Overhauling the nation’s mortgage finance system got kicked down the road this week as the Senate Banking Committee tabled the so-called Crapo-Johnson bill to reform Fannie Mae and Freddie Mac. With the mid-term elections just seven months away, don’t expect any GSE reform this year as the political mud-slinging gets started early than usual with the Senate in play this fall.
After 5 and a half years in government conservatorship, Democrats and Republicans in Congress are no closer to reforming the GSEs than they were when the federal government took them over in 2008. Sens. Tim Johnson, D.-S.D., and Mike Crapo, R,-Idaho, the leaders of the Senate Banking Committee, released their plan in March, but it’s stuck in bipartisan rancor.
The Crapo-Johnson bill wants to replace Fannie and Freddie with yet another new federal bureaucracy. Since Fannie and Freddie are profitable right now, there’s no impetus to make changes. On Tuesday, Crapo-Johnson signaled that they had enough votes to pass the bill out of committee, but not to propel it to the Senate floor.
But with the Senate and House never seeing eye to eye on either the Senate’s Crapo-Johnson bill or the House’s PATH Act, consensus is something lacking today in Washington, D.C.
Josh Rosner, managing director of Graham Fisher & Co. in New York, and co-author with Gretchen Morgensen of Reckless Endangerment, understands what’s going on. Writing in The Wall Street Journal in March, Rosner claims: “Rather than fix these problems, legislators seek to demolish the current mortgage market and build, from scratch, a new system that makes things worse. The bill will have the effect of increasing rather than reducing the concentration of lending in the hands of a few large banks.”
Looking at Crapo-Johnson from 2,600 miles away in California, it appears to be a backdoor bailout for the banks — and a sweetheart deal for the politicians. In other words, Crapo-Johnson is the status quo by another name.
“As for those politicians, this bill provides something for everyone on both sides of the aisle,” argues Rosner. “The Republicans get to wipe out Fannie and Freddie, punishing their longtime Washington enemies for past political sins. Meanwhile the Democrats can avoid future political attacks by hiding government support for housing in a new opaque system that looks remarkably like the one that failed miserably a few years ago.”
Why don’t we just get the federal government out of the mortgage business and let the banks shoulder the risk?