Will this Congress be More Successful at Passing GSE Reform Legislation?
WEST PALM BEACH, Fla. - Will the second go-around by the House and Senate to pass legislation that would tighten regulation of the housing Government Sponsored Enterprises be more successful than their first attempt two years ago? Rep. Richard Baker (R-La.) and Senate Banking Committee Chairman Richard Shelby (R-Ala.), coming off of the accounting mismanagement scandals first at Freddie Mac in 2003 and then at Fannie Mae last year were more confident that their second stabs at reform legislation would have different endings than their previous attempt. But Credit Union Times spoke with CUNA and NAFCU legislative experts and a credit union mortgage expert, and they concur that unless compromise can be reached in the two versions of the bills, the second attempt at reform legislation is likely to end much like the first one did. Both Rep. Richard Baker's (R-La) bill introduced in April and the bill introduced in July by Senate Banking Committee Chairman Richard Shelby (R-Ala.) would create a new regulator for the housing government-sponsored enterprises. They would also both boost powers of the new regulatory agency to set minimum and risk-based capital standards for the GSEs. In addition, Shelby's bill goes further by limiting the types of investments the GSEs could have in their portfolio although it doesn't specify any cap requirements. Neither CUNA nor NAFCU have taken specific positions on either the House or Senate's respective versions of proporsed GSE reform legislation, but both trade associations have reservations about certain provisions of the measures that they say could adversely affect credit unions. Both trades, for example, are concerned that the so-called "bright-line" provision would not distinguish between loans directly related to originations and secondary market activity. "Our concern is that many credit unions use Fannie Mae and Freddie Mac automated underwriting systems when originating loans to determine before originating the loan if they're conforming with secondary market standards," says NAFCU Director of Legislative Affairs Brad Thaler. "So if you put hard restrictions on credit unions' use of these system, then credit unions that rely on those systems wouldn't have that service available to them." NAFCU has urged that such programs be allowed to continue. CUNA has also expressed its concerns on the "bright line" provision. In his May 24th letter to House Financial Services Committee Chairman Michael Oxley (R-Ohio) and Reps. Paul Kanjorski (D-Pa.), Barney Frank (D-Mass.) and Richard Baker (R-La.) on the House bill, CUNA President/CEO Dan Mica stated that this provision "could preclude many GSE activities that have increased access to mortgage credit and have enhanced competition" such as the GSEs' automated underwriting systems "that have enabled smaller lenders to participate in the secondary market on an equal footing with the large financial institutions." Both trades are also concerned with provisions proposed in both the House and Senate bills they say would stifle product and services innovation by the GSEs by instituting additional approval restrictions over what's currently required. "CUNA wants to be sure to the greatest extent possible that the product approval part of the measures not be politicized. The process could become very bureaucratized," says VP of Legislative Affairs and Senior Legislative Counsel Gary Kohn. So just what are the chances of GSE reform legislation being passed in this Congress? Comparing the House and Senate bills, Thaler says, "I'm not saying the House bill is perfect, but it's a better alternative than the Senate bill in its current form." He adds that he's unsure if there are currently enough votes in the full Senate to get the bill passed in its current form. "Unless some sort of compromise is made, I see some attempt to filibuster if it comes to the Senate floor," says Thaler, adding that "the Republican leadership has said it wants to use the recess to work on compromise language to get enough support to get the bill through. But Democrats I've talked with seem unsure what the compromise could be." Kohn agrees, "it's difficult to predict at this point. If they really wanted to do it they could, if they set their mind to it they could get it done. However there are now significant roadblocks to deal with to satisfy enough people to get the bills passed." Kohn adds that, "People have come to realize just how complicated getting GSE reform legislation passed is, you have powerful forces on each side of the issue." On the House side, he explains, "the White House is uncomfortable" with the proposed legislation by Rep. Baker. In addition, there are some conservative members of Congress who are against the language creating an affordable housing fund - the House committee passed bill creates a low-income housing fund to be financed by 5% of Fannie's and Freddie's net profits. In addition, "there are several people who feel that the portfolio language of the bill isn't tough enough." The Senate Bill, says Kohn "appears to be more consistent with the White House perspective, but it is also clear there are a lot of people, particularly Democrats, who are not happy with that bill." Shelby's bill does not include affordable housing fund language which the Democrats are interested in, and its portfolio language is stronger than the House bill. It may all come down to time. "The farther away we get from the Fannie and Freddie scandals, the more the bills are losing momentum," Thaler points out. Besides there are other issues on the docket now, like confirming a new Supreme Court judge. Joe Brancucci, VP and chief lending officer, BECU, Tukwila, Wash. is in no hurry to see the most recently proposed GSE reform legislation passed, at least not in its current form. "Everyone agrees regulatory oversight is important, but a lot of the language in the bills isn't a rational approach to fixing the problems and rather is more of a knee jerk response to the Fannie and Freddie scandals," says Brancucci who is also president/CEO, Prime Alliance Solutions, noting that GSE reform legislation "has been going on for four to five years in various forms." In the bills' current forms, Brancucci opines that "they're fraught with danger, and credit unions would be very unhappy if they were passed the way they are now." He's confident that "cooler heads will prevail" and "we'll be able to get some compromise on a regulatory bill without debilitating the GSEs. Whatever gets passed, we'll have to live with for awhile." -