Republicans push Fannie privatization
The Politico,
Sep 9 -
When John McCain got word this weekend that the federal government was about to engineer a massive bailout of mortgage giants Fannie Mae and Freddie Mac, he had a relatively simple response: Privatize them.
Barack Obama, on the other hand, laid out three “principles” in a nuanced, 362-word statement about the future of government-sponsored enterprises.
Both candidates support the short-term government seizure of the mortgage giants, but their differing long-term views offer a sneak preview of the coming battle over the role of government in the trillion-dollar housing market — a battle Treasury Secretary Henry Paulson is admittedly leaving to the next Congress and the new administration.
Republicans are coalescing around McCain’s call to privatize the mortgage giants once they emerge from government control. Democrats have yet to lay out their vision for Fannie and Freddie, but they fear that the federal takeover may be a backdoor way to kill the GSEs, privatize them and remove the government as a player in the mortgage industry.
“Congress needs to break up the GSEs like we did with Ma Bell and have smaller, privatized mortgage companies,” said Rep. Michele Bachmann (R-Minn.). “It’s clear we’ll end up in the same situation again if we don’t privatize.”
“The key question is what to do when it comes out” of government receivership, Sen. Tom Coburn (R-Okla.) said. “It needs to be privatized, and the government needs to get out of it. Then you’d have people making [mortgage] decisions based on sound economics rather than knowing the government is backing them.”
Democrats say that GOP view oversimplifies the complexities of reshaping Fannie Mae and Freddie Mac.
“It’s a very nice talking point, but it doesn’t solve the immediate or long-term outlook,” said Steve Adamske, a spokesman for House Financial Services Committee Chairman Barney Frank (D-Mass.). “Republicans didn’t do [mortgage reform] when they had Congress and the White House.”
“There’s always been a tension between public and private, but I am very skeptical that total privatization is the answer,” Frank said. “We will have a serious discussion next year about what the structure will be.”
Frank added that the affordable housing fund sponsored by GSEs would be done in a private format.
There are three options for Congress over the next year or so. There’s the pure privatization model advocated by fiscal conservatives; a complete public ownership model; or a public/private hybrid, which may be the most likely scenario.
A hybrid model is necessary, some experts say, so that the federal government can still play a role in setting national mortgage standards and ensuring a stock of affordable housing. But conservatives complain that setup would simply create a new generation of GSEs with the implicit promise that the feds will step in again in the next housing meltdown.
Senate Banking Committee Chairman Chris Dodd (D-Conn.) says anyone who tries to apply hardened political ideology to the massive mortgage market is misinformed, and he insists that only a Fannie type of government-sponsored enterprise can create the type of liquidity that’s needed.
“If this is an ideological thrust to make these institutions cease to exist, then we’ll see further deterioration” in the housing market, Dodd said in a conference call with reporters Monday afternoon. “The idea that we’re going to abandon this ... and replace it with what?”
Yet Dodd did not lay out a vision for the GSEs’ future. He would only say he cares “about a structure and architecture that makes homeownership possible” for a range of people.
Even some Democrats admit that they have not successfully laid out a long-term vision for the mortgage market.
“There are a variety of viewpoints within the progressive movement,” said Andrew Jakabovics, a housing expert for the liberal Center for American Progress. “Everybody is trying to figure out the proper role of government. ... But we shouldn’t lose sight of the role GSEs have played. Had there not been GSEs, the credit crunch would have led to an even worse downturn.”
For some Republicans, a larger issue is at play.
“With this move, what we are continuing to see is the transfer of private risk to the American taxpayer,” said Georgia Rep. Tom Price, a staunch opponent of the housing bill that included the government’s expanded authority. “Although it may stabilize the market, there is an inherent concern in transferring that risk to the taxpayer.”
Late Monday, Price asked Frank for a takeover hearing.
Dodd said he will hold a hearing “early next week.”
Patrick O’Connor contributed to this story.
