More Scrutiny for Fannie and Freddie

The viability of finance organizations Fannie Mae and Freddie Mac is in the Congressional crosshairs again Wednesday. It's the first time Congress has looked at Fannie and Freddie since the Mortgage Bankers Association urged the government to wean the two organizations from federal control last week.

Rep. Paul Kanjorski (D-PA) is slated to chair a hearing that will study the "financial losses and progress of Fannie Mae and Freddie Mac." The hearing will investigate the causes of the major financial losses at the two government-created organizations and review their management practices since the economic meltdown of two years ago.

Assistant Treasury Secretary Michael Barr and Acting Federal Housing Agency (FHA) Director Edward DeMarco are scheduled to testify.

Fannie and Freddie received $150 billion in government relief money in 2008.

Kanjorski leads the subcommittee that oversees government-sponsored organizations, or GSE's, like Fannie and Freddie. This is the sixth hearing probing financing mechanisms for the U.S. housing system. Kanjorski says he wants to explore ways to get Fannie and Freddie on better economic footing.

In August, Kanjorski and two other Democratic lawmakers wrote to President Obama demanding that a new FHA director must be aggressive in protecting "taxpayers by recouping funds from the underwriters of faulty mortgages and the issuers of underwater securities purchased by Fannie Mae and Freddie Mac."The hearing comes as Kanjorski faces his second tough re-election campaign in as many cycles. In fact, Republicans are trying to suggest that Kanjorski is too cozy with Fannie and Freddie and convert that into a campaign issue.

After little opposition in 2004 and 2006, Kanjorski edged Republican Hazleton, PA, Mayor Lou Barletta by four percentage points in 2008. But the two are locked in another rematch this year as Republicans hope to knock off Kanjorski and win control of the House.

A recent Washington Post analysis rated the Kanjorski-Barletta contest as the 25th-most likely race to flip parties.

The National Republican Congressional Committee (NRCC) argues that Kanjorski accepted nearly $100,000 in campaign contributions from Fannie, Freddie and similar firms. It also points out that Kanjorski obtained prized tickets to the Washington Nationals first-ever baseball game in April, 2005 and attended the game with leading Freddie Mac lobbyists.

"It certainly raises the question and shows a clear conflict of interest," said NRCC spokesman Tory Mazzola."It's a serious question that needs to be asked. "Is he the right leader?"

But Kanjorski's camp fired back at the charges that the Congressman is too close to the organizations he oversees. His aides point out that the Pennsylvania Democrat questioned former Federal Reserve Chairman Alan Greenspan nearly a decade ago about whether he thought the U.S. housing market could face a pricing bubble. Kanjorski's staff also points to dozens of hearings Kanjorski has held studying the role and performance of GSE's like Fannie and Freddie. Furthermore, Kanjorski's team notes that he authored the so-called "Too Big to Fail" amendment in the recent Wall Street Reform law. That amendment would break up firms that grew exceptionally large or concentrated their assets.

Kanjorski had none of the GOP's accusations.

"Some of my colleagues may try to use today's hearing as an opportunity for political grandstanding. They, however, need to remember that people who live in glass houses should not cast stones," said Kanjorski in a statement. "Under the leadership of former Chairman Mike Oxley, we tried for several years to enact bipartisan legislation to improve the regulation of and rein in Fannie Mae and Freddie Mac. Unfortunately, many Republicans in Congress and officials in the Bush Administration blocked these efforts. Their delays allowed the housing crisis to fester into an ulcer."

Regardless, lawmakers anticipate lots of scrutiny of both Fannie and Freddie during Wednesday's hearing. Currently the government holds nearly four-fifths of the two organizations. That's just shy of the threshold required to fully incorporate them under the federal umbrella. And the Mortgage Bankers Association (MBA) believes the government needs to move Fannie and Freddie into a formal "receivership."

"The current situation is not unlike a brain dead patient who is being kept alive indefinitely by artificial life support," wrote MBA CEO John Courson and the incoming CEO Michael Berman in a letter to the FHA.