Key Democratic lawmakers cautiously welcomed the Bush administration’s takeover plan for Fannie Mae and Freddie Mac but made it clear Monday that they hoped the move was meant to save the two mortgage giants, not bury them.
Sen. Christopher J. Dodd, Senate banking committee chairman, announced plans to hold a hearing in the near future on details of the bailout plan from Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke, which includes the removal of top management at both companies and the injection of up to $200 billion in taxpayer money over time to keep Freddie and Fannie from failing.
“There are still many unanswered questions about the administration’s plan, and Americans deserve to know if this unprecedented proposal will help keep mortgages affordable, stabilize the markets and protect taxpayer interests,” Mr. Dodd said.
Mr. Dodd; Rep. Barney Frank, Massachusetts Democrat and House Financial Services chairman; and House Speaker Nancy Pelosi of California all insisted that the goal of the rescue operation should be to preserve the two government-backed enterprises’ role in boosting the home mortgage market.
See related story: “Treasury takes over Fannie, Freddie”
The three were among a wide range of lawmakers, investors and lenders briefed by the Treasury Department in advance of Sunday’s seizure of the two firms.
Both presidential candidates, Democratic Sen. Barack Obama and Republican Sen. John McCain, also were given an advance briefing, because many of the most difficult decisions on the fate of Fannie Mae and Freddie Mac will be left to the next administration.
Mr. Paulson called the takeover a “timeout,” and White House spokeswoman Dana Perino said the move would give the next Congress and administration time to formulate a long-term reform.
Among the more extreme options: nationalizing both Fannie and Freddie under direct government ownership or breaking them up and selling their assets to private investors.
Mrs. Pelosi said she made it clear to Mr. Paulson that Fannie and Freddie should survive. Mr. Dodd warned against an “ideologically driven” agenda to eliminate the two enterprises.
The plan “must restore investors’ confidence in the housing market and allow Fannie Mae and Freddie Mac to continue their mission of providing access to affordable mortgages for lower- and middle-income Americans, and in a way that protects the interests of the taxpayers,” Mrs. Pelosi said.
Mr. Frank over the weekend praised the Treasury action because it was intended to “ensure the continued and stable functioning of Fannie Mae and Freddie Mac.”
Mr. Frank said the plan at first blush was not a “bailout” because the federal government would be first in line for repayment ahead of even preferred Fannie and Freddie shareholders in the event of further losses. U.S. banks and insurance firms hold the largest share of the mortgage giants’ preferred stock.
Mr. Dodd, in an interview Monday with Bloomberg Television, said part of his upcoming hearing will focus on how the crisis developed and why Mr. Paulson told the Senate Banking, Housing and Urban Affairs Committee in July that he did not think it was likely a takeover would be needed.
“Where were the regulators? Why weren’t people stepping up? How did this housing problem expand into the broader economic problems we’re seeing today?” he asked.
Some conservatives on Capitol Hill and private analysts said the Treasury action should serve as a prelude to getting the government entirely out of the business of underwriting or holding home mortgages.
David C. John, a financial expert at the Heritage Foundation, said both Freddie Mac and Fannie Mae remain undercapitalized and cannot be fixed with “minor changes.”
“It is time for the Treasury Department and Fannie and Freddie’s new regulator … to use their new and existing powers to put Fannie and Freddie into a receivership and break them up,” he said.