* Senate approves Democratic amendment seeking study
* Dodd: GOP amendment could have destabilized housing
* Isakson: Financial reform incomplete without GSEs fix
(Adds Dodd comments, vote tallies, background)
By Kevin Drawbaugh
WASHINGTON, May 11 The U.S. Senate on Tuesday
voted to reject a Republican measure that would have moved
housing finance giants Fannie Mae FNM.N and Freddie Mac
FRE.N out of government conservatorship within two years.
The measure was offered by Republicans John McCain, Richard
Shelby and Judd Gregg as an amendment to a sweeping Democratic
financial reform bill that does not deal decisively with the
problem of what to do about Fannie and Freddie.
"You cannot have responsible reform of financial services
and leave out Freddie and Fannie," said Republican Senator
Johnny Isakson in debate on the amendment dealing with the two
groups, known as government-sponsored enterprises, or GSEs.
The Senate approved, by a vote of 63 to 36, a Democratic
measure calling for a study of housing finance reform, due by
Jan. 31, 2011. The Republican amendment failed 43 to 56.
Democrats said the Republican amendment, lacking an
alternative proposal for structuring housing finance, could
have upended the home market just as it was stabilizing.
"What it says is that in 24 months, you get rid of Fannie
and Freddie. I don't call that reform," said Senator
Christopher Dodd, the Democratic chairman of the banking
committee and author of the sweeping Wall Street reform bill.
More than 96 percent of all U.S. residential mortgages are
backed by the government. Fannie and Freddie, despite deep
problems, remain the dominant players in that system.
"This program needs to be fixed, no question about it, but
this amendment doesn't do that." Dodd said, arguing that the
amendment would have put the housing market in "a free-fall."
He said: "We could fall right back into a recession ... It
would be a drastic mistake."
McCain, Shelby and Gregg would have required the government
to relinquish control of Fannie and Freddie within two years.
'TEMPORARY' STATUS STILL IN PLACE
At the height of the financial crisis in 2008, The Bush
administration seized the two entities and put them in
"temporary" conservatorship as mortgage losses mounted.
More than a year and a half later, the groups' status has
not changed and the Obama administration has not decided how it
wants to overhaul the entire U.S. housing finance system.
The Republican amendment would have forced an end to the
conservatorship within two years of the law's enactment.
The amendment would also have stripped Fannie and Freddie
of their mandate to promote affordable housing and would have
sharply reduced the government's role in mortgage finance.
The amendment also called for placing Fannie Mae and
Freddie Mac on the books of the federal government.
Fannie Mae on Monday asked the U.S. Treasury for an
additional $8.4 billion to backstop losses. The two firms have
already tapped about $145 billion from Treasury and their
regulator said earlier Tuesday that he does not know how much
support the groups will ultimately need from taxpayers.
(Additional reporting by Corbett Daly, Editing by Andrew