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Dispute Over Receivership Power Could Sink GSE Bill

Senate Banking Committee chairman Richard Shelby's effort to extend receivership powers to the new regulator for Fannie Mae and Freddie Mac is running into stiff opposition.

The National Association of Home Builders went on the offense last week, complaining that receivership powers could cause turmoil in the housing market, which depends on the government sponsored enterprises' ability to issue corporate debt to finance their purchases of mortgages.

"We are convinced that this will have a significant impact on the markets. It will impact Fannie and Freddie's debt issuance and ultimately impact the availability and cost of mortgage money," said NAHB chief executive Jerry Howard.

He noted that NAHB's mortgage roundtable of finance experts and lenders met recently and members expressed concerns that investors may unload their holdings of GSE debt or stop buying if the final bill allows the regulator to place a failing GSE in receivership.

Sen. Shelby, R., Ala., the banking committee chairman, is preparing to bring his GSE regulatory bill to the committee this week for a vote, possibly on March 30. Last week, the chairman began negotiations with Sen. Paul Sarbanes, D-Md., to gain the Democrat's support.

Mr. Howard stressed that he hasn't seen the legislative package that Sen. Shelby has developed to strengthen the regulation of the GSEs.

However, Sen. Shelby is very supportive of receivership powers despite the objections raised by the chairmen and chief executives of Fannie and Freddie at a Senate Banking Committee hearing.

The Treasury Department also maintains that receivership powers are a critical element of ensuring the GSEs have a strong, world-class regulator. Treasury secretary John Snow also believes receivership powers are important to make sure investors understand that GSE corporate debt is not guaranteed by the U.S. government.

The builders are among Fannie's major allies in Washington and Mr. Howard said he hopes a reasonable compromise can be worked out.

"There are zealots in this debate that have been unwilling to compromise. We are still prepared to do that and hope that they will consider coming to the table," he said.

Meanwhile, the Mortgage Bankers Association is supportive of Sen. Shelby's effort to achieve broad-based support for the GSE regulatory bill.

And the trade group is lobbying to get explicit language in the bill so that the new GSE regulator, when approving new GSE products and activities, will consider the impact on the primary market.

MBA chief lobbyist Kurt Pfotenhauer calls this a "bright line" test to ensure that Fannie and Freddie, as secondary market agencies, do not encroach on the primary market where private lenders conduct their business.

"We want the GSEs to be able to innovate. However, we want them to be accountable for their activities," Mr. Pfotenhauer said. In other words, MBA does not want the GSEs competing with lenders in the primary market.

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