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The affordable-housing crisis in the country is real. Ask those who jumped into the housing boom with risky loans and who are now looking at delinquencies or foreclosures. The downturn is drawing attention from Capitol Hill. Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, has introduced legislation aimed at reforming mortgage-lending companies such as Fannie Mae and Freddie Mac, a move he believes will help remedy the crisis. And late last week, Sen. Christopher Dodd (D-Conn.), chairman of the Senate Committee on Banking, Housing, and Urban Affairs, pledged to introduce a bill to tackle the issue of predatory lending, which will be front and center when homeowners begin to face mortgage woes this year. Frank’s measure — the Federal Housing Finance Reform Act of 2007 — would create an independent regulator (similar to that of banking regulators) that would manage an affordable-housing fund. The fund would receive contributions from mortgage lenders, including government-sponsored enterprises (known as GSEs) such as Fannie Mae and Freddie Mac. The funds would be doled out to states, which would in turn provide financial support to low-income home buyers. The call for greater regulation of GSEs arose from the $10.8 billion accounting scandal that rocked Fannie Mae in 2004. The Office of Federal Housing Enterprise Oversight, the body that regulates Fannie Mae and is funded through assessments of Fannie Mae and Freddie Mac, had alleged widespread accounting errors in the company. The scandal led to the ouster of Fannie Mae’s chief executive. “We’re in favor of it,” says Jerry Howard, executive vice president and chief executive officer of the National Association of Home Builders, of Frank’s new legislation. “We feel it’s just another way of prodding the GSEs to pay more attention to their mission, which is affordable housing.” Adds Steve Berg, vice president for programs and policy at the National Alliance to End Homelessness, “We are trying to be in contact with the various staffers who are working on this, just to let them know how this would affect housing affordability for low-income people.” Groups such as Berg’s see the new measure as an opportunity for GSEs to set aside some of their corporate profits for the construction of new housing. Additionally, there’s a provision in the legislation that would give priorities for projects in the hurricane-stricken Gulf Coast region. Although many housing associations and coalitions have lauded the new legislation as long overdue and are working actively to pass it, it has received some criticism from Fannie Mae. According to the bill, which is scheduled for a markup this week, mortgage lenders would have to contribute 1.2 basis points of their total outstanding mortgages (portfolios and securitized) to the fund from 2007 to 2011. In his March 15 testimony before the House Financial Services Committee, Fannie Mae President and CEO Daniel Mudd said that although his company supports the creation of an affordable-housing fund, it wants to be able to manage the fund itself. Additionally, Fannie Mae objects to a temporary capital surcharge, as stipulated by the bill. This provision would allow the new regulator to jack up Fannie Mae’s capital requirements to make sure it has cash to back up its lending activity. The Treasury Department is also backing Frank’s legislation. Late last year, Treasury Secretary Henry Paulson worked behind the scenes with the congressman on the legislation, which is expected to help not only homeowners in trouble but also first-time home buyers. According to a 2003 study by the U.S. Department of Housing and Urban Development, 5.1 million American households are made up of renters who receive no government assistance but make less than 50 percent of their area’s median income and pay more than 50 percent of their income for rent and utilities. Fannie Mae may have a hard time defeating provisions of the bill, which has strong bipartisan congressional backing and support from the Bush administration. It is expected to clear Frank’s committee and reach the House floor. Accordingly, the company has pulled together its small lobbying team to wage a fight against any legislation that would include the affordable-housing-fund and capital-surcharge provisions. Meanwhile, the bill’s fate in the Senate remains in limbo, with Banking Committee Chairman Dodd distracted by a presidential bid and the No. 2 Democrat on the committee, Tim Johnson of South Dakota, recovering from brain surgery. Republicans, such as Sen. Richard Shelby (R-Ala.), who is the ranking member of the Banking Committee, are opposed to an affordable-housing fund. And that opposition may just serve Fannie’s interests: It’s led to lobbyists and Hill staffers saying Fannie Mae might be able to ride this one out. ROCKED BY SCANDAL The Federal National Mortgage Association, more commonly known as Fannie Mae, is one of the more curious breeds to inhabit the American marketplace. Although chartered by Congress, it is considered a quasi-government entity — private, but partially funded with government money, similar to Amtrak, the John F. Kennedy Center for the Performing Arts, and the Smithsonian Institution. In recent years, it has been rocked by internal scandal. In late 2005, Fannie Mae began scaling back its once-massive lobbying arm, laying off 20 grass-roots lobbyists and publicists in its five regional offices. A year later, Fannie Mae terminated its relationships with a significant number of outside counsel, including Clark & Associates, Larson Stewart Myrick & Link, McSlarrow Consulting, Miller Hamilton Snider & Odom, and Public Strategies. In 2004 the home-mortgage company spent $2.3 million on outside counsel, compared with $1.7 million in 2006, according to Senate disclosure records. Yet in-house spending on lobbying climbed slightly, to $10.2 million last year from $8.9 million in 2004. Fannie blames that on administrative costs. Fannie won’t disclose exactly how many in-house lobbyists have jumped ship, with a spokesman calling it a “personnel matter.” The mortgage lender lost Republican Nathan Gatten, who was a vice president of government affairs, last spring. Gatten’s Democratic counterpart, William Daley (who shared Gatten’s title), left last January. Replacing Daley was Corey Alexander, a former chief of staff to current House Majority Leader Steny Hoyer (D-Md.). Although the company has a solid team of Democrats, it is looking to hire a new Republican vice president who could give it more leverage with Republicans who support the oversight bill. Republican Mike Thompson, another vice president of government affairs, left recently, leaving Reagan Anderson, director of government relations, and Duane Duncan, senior vice president of government relations, as the sole Republicans in-house. (David Bohley, also a Republican, also remains in-house but mostly deals with industry affairs.) Even if the House passes the bill, and it is by no means certain that it will, it’s unclear what the Senate will do. Fannie Mae currently has lobbyists working the Senate, including Democrats Jeff Forbes with Cauthen Forbes & Williams, Steve Ricchetti with Ricchetti Inc., and Jeffrey Peck at Johnson, Madigan, Peck, Boland & Stewart Inc. “It’s so hard to move a GSE reform bill,” says a former Hill staffer of the Herculean effort ahead in the Senate and Fannie Mae’s chances of stopping it. “They don’t have to do a lot to derail it.”
Joe Crea can be contacted at [email protected].

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