“It’s not going to pass this year,” Senator Sherrod Brown said today at a Bloomberg Government breakfast in Washington. I was surprised to hear this from Senator Brown today, I knew he was likely thinking such things but to say them publicly a few weeks before the markup is scheduled was a total surprise. I am sure there are others who have serious concerns with the bill but generally when 2 senators on a committee have introduced a bi-partisan bill the other members keep their criticism pretty quiet. This is the time when private discussions and the sponsoring senators reach out to their respective sides to see what changes are required to get it to pass the full senate. The fact that Sherrod has publicly, so bluntly written the bill off tells me that Johnson and Crapo have already rebuffed him on the changes he wants to see.
The introduction of the Crapo/Johnson bill has attracted a great amount of news regarding one of the 3 key concepts that one can no longer ignore. This is the gigantic role Fannie and Freddie play in our economy. An article in the Hartford Courant pointed this out “Critics say that by making conventional mortgages more expensive, these fees are partially responsible for declines in home purchases in recent months, especially among moderate-income, first-time and minority buyers. The add-on fees can raise interest rates for some borrowers from the mid-4 percent range to more than 5 percent.” This issue and others like it are becoming a flashpoint in the debate. The Johnson/Crapo bill has no mandate to protect the most vulnerable Americans ability to buy their own home. To add such language to the bill would cause an exodus of republican support and to will surely doom any chance of widespread democratic support. This is one of the primary reasons they delayed the mark up until April 29th. Behind the scenes, the civil war is underway, and Senator Brown offered a peak at its first casualty and reaffirmed my belief that the bill is surely to become a failed attempt to end Fannie and Freddie a failed attempt to end Fannie and Freddie.
In conversations with some pretty big DC players, I have drawn a few conclusions. The democrats already have a royal flush with Fannie and Freddie.The way the mortgage market is currently structured it goes to great lengths in protecting their key constituencies ability to get mortgages. If Fannie and Freddie remain they win so don’t expect them to agree to any reform that takes back decades of hard fought progress. They know that, in the devisive political climate, we are in any ground they give in regards to protections for the most vulnerable of Americans will never be regained. They can not just come right out and say that due to the way that Fannie and Freddie have been villainized so badly. Instead, they need to appear as being active participants in the process and in the end blame the failure to enact huge reform on the Republicans refusal to protect all Americans in this process. Privately many republicans realize that they stand no chance of getting a majority of their caucus to vote for any plan that keeps the government in the housing market at all. To add a mandate forcing banks to lend to people they feel un-creditworthy is a non-starter. They have been quietly warned that to vote for bills such as these could likely end their political careers.
I would like to offer a brief summary of possibilities of what we can expect in both the short term and long term. Short term I would expect that the closer we get to April 29th the more vocal the opposition will be in the senate speaking out against the bill. As I have said before, and Senator Brown concurred, it will likely get out of the committee but that’s where it will die. If indeed it does pass I think, the cheerleading from the bills supporters will be a little more muted than we have seen previously.Longer term I think the likely political result will be that Fannie and Freddie win by default. The inability of congress to agree on sweeping reforms will leave as the only option. Senator Brown also had this to say today, “That this isn’t as broken as it was, or it isn’t as broken as people think it is, doesn’t mean we defend it, doesn’t mean we don’t improve it, but we don’t do something so complicated,” ‘replacing Fannie and Freddie may not even be necessary ‘., There are those in DC who are waking up to the fact that the protections they would like to see enacted can be much easier done with Fannie and Freddie than trying to recreate the wheel.
In closing, I would just like to ask that everyone take a step back and don’t fall victim of not seeing the forest for the trees. Although it is important to keep abreast of the days news, it is just as important to take a step back and apply the days news into the big picture.
Keep the Faith!