Senate Banking Leaders May Delay Vote on GSE Reform

WASHINGTON — Questions are being raised about whether Senate Banking Committee leaders will delay a pending vote on their mortgage finance reform bill as they struggle to secure additional votes.

Chairman Tim Johnson, D-S.D., and Sen. Mike Crapo, the lead Republican, are said to be trying to attract as many as four more votes, bringing the tally up to 16 supporters, but those numbers are proving difficult to come by. The situation has even sparked rumors about whether the original coalition of committee members from both political parties remains intact.

That has led to suggestions that Johnson and Crapo may ultimately push back the vote, scheduled for April 29, by one or two weeks in order to buy more time to bring on additional lawmakers, according to multiple sources close to the process.

"With any of these things, once you put it out there, you try to meet the deadline, but there's no hard and fast reason why that has to be the day," said Edward Mills, an analyst at FBR Capital Markets. "Where it stands right now, there's not a lot of question about whether the bill can pass the committee — it's the margin. They're trying to make sure they have some momentum coming out of it."

A spokesman for the Senate Banking Committee declined to comment for this article.

Johnson and Crapo introduced a bipartisan bill last month that would eliminate Fannie Mae and Freddie Mac and create a new housing finance system. The legislation drew heavily from a measure put forward by Sens. Bob Corker, R-Tenn. and Mark Warner, D-Va., last year, which had already attracted bipartisan support.

But the bill, which would preserve a government guarantee for the mortgage market in the event of catastrophic losses, needs more support from Democrats to have enough momentum to make it to the Senate floor this year ahead of the November elections.

To be sure, the rumor mill is firing on all cylinders ahead of the vote, and the process remains extremely fluid as committee staffers, industry stakeholders and the White House reach out to the remaining uncommitted panel members in an effort to raise the vote tally.

For now, the effort is said to be focused most closely on the six Democrats who have yet to sign on to the legislation: Sens. Jack Reed of Rhode Island, Charles Schumer of New York, Robert Menendez of New Jersey, Sherrod Brown of Ohio, Jeff Merkley of Oregon and Elizabeth Warren of Massachusetts.

"The true question is whether a delay would allow Johnson and Crapo to onboard the liberal contingent of the panel," said Isaac Boltansky, a policy analyst at Compass Point Research & Trading. "There is no doubt that the liberal contingent on the Banking Committee is the most watched group for the ongoing GSE reform effort — they are the ballgame."

All of the lawmakers who have not signed on to Corker-Warner have largely been keeping their powder dry on the issue ahead of the vote, making it difficult to conclude where any one member is likely to come down. Representatives for the senators did not respond to requests for comment, except for a Menendez spokeswoman, who declined to weigh in. 

Warren has been the most vocal on mortgage finance reform over the past several months, repeatedly speaking to concerns about access for low-income and rural families and smaller institutions in a new system. Last month, she also urged Banking Committee leaders not to rush to a committee vote in a speech before housing advocates. Those watching the deliberations continue to suggest she may prove one of the hardest to sell on the legislation, though her vote could be critical for attracting other Democrats onto the bill should the plan eventually make it to the Senate floor.

Still, some have also suggested that having her stay off the bill could ultimately be a boon for the larger effort, because her support could alienate Republicans who might otherwise be convinced to sign on. 

"We continue to believe it may be better for the bill if high-profile progressives like Sen. Elizabeth Warren oppose the bill for not doing enough on affordable housing," Jaret Seiberg, a policy analyst at Guggenheim Securities, wrote in a March 24 analyst note. "It may just be too hard for some Republicans to realize that they can support something that a progressive supports."

Brown, another staunch liberal, may also be a difficult get for the committee. He made waves during an interview with Bloomberg News last week, predicting the bill "won't pass this year," and citing concerns about the complexity of a new system and the potential dominance by big banks.

The crucial challenge facing supporters of the Johnson-Crapo plan remains how to make concessions that bring on additional support from the Democratic holdouts without breaking up the existing coalition of backers, let alone the broad-based support that will be needed on the Senate floor.

"Even if you give liberals everything they want — prohibiting banks of a certain size to act as guarantors, limiting market share and expanding affordable housing — I still think it's difficult to see the more liberal contingent signing on, and you would undoubtedly lose some of the more moderate and conservative members who backed the original Corker-Warner proposal," said Boltansky. 

Industry groups who have generally been supportive of the process are also beginning to step up their pressure on the committee to make key changes ahead of the scheduled vote. The Independent Community Bankers of America, Credit Union National Association and National Association of Federal Credit Unions penned a letter to the banking panel on Friday, pushing for seven key changes to the bill.

"Restructuring of this system is unchartered and untested and therefore raises numerous questions regarding fees and functionality when applied to the real world marketplace," the groups said. "We understand some of the specific details of the proposal are still to be established and we hope those changes will satisfy our ongoing concerns and address the uncertainty faced by our member institutions."

Among the suggestions, the groups ask for the legislation to prohibit aggregators or originators from also serving as guarantors in the new system, a growing concern among several industry groups, and also ban upfront use of capital markets transactions put toward a proposed 10% first-loss capital requirement.

The letter also requests that a new regulator in the system, the Federal Mortgage Insurance Corp., cede safety and soundness authority to existing prudential regulators and suggests certain changes to the governance structure of a small-bank mutual and common securitization platform to be established.

"Regardless of where support is for this bill, it does seem that there are a lot of organizations that are providing a similar response to the committee around the construct of the new system," said David Stevens, president and chief executive of the Mortgage Bankers Association. "The role of guarantors and aggregators and the role of the regulator, these are themes that a lot of groups, including MBA, are consistent on."