While it was announced Wednesday that the White House could release its long-awaited plan for reforming Fannie Mae and Freddie Mac by the end of the week, the message sent from some lawmakers on Capitol Hill was the exact opposite: major reform is politically unrealistic.
In other words, with a Republican House and Democratic Senate, significant reform of Fannie and Freddie — the two entities given significant blame for helping to instigate the financial crisis — will be stuck in partisan gridlock.
During a hearing Wednesday afternoon of the House subcommittee on Capital Markets and Government Sponsored Enterprises (GSE), proposals for reform of Fannie and Freddie fell along party lines, just as they always have.
When asked about a bill that was introduced last year by Republican Rep. Jeb Hensarling of Texas that would end government support for the GSEs in five years, one witness — Anthony Randazzo, director of Economic Research at Reason Foundation — told the committee members he viewed it as a politically impossibility.
“I have read the bill. I think it’s a good basis,” said Randazzo. “It’s going to be difficult to get that piece of legislation passed in both houses of Congress.”
Throughout the hearing, Democratic members warned against acting too swiftly to lessen government involvement in the secondary mortgage market. On the Republican side, however, there was no shortage of calls for immediate action to get the government out of the secondary mortgage market.
“Fannie and Freddie did not start this mess,” said Democratic Rep. Keith Ellison from Minnesota. “They did not cause the collapse.” Other Democrats, like Rep. Jim Himes of Connecticut, praised the good old days of Fannie and Freddie as part of an argument for not fully separating the government from them.
“[There are] some things we can’t ignore,” said Himes. “They operated for decades safely and soundly….they assisted in the creation of the American middle class.”
Democratic Rep. Barney Frank of Massachusetts, who is the ranking member on the Financial Services Committee, but is not a member of the GSE subcommittee, sat in on the hearing to attack Republicans for criticizing the administration for not meeting its deadline to release a plan for Fannie and Freddie reform.
“I have heard criticism of the administration for missing its deadline,” said Frank. “I must say this is newly discovered attitude of deference toward the Obama administration. I never thought the majority would be waiting around for the president to suggest to them what to do.”
“I had thought majority knew what it wanted to do,” Frank added.
Hensarling responded to Frank’s jabs, saying “I’m certainly fascinated by the ranking member’s fascination with my particular bill. I wonder where that fascination was when he was chairman.”
For his part, Frank shot back saying the reason he hasn’t filed a reform bill yet is “because I have no expectations that the majority would consider it.”
Hensarling did say he plans to reintroduce his bill at some point this year.
“Comprehensive GSE reform is really important, but it is also very complicated,” Randazzo told The Daily Caller after the hearing. “The political reality is that with the House and Senate controlled by separate parties, it will be difficult to move anything this large quickly.”
“The Senate hasn’t even begun to think about this issue, so even if the House were pass a big Republican bill by the summer, having the Democrats move on the legislation quickly to pass something of their own is unlikely,” Randazzo added.
He also pointed out that President Obama’s health care reform bill and the Dodd-Frank financial reform bill took over a year to craft, negotiate and finalize.
In the near future, proposals that could feasibly move forward, according to Randazzo, are compensation limits on Fannie and Freddie employees, a requirement that the Treasury Department act on debt issuance approval authority for the GSEs and some kind of legislation for covered bonds.