The Corner

Who Needs Congress?

I have a story on the home page today about the ongoing effort to use Fannie Mae and Freddie Mac to reinflate the housing bubble. A group of mortgage bankers is pushing the government to let Fannie and Freddie get involved in warehouse lending. One thing I didn’t mention in the piece is that the mortgage bankers want to keep Congress out of it. They want Fannie and Freddie’s regulator, the Federal Housing Finance Agency, to make the change without involving Congress. MBA vice president John Courson told the Wall Street Journal last week, “We just don’t have the luxury of time for going through the legislative meat grinder.”

As far as I can tell, Fannie and Freddie have no authority under their federal charter to guarantee warehouse lines of credit, so letting them do this without getting Congress to modify their charter would be… illegal, right? I asked Rep. Scott Garrett, a New Jersey Republican who sits on the House Financial Services Committee.

Garrett says he’s troubled by the fact that Fannie and Freddie think they could make this change without involving Congress. “They seem to think they have these exigent powers,” he says, “constrained only by the amount of lending that they get from the taxpayer. What is it up to, $400 billion now? That’s their only constraint.”

Garrett says he’s sympathetic to the problems the mortgage bankers are facing, but he’s not sure allowing Fannie and Freddie to expand their portfolios is the right way to go: “Exposing taxpayers to that added degree of risk… is that the direction we want to continue to be going at this point?”

He also says Congress can move quickly when it has to: “To give credit where it’s due, Barney Frank and Paul Kanjorski have shown their ability to schedule immediate hearings on these important issues, so it’s not a matter of our inability move expeditiously on these topics.”

I also asked the FHFA to comment on the legality of this proposal, but I was unable to get anything beyond a blanket statement that the agency was aware of the contraction in warehouse lending and was meeting with “a number of industry participants and others to try to develop solutions.” If you’re worried about the way the bailout seems to be growing unchecked, this is a story worth following.

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