Senate Nears Vote on Regulation of Home Mortgage Institutions

Article excerpt

By Keith Bradsher

N.Y. Times News Service

WASHINGTON _ The Senate is finally nearing a vote, expected as early as today, on a measure that for the first time would subject to independent regulation two governmentonsored institutions that have guaranteed nearly $1 trillion worth of home mortgages.

The road to the vote has been tortuous, and not just because of the political influence of the two institutions: the Federal National Mortgage Association, also known as Fannie Mae, and the Federal Home Loan Mortgage Corp., better known as Freddie Mac. As often happens in the Senate, the bill has become a vehicle for largely unrelated issues.

A deal early last week has helped the bill go forward, but with two new provisions that would shield municipalities and financial institutions from environmental cleanup lawsuits. Another deal late last week makes it likely that Senate Republicans will withdraw an amendment that would require a balanced budget.

As for the bill's main point, it satisfies Fannie Mae and Freddie Mac but does not go nearly far enough to appease their critics, who contend that the two investorned companies enjoy an implicit federal guarantee on loans that could some day cost taxpayers billions of dollars if defaults soared on mortgages.

The bill would give the Department of Housing and Urban Development authority to regulate Fannie Mae and Freddie Mac. The measure would also set minimum capital standards in an effort to prevent a financial setback at either institution from costing taxpayers billions of dollars.

Drafted in response to fears of a future burden on taxpayers, the bill has been so watered down that Fannie Mae and Freddie Mac are in the slightly odd position of lobbying for a bill to impose regulations on them.

James A. Johnson, the chairman and chief executive of Fannie Mae, said he supported the legislation because it would ensure that the two enterprises retained adequate capital to cover losses and would concentrate regulation at an agency, Department of Housing and Urban Development, that already deals with Fannie Mae and Freddie Mac.

Johnson said that because Fannie Mae's losses as a percentage of its assets are a tiny fraction of the losses at commercial banks, the bill appropriately set capital standards below those for banks.

Critics contend that HUD is too close to either institution to be truly independent, and that Fannie Mae and Freddie Mac need to retain more capital to cope with unforeseen threats, like a change in the taxductibility of mortgage interest. …