying that reaching political consensus on the issue is difficult, if not impossible. A Reuters report published last week suggested that reform bills are being hindered by a lack of political will among House Republicans, who are calling on the Obama administration to take a stronger lead in directing reform of the giant financial organizations. Taxpayers, who have shelled out more than $135 billion for bailouts of Fannie and Freddie since 2008, remain at risk of further capital dissolution if the government doesn’t stem its involvement in housing. Only through a reliance on a newly-privatized market, some insist, can we protect the taxpayer while reinstating a level of sanity in the turbulent (and still restrictive) world of home finance.

Meanwhile, powerful players from the housing industry are fundamentally opposing the winding-down of Fannie and Freddie, saying that the financial landscape left in their wake would be one that is both perilous and prohibitively-expensive for potential home buyers. Two of the largest organizations, the National Association of Home Builders (NAHB) and the National Association of Realtors (NAR) have been actively lobbying Congress, working the ground to make sure that Fannie and Freddie survive the first rounds of reform talks. According to a May 2011 NAHB press release, the industry sees the two mortgage giants as critical components of a stable and accessible housing market that offers high liquidity and broad-based access to financing. Winding-down the organizations, the NAHB warned, could be enough to topple housing and drive the nation back into deep recession.

While proposals in the House for finance reform are still in their nascent stages, much of the policy is being formed by staunch political lines drawn in the face of the upcoming 2012 elections. The CEO of the NAHB stated publicly earlier this month that the political roiling on Capitol Hill was retarding progress in reform talks, and Republicans have been clear that they will be unwilling or unable to support any reform that doesn’t severely curtail the liability of taxpayers. Democrats, in the meantime, are being taken to task for the high-cost to taxpayers for bailouts and finance programs, which in many cases are failing to help—not to mention resolve—financing difficulties experienced by home buyers and home owners. The scope and size of Fannie and Freddie, it seems, will be proscribed only once the lancets and arms of the election cycle have been put aside for the true task of legislation and debate.

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