WASHINGTON — Shifting political alliances and nearly three dozen proposed amendments produced an uncharacteristic suspense on the eve of a Senate Banking Committee vote on whether to overhaul the regulation of the housing government sponsored enterprises.
The outcome of banking legislation — particularly in the fraternity-like atmosphere of Senate Banking — is normally a foregone conclusion, but Capitol Hill sources, industry lobbyists, and other observers said Wednesday that it was impossible to predict whether committee Chairman Richard Shelby’s bill or a Democratic alternative would prevail.
An amendment from Sen. Robert Bennett, R-Utah, to place restrictions on a controversial provision of Sen. Shelby’s bill added to the mix of options, and speculation persisted about whether Sen. Shelby would postpone the vote.
Several sources said they expected Sen. Shelby would push forward with the vote, regardless of the possibility that he might lose, and let the chips fall where they may. That would be a rarity for Senate Banking, whose chairmen have traditionally kept a tight rein on the panel’s activities. But such a move could underscore his desire to force colleagues to commit to some form of legislation.
Sen. Shelby’s bill would create a new regulator for the housing government-sponsored enterprises with the power to put them into receivership in a financial crisis, broad control over risk-based and minimum capital requirements, and approval authority over new programs.
Lawmakers have filed 34 amendments with the committee, though it is highly unlikely all of them will be offered. The amendments cover a wide range of topics, including changes to the Shelby bill’s receivership and program-approval provisions, new requirements for communication between the new supervisor and the GSEs’ auditors, and revised affordable housing obligations for the GSEs.
Democrats are likely to rally around a competing bill from Sen. Sarbanes that would make several changes to the Shelby bill. They include elimination of the receivership provision, restrictions on how the new supervisor could raise and lower minimum capital requirements, and a new requirement that the GSEs contribute 5% of their earnings to an affordable housing fund. Though Fannie Mae and Freddie Mac might find much to like in Sen. Sarbanes’ legislation, the affordable housing provision would likely be problematic for them.
Some sources said the Democrats, who were scheduled to meet Wednesday, might pin all their hopes on Sen. Sarbanes’ alternative bill instead of offering amendments. But it remains to be seen if Sen. Sarbanes can woo any Republicans to his side.
“This is just a big game of chicken. Who is going to blink first?” said one Senate source, who spoke on condition of anonymity.
Sen. Bennett filed an amendment Tuesday night that seemed to lean toward the Sarbanes bill on a key issue. The amendment would require the new regulator to win congressional approval before putting the enterprises into receivership.
The Bennett amendment posed arguably the largest threat to Sen. Shelby’s bill. Unless altered, its successful inclusion in the legislation would likely force the Bush administration to oppose the bill. Yet Sen. Bennett could prevail if enough of his fellow committee members are sympathetic to GSE concerns that the receivership provision would roil the capital markets and raise interest rates.
A spokeswoman for Sen. Bennett said that he was working with Sen. Shelby to address his concerns, and that the amendment could be altered before the vote. She said that Sen. Bennett was worried that Sen. Shelby’s bill established no third-party check on the regulator’s power to place the enterprises in receivership.
“His concern is that if we get a rogue regulator, the current bill provides no checks on that regulator,” she said. “Sen. Bennett is trying to craft a solution with that problem that doesn’t interfere with intent of the bill. We are hopeful that by the markup, there could be some kind of agreement on what kind of changes need to be made.”
That did not stop some critics from grumbling Sen. Bennett was swayed by familial concerns. Sen. Bennett’s son, also Robert Bennett, is a longtime employee of Fannie, currently working in the Utah partnership office.
Sen. Bennett’s spokeswoman scoffed at the notion Sen. Bennett was being influenced. She said: “His son works for Fannie. His son-in-law works for Wells Fargo. They don’t discuss this within the family.”
A deal between Sen. Shelby and Sen. Bennett could at least guarantee the bill is passed by the committee along party lines. If such an arrangement does not bring at least some Democrats on to Sen. Shelby’s side, however, the overall chances for the bill are almost nil. Most observers agreed that a partisan feud over the bill would ensure the legislation would never come to the full Senate for a vote.
Other major players were weighing on Wednesday. Federal Reserve Board Chairman Alan Greenspan was expected to send a letter to Sen. Shelby backing key parts of the bill.
Treasury Secretary John Snow sent a letter to Sen. Shelby on Tuesday also backing the bill, but outlined potential improvements for it down the line. Wayne Abernathy, the Treasury assistant secretary for financial institutions, told reporters at a Chicago conference in the afternoon that “any new reform must provide receivership authority to the regulator of Freddie Mac and Fannie Mae.”
Fannie, meanwhile, has been weighing in with television ads that feature a couple with a young son talking at their kitchen table about the potential impact of GSE reform legislation.
The husband looks up from a laptop computer screen and says that Congress is said to be considering a bill that would impose new regulations on Fannie. The wife, with a worried look on her face, questions whether that will have any effect on the financing of their home loan. A narrator later intones that “there is a lot at stake as Congress considers changes in home finance. Taking the wrong path could close the door of homeownership to millions of families. Getting it right matters more than ever.”
A Fannie spokesman said the ad represents what the company has said in the past — that it supports reform but wants to ensure it does not hurt the housing industry.
