Getty Images Rep. Jeb Hensarling
September 6 marked ten years since mortgage giants Fannie Mae FNMA, -0.65% and Freddie Mac FMCC, -0.66% were taken into “conservatorship,” an arrangement of government control that would last until Congress could decide on a long-term plan for the two guarantors of home loans.
Ten years and countless failed Congressional overhaul attempts later, legislators marked the date by… introducing yet another housing finance reform bill.
A research note from Height Securities out Friday echoed the skepticism that many in Washington felt on learning of the new attempt, by Rep. Jeb Hensarling, the retiring Republican House Financial Services Committee chair. It was titled “Hensarling’s GSE bill is nice, but it’s going nowhere.”
Height puts odds of less than 5% on the passage of any such legislation in the current Congress, even though what they referred to as “Hensarling’s bill” was actually also co-sponsored by a Democrat, Rep. John Delaney. There have been previous bipartisan reform efforts, after all.
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In the end, Height analyst Ed Groshans wrote, there’s “no time for housing finance reform legislation.” Besides the logistical challenges, “we see very little common ground between the two parties on housing, which means housing finance legislation is not likely to become law in the next couple of years.”
Instead, Groshans, like many other housing-watchers, puts better odds on a permanent path forward being decided by the Treasury Department and the GSEs’ regulator, the Federal Housing Finance Agency.
Treasury Secretary Steven Mnuchin has frequently said that housing finance is a priority, and the White House even released a proposal of its own earlier this summer.
But as with so many things in Washington, even a relatively straightforward “administrative fix,” as it’s often called, will be made more complicated by matters of personnel. The current head of the regulator, Mel Watt, has been dogged by allegations of sexual harassment for the past month or so, and some analysts expect him to leave before his term is up at the end of the year.
Read: Key housing players reflect on the financial crisis 10 years later
Another wildcard is Hensarling himself. Many housing-watchers have speculated that he’s in the running to replace Watt as head of FHFA. For conspiracy theorists, there were plenty of hints in his opening remarks at a Thursday hearing introducing the new reform plan, which contained more concessions to the role of government in the mortgage market than he’d given in the past.
The bipartisan compromise “does not necessarily represent my preferred policy or optimal policy but I believe it represents an achievable policy and a good faith effort at bipartisan compromise,” Hensarling said, just moments after urging the next FHFA head and the Administration to effectuate change if the legislation stalls out.
“The director has broad unilateral powers as conservator of Fannie and Freddie to dramatically reduce their size, scope and functions,” he said.
The fresh round of jockeying over the fate of Fannie and Freddie comes even as many housing industry participants believe the two companies have settled themselves into the kind of role that best serves the market. They’ve become staid, cautious guarantors of mortgages - almost utility-like. (It’s important to note that other observers want the Enterprises to do more to level the playing field for more marginal borrowers in a challenging housing market.)
And one wildcard is the outcome of various shareholder lawsuits over the seizure of profits from Fannie and Freddie over the past few years of government control. One of those cases, the one brought by an investor named Fairholme Funds, “offers the best chance for shareholders,” Groshans wrote. “If Fairholme is successful in its case, the DOJ may be open to settlement talks.”
Read: Congress wouldn’t do it, so Fannie and Freddie reformed themselves