What the Senate Banking Vote Delay Means for GSE Reform

WASHINGTON — The future of housing finance reform remains in limbo on Tuesday after Senate Banking Committee leaders postponed a key vote on legislation to unwind Fannie Mae and Freddie Mac.

Chairman Tim Johnson, D-S.D., and Mike Crapo, the panel's top Republican, pushed off a scheduled markup for their bipartisan plan to overhaul the mortgage finance market, citing ongoing efforts to bring several more panel members on board before a vote is held.

Rumors that Johnson and Crapo would need to delay the vote had been making the rounds through Washington for weeks, though the final decision to hold off apparently came late Monday night, just hours before the vote was scheduled to begin.

Still, the banking panel leaders, as well as other members on the committee, remained optimistic about the bill's prospects following the announcement, suggesting they believe they can attract additional votes.

"As all of the members already know, there continue to be important discussions to build a larger coalition supporting the bill. While we have the votes to report the bill out today, members of the committee have asked for a brief delay to try to work out additional issues prior to a final vote," Johnson said during the panel's brief meeting. "Staff will notify members when the committee is set to reconvene in the coming days."

The Johnson-Crapo bill builds off earlier work by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., to remove the government-sponsored enterprises and build a new secondary market backed by a government guarantee in the case of catastrophic losses. That plan drew eight additional co-sponsors from the committee, who are expected to remain on the Johnson-Crapo bill, giving the legislation the support it needs to get out of committee.

But how many more members the bill can attract, and how long that effort will take, remains up in the air. Supporters would need something closer to 15 or 16 "yea" votes to have enough momentum to get to the Senate floor this year.

"We have a solid majority. We had meetings until very, very late last night, and there are other members who had expressed interest, and so we're going to talk about a couple more issues," Corker told reporters after the session. "So instead of passing it out, which we easily could have done today, we're going to have a little more conversation. We've sort of narrowed down into a very small group of points that potentially could bring a lot more members on."

Sen. Jon Tester, D-Mont., one of the original co-sponsors of the Corker-Warner bill, told reporters that he wasn't sure how long the deliberations would take, noting that "I don't think you want to put time limits on it."

Banking Committee staff were similarly vague on a timeline for resuming consideration of the bill, pointing to Johnson's comments that more guidance is likely "in coming days."  

Tester, meanwhile, lauded the effort to bring on additional backing for the plan.

"We're just getting a few more folks on board, which is important. I think it's good," he said. "The truth is I think any time you get folks together in a bipartisan way and build a bit more consensus, that's positive."

The White House has also been stepping up its outreach in recent weeks, with Shaun Donovan, secretary of the Department of Housing and Urban Development, making several high profile speeches in favor of the bill during the spring recess earlier this month. A source familiar with the negotiations noted that Donovan, who could be key to winning support from some affordable housing groups and liberal Democrats, continues to play a hands-on role in the deal-making. He reportedly spoke with lawmakers on the Senate floor Monday evening after votes and joined Banking Committee staff for several hours of discussions late into the night. Treasury Secretary Jack Lew also came out in favor of the legislation on Monday in an interview with the Wall Street Journal.

For now, the backroom dealing between lawmakers, their staff and Obama administration officials is likely to continue at fever pitch, in the hopes of coming to an agreement on several outstanding issues.

"There's clearly been a lot of work done to find compromises. They weren't there, but they feel they're close," said Jaret Seiberg, an analyst with Guggenheim Securities. "If that feeling doesn't get stronger over the next 72 hours, then I think it's fair to assume that they're just not going to get the votes. So then this gets out of committee with 13 or 14 votes and doesn't go anywhere in the Senate."

Observers suggested that a number of issues likely remain on the table, including those related to affordable housing, the criteria used for loans eligible for the government guarantee and the role of a new regulator, the Federal Mortgage Insurance Corp., among others. The final decision on proposed changes is likely to focus on whether an amendment can bring on an additional vote without losing the support of any lawmakers already signed on to the legislation.

At this point, there are a handful of unsigned Democrats that likely remain at the center of talks, including Sens. Jack Reed of Rhode Island, Charles Schumer of New York, Robert Menendez of New Jersey, and Jeff Merkley of Oregon. Sens. Sherrod Brown of Ohio and Elizabeth Warren of Massachusetts have both publicly signaled concerns with the legislation, with many observers predicting they may prove harder to convince.

Crapo singled out Reed, "who has put a lot of work into the issue," during his statements at the panel session on Tuesday, along with thanking Corker and Warner and the original members of that coalition. The move raised the eyebrows of some who have questioned whether Reed would sign on, with others wondering whether the mention was designed to further persuade the lawmaker.

Other lawmakers who are still discussed as potential hopefuls include Republican Sens. David Vitter of Louisiana and Tom Coburn of Oklahoma, though bringing on the more conservative lawmakers while trying to capture the support of remaining liberal Democrats is a difficult task.

Meanwhile, industry stakeholders continue to try and influence the effort. Numerous mortgage and banking groups have submitted comments and suggestions to committee staff in recent weeks, while some housing advocates have come out opposed to the legislation, warning that it doesn't do enough to ensure access to the new system for low-income families and minorities.

The National Association of Realtors, a powerful industry group that has so far remained relatively quiet on the legislation, sent a letter to Senate Banking leaders on Tuesday raising concerns about affordability.

"NAR is concerned with the potential impact of this legislation on overall mortgage costs for consumers. Thus far, there is inconclusive evidence demonstrating the impact on mortgage prices for creditworthy borrowers at all levels," the letter says. "Therefore, we believe this issue needs further examination to accurately understand the effect this legislation may have on the U.S. housing market. We will continue to evaluate and work with you on this issue."

The letter may have even been an "unheralded contributor to the delay," said Charles Gabriel, managing partner at Capital Alpha Partners, in a client note.

"While the politically powerful NAR is unlikely lobbying this nuanced position — and is largely viewed as 'Switzerland' within the broader Washington legislative and policy world — we think the statement gives cover for wavering members on both sides to keep their powder dry or even oppose," he added.