UPDATE 1-U.S. senators aim for deal on Fannie, Freddie reform by year-end
By Margaret Chadbourn
WASHINGTON, Sept 12 (Reuters) - The highest-ranking Democrat and Republican on the U.S. Senate Banking Committee said on Thursday they want to reach agreement by year end on the politically thorny issue of how to overhaul mortgage giants Fannie Mae and Freddie Mac.
The indication by the panel's Democratic chairman, Tim Johnson of South Dakota, and its ranking Republican, Michael Crapo of Idaho, that they plan to move forward on a housing finance reform bill is the latest sign of movement in an often contentious debate that has frequently divided the two parties.
"Recognizing that there are many details that need to be explored and discussed ... we plan to hold hearings this fall to explore the finer points of proposed changes," Johnson said at a hearing. "Crapo and I are undertaking this in-depth process with the goal of reaching agreement by the end of the year."
Neither lawmaker offered details on their likely approach.
Plans to replace Fannie Mae and Freddie Mac have emerged in both the Senate and the House of Representatives in recent weeks. The companies have operated under government control since they were seized during the financial crisis.
Last month, President Barack Obama for the first time also outlined a plan to revamp the government's role in housing finance. He wants private capital to take a lead role in the nation's future mortgage market.
The Senate bill, which was introduced by both Republican and Democratic members of the banking committee, mirrors the administration's approach of ensuring a government backstop remains in place in times of crisis, while an alternative Republican bill in the House more sharply limits government mortgage guarantees.
"It appears we now are experiencing the first moment since the crisis that the White House, the Senate and the House are all moving forward or advocating for reform," Crapo said at the hearing. "We must use this opportunity to concentrate on building consensus."
Despite the recent movement, analysts expect it could still take a few years before any legislation on the so-called government-sponsored enterprises, or GSEs, becomes law.
"This hearing was a broad positive for housing finance reform," said Jaret Seiberg, a senior policy analyst at Guggenheim Securities. "The odds are 60 percent for enactment during President Obama's tenure of a GSE reform bill that includes a government backstop."
The Senate bill, led by Tennessee Republican Bob Corker and Virginia Democrat Mark Warner, would liquidate Fannie Mae and Freddie Mac within five years. The legislation would provide for government reinsurance that would kick in only after private creditors had shouldered large losses.
Under the House bill, introduced by House Financial Services Committee Chairman Jeb Hensarling, there would be no such assistance for unexpected losses. In July, the bill was approved by the committee on a mostly party-line vote, but Republican leaders have said it will not be considered by the full House this fall.
Fannie Mae and Freddie Mac do not make loans but instead buy them from lenders and package them as bonds, and guarantee them against default. A key part of the housing system, the two mortgage financiers own or back about half of all U.S. home loans.
The companies have returned to record profit after drawing almost $188 billion from taxpayers to stay afloat since 2008. By the end of September, they will have returned $146 billion in dividends to the U.S. Treasury for the government aid.
"Any new housing finance system and the transition to it could dramatically change the way that families qualify and affect who can afford to buy a home," Johnson said.
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