GSE Reform Appears Unlikely in the Current Congress

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[much greater than] At a special legislative update session at the Mortgage "Bankers Association's (MBA's) 100th Annual Convention, two former senior banking committee staffers--one from the House and one from the Senate--were in rare agreement across party lines. The topic was whether President Obama would get to sign legislation reforming Fannie Mae and Freddie Mac before the end of his term. Both said that's not likely to happen.

Actually, Michael Borden, former senior counsel with the House Financial Services Committee, put the odds of it happening a little more bluntly than that. He said, "In this Congress? No. But early in the next president's term."

The reason Borden, now with Sidley Austin LLP, a law firm in Washington, D.C., is optimistic about the chances of government-sponsored enterprise (GSE) legislation early in the next president's term is that the current chairman of the House Financial Services Committee, Jeb Hensarling (R-Texas) views GSE reform as "his signature issue." And Chairman Hensarling will only be Financial Services Committee chairman in the House for two years into the next president's term. Borden says GSE reform is the "issue he cares about the most," and Hensarling "wants a bill passed and enacted before he leaves the chairmanship."

Representing views on the Senate side was Dwight Fettig, partner with Porterfield, Lowenthal, Fettig & Sears LLC and former staff director for the Senate Banking, Housing and Urban Affairs Committee under current Chairman Tim Johnson (D-South Dakota). Fettig told the audience that it's "unlikely that Obama will sign a bill--because it won't reach his desk."

Fettig added that the odds of it happening go up slightly during the last two years of Obama's administration. But he said all the work that is being done now in both houses will be what "future Congresses and staff will build from and work with."

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He likened where the process stands to a Major League Baseball World Series, which requires the best of seven games to win. "We are still in the first game of a seven-game series on the Senate side, in terms of process and timing," he said.

Fettig added that the expectation is that the Republican party will pick up some Senate seats during the next election. That, he said, will shrink the majority Democrats now have in the Senate, requiring that any GSE reform legislation "will have to be bipartisan or it won't go anywhere."

Borden was asked what pressure the existence of a bipartisan-supported Senate bill introduced by Senators Bob Corker (R-Tennessee) and Mark Warner (D-Virginia) puts on the House because it represents some Republican support for a limited government guarantee in a replacement system. He said, "I think it does [put some pressure on the House]. The dam has broken a bit. It's no longer clear that the GOP will stand for elimination of the government guarantee."

Fettig pointed out that for Ranking Member Crapo (R-Idaho) on the Senate banking committee, "literally half of his caucus said it will support some form of government guarantee" in a restructured housing finance system.

Borden, the former House senior staffer, said originally Hensarling wanted a bill that would build a private, well-functioning mortgage market, with a transition over five years, with no government guarantee and no government charters. Borden predicted, "If there will be a compromise, it will be over the transition."

Fettig said in terms of Senate-side action, they can't go to the Senate floor with a bill unless it has backing from the committee chairman and from the ranking member of the banking committee.

Borden said a bit of the sense of urgency behind fixing the GSEs has gone away: "The GSEs are not the political hot potatoes they were in 2008. …