WASHINGTON (Reuters) - A bid by the leaders of the U.S. Senate Banking Committee to secure more support from Democrats for a housing finance reform bill has fallen short, likely dooming their effort to push the legislation to a vote on the Senate floor.
Committee Chairman Tim Johnson, a Democrat, and Senator Mike Crapo, the panel's top Republican, last week delayed a vote on the bill to build more backing for the plan, which would wind down taxpayer-owned mortgage financiers Fannie Mae and Freddie Mac.
But sources familiar with the negotiations said a group of six hold-out Democrats informed the leaders on Thursday they would not vote for the bill, which the panel plans to consider next week. Bloomberg News first reported the decision.
Johnson and Crapo still have at least 12 "yes" votes - six Democrats and six Republicans - to get the bill through the committee. However, the lack of stronger Democratic support makes it unlikely they will be able to convince Senate Majority Leader Harry Reid to allow a vote on measure on the Senate floor.
Analysts say Reid is wary of bringing up legislation ahead of congressional mid-term elections in November without strong support from his fellow Democrats.
"Johnson-Crapo will clear the committee with either 12 or 13 of the 22 committee members voting to advance the bill," said Isaac Boltansky, a policy analyst at Compass Point Research & Trading, in a client note. "Although the proposal will clear committee, we do not believe that it will receive a floor vote in 2014."
The legislation always faced long odds. Even if it cleared the Democrat-led Senate, it would have to be melded with any measure that might make it out of the Republican-controlled House.
But the decision by the six Democratic senators - Charles Schumer of New York, Robert Menendez of New Jersey, Jack Reed of Rhode Island, Elizabeth Warren of Massachusetts, Sherrod Brown of Ohio and Jeff Merkley of Oregon - nevertheless is a big setback to the Obama administration's effort to enact housing legislation this year.
In early morning trading, Fannie Mae's common stock was up about 2.16 percent at $4.25, while Freddie Mac's was up about 2.68 percent at $4.21 as investors bet the companies might survive. Preferred shares for both companies gained nearly 3 percent.
Under the bill drafted by Johnson and Crapo, Fannie Mae and Freddie Mac would be replaced with a system in which mortgages are mostly backed by private capital. The government would step in only after private interests had shouldered large losses.
The two companies absorbed $187.5 billion in taxpayer aid after being rescued by the government in 2008, although they have returned to profitability and have now paid more in dividends to the government than they received in support.
The goal of lawmakers and the Obama administration is to remake the U.S. housing finance system to limit the chances of the government ever having to ride to the rescue again.
Fannie Mae and Freddie Mac, which own or guarantee 60 percent of all U.S. home loans, buy mortgages from lenders and turn them into mortgage-backed securities, which they sell to investors with a guarantee.
Some senators and housing advocacy groups are concerned the Senate bill would price out of the market some people who lack wealth but who would nonetheless be good borrowers.
"Housing finance reform is going to pass out of the Banking Committee next week with bipartisan support, which is a landmark achievement for such a complicated and controversial issue," said committee spokesman Sean Oblack. "We have made significant progress bridging the divide among those previously undecided, and the committee vote is just a first step."
"Those involved in the negotiations have indicated they are interested in continuing to work together to try and find common ground, so the Banking Committee will keep working after favorably reporting out the bill next week," he added.
(Reporting by Margaret Chadbourn; Editing by Chizu Nomiyama)