GSEs Balk at Receivership Proposal

Senate Banking Committee Chairman Richard Shelby, R-Ala., wants to give a proposed new GSE regulator receivership powers, despite opposition from Fannie Mae and Freddie Mac."I hope these institutions are never insolvent, but I think you have to plan for the day they might be," Sen. Shelby told reporters after Freddie Mac chairman and chief executive officer Richard Syron and Fannie Mae chairman and CEO Franklin Raines testified before the committee. Mr. Syron said it would be a "mistake" to introduce receivership powers, and that it could spook investors who buy Freddie's corporate debt. A receiver has the power to push aside the senior debtholders, which "would be a huge problem," Mr. Raines said. Just talking about such changes could increase Fannie's cost of funds and raise mortgage rates, he warned. Sen. Shelby told reporters that the receivership language in the GSE bill (currently being drafted) could establish a priority for debtholders. Sen. Shelby also made it clear that he has no intention of limiting the growth of the government-sponsored enterprises. "We are going to create a strong, independent regulator with a strong board to advise them," Sen. Shelby said after the hearing. "If they are adequately capitalized, well-regulated, and well-run, let them grow."