The efforts put forth by DC legislators this session to introduce legislation that would overhaul the regulation of Fannie Mae, Freddie Mac, and possibly that of the Federal Home Loan Banking System, have been temporarily stagnated by the postponement of a House committee hearing. The overhaul of this complex system has encountered several set backs over the past month, decreasing the probability that any meaningful legislation will be completed this year.

Several aspects of the current reform bill are highly controversial, and it does not appear that any one bill will be able to cohesively address the variety of interests of the committee members. The current House Financial Services Committee draft of the proposed reform, sponsored by Rep. Richard Baker (R-LA), would create a new Office of Housing Finance Supervision in the Treasury department. This office would regulate the safety and soundness of Fannie Mae and Freddie Mac, but not of the Federal Home Loan Banks, thereby transferring some oversight authority from HUD to Treasury. The draft also assigned a new office in the Department of Housing and Urban Development to regulate the mission of the Government Sponsored Enterprises (GSE), as well as all new and ongoing activities. Currently all oversight of both Fannie Mae and Freddie Mac is administered by Office of Federal Housing Enterprise Oversight (OFHEO), a department under HUD which would be eradicated under the current legislation.

The past month demonstrates the behind the scenes tug-of-war that has occurred on this issue. On October 2, a draft bill serving as a committee draft was circulated. This draft was substantially the same as the bill offered by Baker; however, it did include several changes that signaled compromises occurred amongst the committee members. Noticeably absent was any reference to the Federal Home Loan Bank system, one of the several contentious topics for GSE reform. On October 6 Rep. Barney Frank (D-MA) warned that he and other Democrats would oppose the current draft of the bill. Also on October 6, a memo attributed to Fannie Mae surfaced which submitted severe recommendations in the event that the Federal Home Loan Banks are included in the legislation. On October 7 the Treasury Department revoked its endorsement of the bill due to the significant compromises that were designed to gain support from the Democrats. The loss of support from the Administration may be the death knell for this particular piece of legislation.

In fact, the House Financial Services Committee was supposed to meet on October 8 to mark up the GSE reform bill, but this meeting has been postponed. Should a markup occur, however, it is expected that Rep. Ed Royce (R-CA) will offer an amendment based on his separate legislation (HR 2803) that would include the Federal Home Loan Banks in the new regulatory restructuring.

The Senate is now poised to take up the issue, and is expected to hold a hearing on GSE reform in mid-October. Treasury Secretary John Snow, HUD Secretary Mel Martinez and various representatives of Fannie Mae and Freddie Mac will be the witnesses.