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Congressional Action on GSEs Unlikely Despite Fannie, Freddie Slump

Corker says top six foreign policy senators are united in investigating Russian hacks. (Rob Kunzig/Morning Consult)

Fannie Mae and Freddie Mac may be slipping financially, but that’s not giving Congress any new impetus to take action on overhauling the government-sponsored enterprises, lawmakers recently told Morning Consult.

In May, Freddie Mac reported its second net loss in three quarters, while Fannie Mae’s net profits fell by $752 million in the first quarter of 2016 compared with the same period in 2015.

Lawmakers and federal regulators warned about this scenario. As a part of the government control that the two mortgage companies consented to in the wake of the 2008 financial crisis, the two GSEs now send their profits to the U.S. Treasury. Policymakers want to avoid another infusion of government cash into the GSEs if profits continue to slip. This was underscored by Federal Housing Finance Agency Director Mel Watt in a February speech, in which he warned that risks related to government conservatorship of the GSEs will only rise as the relationship continues.

“I have been clear that conservatorship is not a desirable end state and that Congress needs to tackle the important work of housing finance reform,” Watt said in his speech to the Bipartisan Policy Center. “However, because of the intricacies of our housing finance system and the extremely high stakes for the housing finance market and for the economy as a whole if reform is not done right, I continue to hope that Congress can engage in the work of thoughtful housing finance reform before we reach a crisis of investor confidence or a crisis of any other kind.”

But don’t expect Congress to move this year on new GSE reform efforts. Four senators over the last week separately told Morning Consult that the chances for any such action are dim.

“I think, really, you’re looking at January to begin” the GSE reform efforts, Sen. Bob Corker (R-Tenn.) said Tuesday, adding that there might be “very small” work done between now and the beginning of a new Congress to set the stage for GSE legislation.

Referring to the  recent poor performance of Fannie and Freddie, he said, “I don’t think that this last episode generated any additional interest other than what was already there.”

Corker, along with Sen. Mark Warner (D-Va.), led an effort in the last Congress to advance legislation that would put Fannie and Freddie back in private hands and avoid future federal bailouts of the two institutions. The measure got a hearing in the Senate Banking Committee but never made it to the floor.

“We’re going to be back at it,” Warner told Morning Consult on Tuesday. “I don’t think anything is going to happen, probably, before the election.”

“The thing that’s so frustrating to me is that if the taxpayers have to come in and support one of these GSEs one more time, and this sleeping entity that has not been reformed, taxpayers are going to rightfully say, ‘Why didn’t you get this fixed?'” he added.

The leadership of the Senate Banking Committee also isn’t convinced there will be action in 2016. Chairman Richard Shelby (R-Ala.) said that in the last two years the Obama administration hasn’t brought up GSE reform as a priority.

“I’m sure that we won’t do anything this year, and I’m not sure that the administration wants to do anything,” Shelby told reporters last week.

Shelby’s counterpart on the committee, Sen. Sherrod Brown (D-Ohio), blamed the lack of impetus on the banking panel’s general inaction, a common source of Democratic complaints in this Congress.

“The Banking Committee has been pretty dormant,” Brown said. “We’ve not moved on housing. We’ve not moved on much of anything.”

Fawn Johnson contributed.