Democrats, Republicans differ on approach to mortgage firms

Nevada's congressional Democrats, up for re-election next month, agree that Fannie Mae and Freddie Mac must improve to protect taxpayers from future bailouts, but Silver State Republicans argue taxpayers would be off the hook if the government-sponsored companies were replaced by private interests.

The two government-sponsored enterprises own half of U.S. mortgages, or 31 million home loans worth $5 trillion. So far, the companies have received $135 billion in bailouts from the federal government and have repaid $13 billion, according to the latest projections.

The federal government on Thursday announced that the bailout of Fannie Mae and Freddie Mac will cost between $142 billion and $259 billion depending on home values over the next few years.

The debate in Congress over the Federal National Mortgage Association, known as Fannie Mae, and the Federal Home Loan Mortgage Corp., known as Freddie Mac, expected early next year, centers on whether taxpayer dollars should be put at risk to make home financing accessible to homeowners who wouldn't qualify otherwise. If banks know that government-backed Fannie Mae and Freddie Mac will acquire their mortgage debt, they're more likely to authorize loans they wouldn't otherwise.

In a prepared statement, first-term Rep. Dina Titus, D-Nev., said loan limits should be flexible because housing markets differ from region to region. Titus' opponent, former Republican state Sen. Joe Heck, did not respond to questions submitted to his campaign staff.

Meanwhile, U.S. Senate Majority Leader Harry Reid, D-Nev., in a statement, said he wants to help Nevada home­owners underwater on their mortgages because they paid too much before the real estate bubble burst, but he did not commit to higher or lower loan limits.

"I don't favor generous subsidies for those who can afford very expensive homes, but I remain concerned about the availability of credit for homes well above the median price," Reid said. "And because of the types of mortgage products that pervaded the Nevada market in the run up to the housing bubble, many homes that were considered higher-priced homes were in fact owned by middle-class families."

Meanwhile, Reid's Republican opponent, former GOP Assemblywoman Sharron Angle, in a statement, said the U.S. government shouldn't authorize any loan limits or caps as she points out Nevada property values have plummeted.

"Reform of Fannie and Freddie depends upon what financial conditions they are in coming out of receivership," Angle said. "If they are too weak financially to be viable corporations (not GSEs) they need to be dissolved, and thereby, allowing the private sector mortgage banking community to come in to acquire the assets of Freddie and Fannie and thereby continuing the mortgage underwriting services."

Both Democrat and Republican lawmakers agree Congress should have acted sooner in overhauling Fannie Mae and Freddie Mac because the issue is important to Nevada's economic recovery.

Angle and Sen. John Ensign, R-Nev., blamed Democrats for excluding Fannie Mae and Freddie Mac from reform legislation earlier this year, such as the Financial Regulation Reform Bill enacted over the summer. Reid faulted GOP lawmakers for not working in bipartisan fashion on such a significant problem.

"The taxpayer bailouts of Fannie Mae and Freddie Mac established a dangerous precedent for our country," Ensign said in a statement, "but the fact that taxpayers will remain on the hook for future bailouts because of inaction by Congress is even more frightful."

With regard to strengthening oversight at Fannie Mae and Freddie Mac to avoid future problems, Titus' said reform "must be a top priority" next year.

Reid said Fannie Mae and Freddie Mac are financial institutions and should be treated like banks, but he doesn't "have any hardened views about what a new agency should look like and will wait to see the administration's proposal."

Meanwhile, Ensign and Angle said the only surefire way to protect taxpayers from future bailouts is to replace Fannie Mae and Freddie Mac in the secondary mortgage market with private sector interests. In the secondary market, loans are bundled and sold to investors.

Angle went on to say that it's in­appropriate for Congress to oversee the firms, in part because the relationship has been "corrupted" by politics. For instance, she said, Fannie Mae and Freddie Mac spent $123 million lobbying Congress between 2001 and 2006.

"If Congress wants to pass legislation to provide a means by which lower-income buyers can buy a home," Angle said, "it should do so in a very trans­parent way by placing the low-income homebuyer program in the Federal Budget instead of hiding it in Freddie and Fannie using subprime and Alt-A loans with the end result costing tax­payers $150 billion and counting."

Rep. Shelley Berkley, D-Las Vegas, didn't provide many details, and her opponent, Republican Kenneth Wegner, didn't respond to questions.

"Fannie Mae and Freddie Mac play a role in the majority of all mortgages held in Nevada and nationwide, so we cannot shut them down and simply walk away," Berkley said. "For now, I continue listening to the debate and reviewing various legislative proposals related to reforming Fannie Mae and Freddie Mac."

Contact reporter Frank Geary at fgeary@reviewjournal.com or 702-383-0277.