WASHINGTON - Though the holiday season is just starting, pundits are already declaring GSE reform legislation dead for 2006 - unless of course something else dreadful happens at Fannie Mae or Freddie Mac.
"There is a declining probability that the bill will get done next year," said Bert Ely, a financial services consultant and critic of the government-sponsored enterprises. "We're in a political stalemate, and there is no crisis … to shake things loose and alter the political dynamic."
Separate investigations of Fannie being conducted by former Sen. Warren Rudman and the Office of Federal Housing Enterprise Oversight are expected to reveal new accounting and corporate governance violations, but even these are unlikely to break the stalemate, analysts and Washington policymakers say.
"We're not expecting any unexpected revelations in the Rudman report or the OFHEO report," said Stanford Washington Research Group analyst Jaret Seiberg.
Fannie has already warned shareholders to expect bad news from the investigation it hired Mr. Rudman to undertake, and some of the findings have already leaked. Mr. Rudman, a partner in Paul, Weiss, Rifkind, Wharton & Garrison LLP, is looking at organizationwide problems that range from accounting standards to governance and compensation plans.
The Rudman report, likely to come out in January, will be followed by the results of the OFHEO exam.
Without a catalyst - such as a bombshell in one of the reports or unexpected news like a derivatives blowup at one of the companies - sources say neither critics nor supporters of the GSEs have reason to moderate their stance and strike a deal.
"There is still plenty of time to get a bill done next year, but only if the three major parties - the House, Senate, and White House - agree on what the legislation should look like," Mr. Seiberg said. "Right now there is serious disagreement, and there are no real signs that the White House is ready to compromise."
Nor are Fannie and Freddie, observers say. "They are not feeling investor pressure to do so," Mr. Ely said. "They may feel somewhat emboldened to hold their position because their stock prices are holding up."
(The stock prices of both companies slid for months as Congress debated legislation to tighten oversight. A turnaround began in early October.)
A spokesman for Fannie said it is "committed to working cooperatively and constructively with … Congress." The company is "hopeful a bill will be signed into law," he said.
A spokeswoman for Freddie declined to comment.
The House voted 331 to 90 in October to approve a bill that the Bush administration adamantly opposes but that has the backing of Democrats. The bill would allow a new GSE regulator to limit any asset or liability of the GSEs but not mandate portfolio limits, as the administration wants.
"The administration opposes the bill," the White House said in October in an official statement of policy that left no room for compromise.
Reflecting most of the administration's demands is a bill the Senate Banking Committee approved along party lines in July. Sen. Richard Shelby, the Alabama Republican who leads the panel, has no plans to bring the measure more in line with the House-passed bill.
"Any bill that would have Sen. Shelby's support would have to contain the core elements of the Banking Committee's bill," his spokesman said last week.
The spokesman acknowledged that is has been "challenging" to get the bill to the full Senate, where opponents of limiting Fannie's and Freddie's portfolios have enough votes to hold up action. "We have not achieve the type of consensus - as of yet - that would be required to move it through the full Senate," the spokesman said.
The only player to publicly declare his desire to compromise is Rep. Richard Baker, the sponsor of the House bill and a longtime advocate for GSE reform.
"I'm for anything that can pass," the Louisiana Republican said in a November interview with American Banker. "We've never been this close. We ought to get together, determine how we can get an ultimate outcome with resolution."
