Big losses help GOP push for regulations on Fannie Mae, Freddie Mac 

A group of Senate Republicans are hoping that Freddie Mac's request this week for an additional $10.6 billion from the Treasury Department will pressure lawmakers to support an amendment to reform the company and its troubled sister, Fannie Mae.

Sens. John McCain of Arizona, Judd Gregg of New Hampshire and Richard Shelby of Alabama say their amendment belongs in the financial regulatory bill lawmakers are debating in the Senate, but no Democrats have pledged to support their proposal, partly out of fear of roiling the housing market. Supporters of the amendment say these government-sponsored enterprises, or GSEs, are an integral part of the system that led to the nation's economic crisis and will become an even bigger burden to taxpayers than the approximately $125 billion they have already cost them. "I think the administration is ignoring a grave situation by kicking the can down the road with the GSEs," Shelby told the Washington Examiner. "If we are dealing with regulatory reform, we have to do this. The GSEs were a big part of the financial debacle."

The amendment Shelby is co-sponsoring would rewrite the operating rules for the two companies, capping taxpayer liability at $400 billion and setting and end date for the government's conservatorship, after which the companies would be forced into receivership if they are not financially viable.

The Congressional Budget Office reported Fannie and Freddie are expected to cost the government $380 billion, but some financial experts say the expense will likely be higher. The amendment includes a long list of provisions, requiring Fannie and Freddie to pay state and local taxes and repealing a government mandate to provide loans for those who cannot qualify for conventional mortgages. The amendment would also require a 5 percent down payment for all new loans purchased, increasing to 10 percent within three years. "The time has come to end Fannie Mae and Freddie Mac's taxpayer-backed slush fund and require them to operate on a level playing field," McCain said.

It was unclear on Thursday when senators would debate the provision, one of dozens of amendments that will be offered during the debate on the financial reform bill. The amendment faces long odds even if it garners 51 Senate votes because it will have to be merged with a version from the House, where Democrats are likely strip it out.

House Financial Services Committee Chairman Barney Frank, D-Mass., opposes it. "I think you need a much more fundamental restructuring of housing finance than they have in that bill and that's going to take a bit longer to figure out," Frank said.

Frank said he wants to abolish Fannie and Freddie and replace them with a new government lending entity. He hopes to have legislation on it by the end of the year. "That day is never going to come," argued Mark Calabria, director of financial regulation studies at the libertarian Cato Institute. "They don't want to debate it, they want it to go away. It undercuts their argument that we are in this crisis because of Wall Street greed. This is their Achilles heel on this issue."

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