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How Warren's Opposition to GSE Reform Could Help the Bill

APR 25, 2014 5:16pm ET
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Senate Banking Committee leaders want to win as much support as possible for their housing finance reform legislation before a panel vote on Tuesday, but it's possible that a failure to win over certain members could ultimately assist their cause.

Two high-profile progressives on the panel, Sens. Elizabeth Warren, D-Mass., and Sherrod Brown, D-Ohio, have publicly expressed significant concerns about the legislation in recent weeks, suggesting both are likely to vote against the legislation.

Sens. Tim Johnson, D-S.D, chairman of the committee, and Mike Crapo, R-Idaho, the ranking member, are under pressure to curry strong support for the bill if it is to have any chance of making it to the Senate floor this year. While the vote count is what matters, it's possible that a failure to attract backing from some of the more liberal committee members, particularly Warren, could actually give the bill more of a fighting chance.

"If you have a bill that the progressive darling of the Democratic Party is enthusiastically behind, it's going to cause conservatives to question whether this is really the moderate middle ground that its sponsors assert," said Jaret Seiberg, a policy analyst with Guggenheim Securities. "There can be real political upside if Elizabeth Warren is objecting to the bill."

The banking panel signaled on Thursday that it will forge ahead with its scheduled April 29 markup of the plan to unwind Fannie Mae and Freddie Mac and establish a new secondary market backed by a government guarantee in the case of catastrophic losses. The Johnson-Crapo bill draws on earlier work by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., to overhaul the mortgage finance market, which gained the support of 8 additional committee co-sponsors last summer.

Assuming the original coalition stays in place, the bill already has enough support to pass out of committee. But Johnson and Crapo will need to build on that number any way they can, though attracting additional votes is reportedly proving difficult.

"You've got the centrists on board already. The problem the bill always had was that it started in the middle based on politics, and it's had trouble extending much beyond that," said Mark Calabria, director of financial regulation studies at the Cato Institute. "When you start out in a completely compromised position, you don't give yourself much room to compromise from that."

Gaining favor from some of the more partisan members of the committee on either side of the aisle also creates its own set of problems. Lawmakers, particularly those facing tough elections, don't want to open themselves up to attack for working with divisive members of the opposite party.

"It's challenging for Republicans from certain states to vote 'Yea' for a piece of legislation on a historically controversial topic that is also supported by Warren or Brown," said Brandon Barford, a partner at Beacon Policy Advisors. "I can easily picture the attack ads from such a move."

In fact, a conservative seniors group opposed to the bill has already launched an ad campaign in that vein against several of the lawmakers committed to the bill. One ad against Crapo, for example, ties him to the White House, which is supportive of the legislation, and compares the mortgage finance overhaul to Obama's health care law, a continual punching bag for conservatives.

Beyond the strange-bedfellows problem, there's simply the issue of how far Johnson and Crapo would have to go to bring lawmakers like Warren and Brown on board. Both have expressed concern leading up to the vote about access for low-income families in the new system and the need for strong affordable housing provisions, along with worries about whether the reformed market would give the country's biggest banks more room to grow.

Depending on how such concerns were accommodated, the move could easily alienate current supporters on the bill or other Republicans who might be on the fence. The same can be said for gaining additional GOP support from more conservative committee members—significant efforts to do so could be problematic for keeping Democrats.

"The balance that those shepherding the legislation are trying to strike is right down the middle," said Jeb Mason, a managing director at Cypress Group. "I think it'd be a mistake to try and lunge right or left to capture the fringes, because you ultimately risk your broader bipartisan coalition needed to get the bill done."

At the same time, opposing the legislation could have benefits for both Brown and Warren as well. A spokeswoman for Warren did not respond to a request for comment, and a Brown spokeswoman said the lawmaker remains "undecided" about the legislation.

"This raises Warren's stature—right now her outreach and audience appeal lies with progressives and middle class people who feel they're getting squeezed or ripped off, but now she could appeal to a whole different constituency," said Barford. "Now she would be going out of her way to thumb her nose at the chairman and other Democrats in order to side with the civil rights groups that view the bill as inadequate to protect communities of color."

Brown, meanwhile, is one of the leading candidates to take over the Banking Committee next year when Johnson steps down, in the event that Democrats maintain control of the chamber. It's possible that he wants to reserve all of his options for next year, rather than get boxed into something like the current plan.

Still, some have raised doubts as to whether the issue would be a top issue of concern for the Ohio lawmaker at all, if he takes the chair.

"If he doesn't support the measure now, it's hard to see why it would be a priority for him if he becomes chairman in 2015," said Seiberg. "That's why the White House is fixated on trying to get the bill to the finish line this year. It could be a lot harder regardless of which party controls the Senate next year."

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