Fannie, Freddie Approach Reform

Two new mortgage finance bills and a host of hearings set for the fall have real estate investors and insiders atwitter about the long-awaited reform of government-backed lenders …

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Two new mortgage finance bills and a host of hearings set for the fall have real estate investors and insiders atwitter about the long-awaited reform of government-backed lenders Fannie Mae and Freddie Mac, but many experts believe that politicians are all talk and no action, at least in the near term. From a political standpoint, it’s not for a lack of bipartisan support; it’s that there are too many ancillary issues to debate that will likely get in the way of a consensus. The plan, which is to wind down Fannie and Freddie and put more of mortgage finance in the private sector, has presidential support, but that may not be enough to move the ball in fall. For more on this continue reading the following article from TheStreet.

Congress appears ready to start talking seriously about overhauling the mortgage finance system.

Over the past few months, the conversation on ending government-sponsored mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC) has heated up, with the introduction of the Corker-Warner bill in the Senate and the passing of the "PATH" Act in the House.

President Obama also waded into the debate recently, arguing for a new mortgage finance system that will have a greater role for private capital and a limited government guarantee that would preserve easy access to credit in an economic downturn.

Last week, Rep. Jeb Hensarling (R., Texas) — chairman of the House Financial Services Committeee — said he was hopeful the House would hold a vote to wind down the GSEs as early as this fall, followed hopefully by a conference with the Senate.

KBW political analyst Brian Gardner, who has been skeptical of any progress on GSE reform before 2015, now says the legislation might get done sooner than expected, but still not before 2014.

"Investors should expect to see a series of hearings in the fall on the topic of mortgage finance and we think it is possible that the [Senate Banking] committee tries to pass a GSE bill later in the fall," he wrote in a note Sunday.

The problem is we are still going to be hearing mostly "talk" rather than action.

Gardner believes getting the bill passed would be a tall order, as there is a long list of "must do" items in the fall calendar for the Senate, including weighing Federal Reserve nominations.

Moreover, "there is likely to be policy disagreements over how to wind down Fannie Mae and Freddie Mac, how long the transition period to a new system should last, the extent of the government’s role in a new system (i.e., government back-stop), how roles of new system and the Federal Housing Administration (FHA) should track each other, and affordable housing programs," he wrote. "Any optimism over completing the task of passing GSE legislation may be premature but we think chances of passing a bill before 2015 are about to get a new boost."

This article was republished with permission from TheStreet.

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