White House Opposes Bill on Fannie Mae
By MARCY GORDON, AP Business Writer
WASHINGTON - The Bush administration came out Friday in opposition to Republican-written legislation that would tighten regulation of Fannie Mae and Freddie Mac because it would let Congress overrule a decision by regulators to take over either of the mortgage giants in a financial failure.
Treasury Secretary John Snow and Alphonso Jackson, new head of the Department of Housing and Urban Development (news - web sites), said the bill approved Thursday by the Senate Banking Committee "would have been a substantial step forward" except for the provision giving Congress that override authority.
Snow and Jackson said in a statement the provision "would significantly weaken one of the core powers needed for a strong regulator (and) ... could reinforce a false impression that the American taxpayer provides an implicit guarantee" to the government-sponsored institutions.
The bill would tighten the reins on the two companies and create a new federal regulatory body to oversee them. It cleared the Banking Committee on a 12-9 vote, mostly along party lines as the panel's Republican majority prevailed. The slim margin means Democrats probably could use the Senate's procedural rules to block eventual passage.
The House has not acted on similar legislation.
The Senate bill would allow the new regulatory agency to put Fannie Mae or Freddie Mac into receivership should they become insolvent and to sell off their assets, favored by the White House. An amendment written by Sen. Robert Bennett, R-Utah, curbed the regulators' power, however, by giving Congress the right to review such a move and up to 45 days to override it.
The debate over receivership was kindled in February when Federal Reserve (news - web sites) Chairman Alan Greenspan (news - web sites) warned that Fannie Mae and smaller rival Freddie Mac could pose a threat to the U.S. financial system should their ability to assume new debt continued unrestrained.
Political pressure for restraints on the companies' operations already had been building after a $5 billion accounting scandal last year at Freddie Mac.
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