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Senate Banking Committee leaders reiterated their optimism Wednesday for forging a bipartisan housing finance reform plan, but offered little additional detail on when legislation will emerge.
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As Congress struggles to determine the appropriate role for government in the mortgage market, affordable housing may prove a politically charged hurdle on the path to reform.
August 7
WASHINGTON The Senate Banking Committee is moving forward with a plan to overhaul the housing finance system, but leaders still face a delicate balancing act in swaying some Democrats on the panel to sign on to the bipartisan effort.
Chairman Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, the committee's ranking member, are likely to unveil a proposal soon to overhaul Fannie Mae and Freddie Mac that draws from another bipartisan plan introduced last year.
The bill, by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., has drawn support from 10 co-sponsors five Democrats and five Republicans most of whom sit on the banking panel.
But to give their bill fresh momentum, Johnson and Crapo will have to attract additional votes on the committee, especially from remaining Democrats. That could open up further debate on several issues, including how a new system will serve families across the economic and geographic spectrum and where there is a need for more affordable housing resources.
"Typically, individual members hold less of the power regarding a bill's content, because it's primarily a discussion and compromise between the chairman and ranking member," said Brandon Barford, a vice president at ACG Analytics. "But in this instance, if enough of the Democratic members unite and say, we need to slow the process down, or they make demands that Crapo believes to be unreasonable, then the entire reform effort could be significantly impeded."
At the same time, committee leaders will have to weigh any further movement to the left with the concerns of more conservative lawmakers who must also be won over.
"The test is, how much can you do to placate or attract some of the liberals on the committee without losing the Republicans?" said Jeb Mason, a managing director at the Cypress Group.
Additional support is crucial for Johnson and Crapo because the Banking Committee has a historical reputation for achieving bipartisan consensus on significant efforts, including particularly strong support from the majority party.
"It is a necessary but not sufficient condition to be near unanimous coming out of the committee with all of the Democrats," in order to secure enough votes for passage on the Senate floor, said Mark Calabria, director of financial regulation studies at the Cato Institute. "If [Democrats] walk away from this in a big way, it's dead."
Six Democrats on the banking panel have yet to sign on to the Corker-Warner bill, including several senior members: Sens. Jack Reed of Rhode Island, Charles Schumer of New York, Robert Menendez of New Jersey and Sherrod Brown of Ohio, all possible successors to Johnson as committee chair when he retires at the end of 2014.
Sens. Jeff Merkley of Oregon and Elizabeth Warren of Massachusetts have also generally remained on the sidelines of the debate. Warren
Reed is another one to watch, as a long-time advocate on affordable housing issues and author of the provision establishing the National Housing Trust Fund. He praised the committee's work on the issue in a speech before the National Consumer Law Center in November, noting that his priorities for legislation include increasing oversight and regulation of mortgage servicers and ensuring that a future mortgage regulator works closely with the Consumer Financial Protection Bureau.
Brown, who has been vocal about concerns over "too big to fail" on the committee, is expected to raise the issue in the context of the housing finance reform debate as well.
"Sen. Brown believes that a new housing finance system must protect consumers and increase competition among lenders. The last thing we should do is provide greater advantages to banks that are already 'too big to fail,'" a spokeswoman said in a statement.
Other lawmakers did not respond to requests for comment.
Some observers pointed to the left-leaning stances of many of the remaining holdouts, who could ultimately influence the extent of debate on key issues like affordability.
"With Corker-Warner enabling the debate in the Senate to get beyond 'should there be a government role beyond FHA,' progressives on the Banking Committee will want any bill that leaves the committee to have strong provisions that focus housing finance reform on serving borrowers and communities as well as on protecting taxpayers and ensuring that mortgage servicing protects borrowers as well as investors," said Ellen Seidman, a senior fellow at the Urban Institute.
One housing lobbyist noted that hometown geographies may also play a related role.
"To me when you look at the Democrats that haven't signed onto Corker-Warner, it's more about a commonality of concerns coming from large, populated areas multifamily and affordability issues," said the lobbyist, who spoke on condition of anonymity. "Multifamily because they are from states with a larger rental population and affordability because you have a bigger variety of constituent groups based on demographics and economics."
By comparison, the Democratic lawmakers that have already signed on as sponsors to the Corker-Warner bill include Sens. Jon Tester of Montana, Heidi Heitkamp of North Dakota, Kay Hagan of North Carolina, Joe Manchin of West Virginia, and Mark Begich of Alaska.
Another key figure in the debate is former Rep. Mel Watt, D-N.C., who was sworn in as the new director of the Federal Housing Finance Agency on Monday. Observers said his tenure at the agency could slow Democrats' push for action on housing finance reform, particularly if he makes critical policy changes like funding the National Housing Trust Fund, and if the GSEs continue to provide the government with a steady stream of revenue.
"Democrats have a lot less need to compromise. You have your preferred man running the FHFA and you will have him running it for at least a couple of years after Obama leaves the White House assuming there's no blowup at Fannie or Freddie," said Edward Mills, a policy analyst at FBR Capital Markets.
Still, analysts by and large predicted that lawmakers are more likely to use their negotiating position to express concerns and advocate for changes on the margins of a bill, rather than work to torpedo the effort entirely. That will prove especially true if the legislation gains steam and appears poised to advance.
"If it becomes clear this is the way forward, look for there to be a bandwagon effect. But only if they get a couple of provisions to satisfy their needs," said Mills. "Members of Congress, like anyone, like to be part of a winning team."
The strategy comes despite the fact that the GSE debate has in some ways been stacked against more liberal members of the caucus. The plan forged by Corker and Warner is considered centrist, and the countervailing force in the House is a much more conservative bill being pushed by Texas Republican Rep. Jeb Hensarling.
"I think there is some concern among liberal Democrats that the fight is between the center and the right, and if starting point is the center, they're going to lose," said Mills.
But for now, all eyes remain on Johnson and Crapo and what sort of deal they are able to reach in the coming months. There's no sense for others to speak out at this stage until there's legislative text, observers noted.
"From what I can see, everyone on the committee has taken the position of being getable. If someone says 'I can't vote for this under any circumstances,' they have no negotiating power," said Calabria.
