by Mitch Kokai
Senior Political Analyst, John Locke Foundation
A Republican-led Congress will likely be unable to reduce government involvement in the housing market before the next election, but federal agencies could still take measures to lessen risk in the system, experts say.
Sen. Richard Shelby (R., Ala.) is poised to become chairman of the Senate Banking, Housing, and Urban Affairs Committee for the second time after the GOP regained control of the chamber in the midterm elections. Shelby has been a vocal critic in the past of Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) whose ownership of risky “subprime” mortgage loans—which defaulted in large numbers in 2008—helped precipitate the financial crisis.
Any legislation that winds down Fannie and Freddie could stall on the Senate floor, or face a veto from President Barack Obama, experts said on Thursday at the American Enterprise Institute (AEI).
A previous Senate bill that aimed to gradually remove Fannie and Freddie from the mortgage market failed to receive a floor vote this year. Critics said it would have made the system less stable by empowering a few large bank lenders and again leaving taxpayers on the hook if the mortgages default.
Taxpayers were forced to provide $188 billion in 2008 to save Fannie and Freddie.
Peter Wallison, an AEI fellow who favors eliminating Fannie and Freddie from the mortgage market, said it was unlikely that the housing finance system would be significantly altered until 2017 at the earliest. However, Republicans can now “play offense instead of defense,” he said.