WASHINGTON Republicans in the U.S. House of Representatives have started to chip away at housing finance giants Fannie Mae (FNMA.OB) and Freddie Mac (FMCC.OB), taking the first legislative steps to reduce their role in the $10.6 trillion U.S. residential mortgage market.
The House Financial Services subcommittee responsible for overseeing Fannie Mae and Freddie Mac approved eight narrowly crafted bills late on Tuesday and early Wednesday targeting the two firms, including one that would sharply cut the pay of their executives.
Republicans are pushing hard to curtail the two government-controlled firms as part of a broad effort to scale back the government's involvement in housing. Democrats are more sympathetic to a continued, but smaller, government role.
The votes, largely but not entirely along party lines, marked the first concrete steps in what is expected to be a years-long process of winding down Fannie Mae and Freddie Mac.
The largest providers of U.S. residential mortgage funds were seized in late 2008 by the Bush administration as losses mounted from mortgages gone sour in the housing market collapse and ensuing financial crisis.
Then-Treasury Secretary Henry Paulson placed the two firms into conservatorship, a status meant to be temporary as the government figured out what to do with them. They have taken more than $134 billion in direct taxpayer aid to date.
The Obama administration in February unveiled a white paper providing three long-term options for overhauling the structure of the two firms and several short-term steps that could be taken to reduce their influence more immediately.
The bills approved by the panel are mostly legislative versions of those short-term steps, including one that would increase the fees the two firms charge to guarantee mortgages against default. A fee increase would make it easier for private firms to compete with the two finance behemoths.
Other bills would increase oversight of the firms, curtail their new business activity and force a speedier wind-down of their existing retained portfolios.
Texas Representative Jeb Hensarling, the fourth-highest-ranking Republican in the House, has sponsored separate legislation that would wind down the firms within five years. But that comprehensive approach faces stronger opposition than the more targeted bills do.
The eight bills approved by the subcommittee mark just the first round of narrowly crafted legislation aimed at curbing Fannie and Freddie Mac. House Financial Services Committee Chairman Spencer Bachus said Republicans would offer 16 more targeted bills in the coming months.
However, Bachus said the full committee would not consider any of the targeted bills until after it holds a vote in early May on Hensarling's broader legislation.
The comprehensive bill faces strong opposition from Democrats and even some Republicans, while the targeted bills are more likely to gain bipartisan support.
Republican Senator John McCain last week re-introduced his own comprehensive legislation in the Senate that would wind down the firms within five years. McCain sponsored a similar measure that was defeated last year.
His bill faces stiffer headwinds this year.
The Democrat who heads the Senate banking panel has called for a go-slow approach on changes to the U.S. housing finance system, and vocal Fannie Mae and Freddie Mac critic Senator Richard Shelby, the panel's top Republican who co-sponsored a nearly identical effort last year with McCain, dropped his name from the Arizona senator's bill this time around.
(Reporting by Corbett B. Daly; Editing by Dan Grebler)