This vote was on an amendment by John McCain, R-Ariz., that would have ended the federal government’s conservatorship of Fannie Mae and Freddie Mac within 30 days of the bill’s enactment. Conservatorship is a legal term that refers to a situation where a business entity is under the control of some other entity, usually as a result of a court order. In this case, Fannie Mae and Freddie Mac, two government-sponsored enterprises, are under the direct control of the federal government as its conservator, as a result of the 2008 financial meltdown. This was done because both of them were weighed down by so much debt that allowing them to default could have had even more disastrous consequences for the U.S. housing market.
The amendment was offered to a bill that aims to close gaps in financial regulations, strengthen oversight of consumer lending and more closely oversee certain kinds of exotic financial investments.
Another amendment by Chris Dodd, D-Conn., that simply would order a study of ending the conservatorship, was offered as an alternative to McCain’s amendment; it was approved (see vote 139).
Responding to criticisms that his amendment is “reckless,” McCain said “what is reckless is the status quo.”
“It is reckless for us to go to the American people and say we are fixing the problem that caused the financial meltdown and yet we are ignoring Fannie and Freddie. We are ignoring the trillions of dollars of toxic assets. And don’t worry, we will address it later on. That is what the distinguished chairman is going to say—we will address this later on. Later on? Later on? When we have this already done?” McCain said. “What the amendment says is that the conservatorship has to end in 24 months. We will give them 2 years to figure all this out.”
Dodd said McCain’s amendment doesn’t consider any of the implications of just getting rid of Fannie Mae and Freddie Mac, which together are the largest backers of home loans in the United States.
“I say this with all due respect, but the McCain amendment says that in 24 months we get rid of Fannie and Freddie. I don’t call that reform. They are just getting rid of something. What are the implications of just getting rid of Fannie and Freddie? The fact is, Fannie Mae and Freddie Mac, at this juncture, account for 96.5 percent of all funding for all mortgages today. The amendment could undermine the supply without establishing any alternative, and there is no alternative. It just says in 24 months you get rid of Fannie and Freddie. That is a wonderful conclusion, except for the fact that what you get for that—and I don’t make up these numbers—is higher interest rates on mortgages, declining values in properties, the possibility of eliminating the 30-year fixed rate mortgage, which only exists because, frankly, we have had the Fannie Mae and Freddie Mac mortgage program,” Dodd said. “This program needs to be fixed. There is no question about it. We need an alternative housing financing system. That is without question. But this amendment doesn’t offer any. It just says get rid of the one we have.”
By a vote of 43-56, the amendment was rejected. Every Republican present voted for the amendment. All but two Democrats present voted against the amendment. The end result is that the measure went forward without language that would have brought to an end the federal government’s conservatorship of Fannie Mae and Freddie Mac.