By Eugene T. Lowe
April 12, 2004

The Senate Banking Committee April 1 approved a bill that would establish a new regulator for the Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. The new regulator would have the authority to place the GSEs into receivership should either of them experience a financial catastrophe. The bill passed the Committee with nearly a party-line vote; Senator Zell Miller (GA) joined the majority party for a vote of 12 to 9.

The Committee Chairman, Senator Richard C. Shelby (AL), the bill's sponsor, said that he doesn't know if the legislation will be considered by the full Senate this year.

National organizations were virtually united in opposition to the bill. The National Association of Homebuilders said: "The bill to restructure the regulatory framework of the housing government sponsored enterprises (GSEs) that was approved along party lines by the Senate Banking Committee is a bad bill for the nation's home buyers and represents a retrenchment from national policies that have expanded housing opportunities over the past several decades."

In a letter to Senator Shelby and the Senate Banking Committee's Ranking Member, Senator Paul Sarbanes (MD), national organizations representing appointed and elected officials decried the bill's receivership provision. The groups said that receivership "would diminish the government'sponsored status of the GSEs. Congress granted this status to enable the GSEs to provide liquidity and reduce the borrowing costs of the homebuyers ultimately assisted. If they lose this status, they will be forced to borrow capital on the same basis as other private institutions. This would directly translate into increased mortgage rates for homebuyers and providers of affordable housing."

The national groups also expressed concern about the governance structure of the new regulator, which they said "appears to tilt more toward safety and soundness and away from the housing mission." The bill would create an advisory board with representatives from the Department of Treasury, HUD and the Securities and Exchange Commission. The national groups representing local governments said that with such a structure "there is no parity between the housing mission and safety and soundness."