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Compass Point: What’s next for Johnson-Crapo now?

Plus: Expectations for Mel Watt’s first FHFA speech

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Now that six Democrat senators have withdrawn their support for Johnson-Crapo, what’s next for the Senate GSE reform measure?

The now troubled bipartisan bill would wind down Fannie Mae and Freddie Mac in the next five years, but now its future is uncertain – it may not even pass out of the the Senate Banking, Housing and Urban Affairs committee now.

Brief history: in late April, the markup was delayed to allow the bill’s authors Chairman Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, to garner more support amongst the committee’s members.

As HousingWire reported Thursday, Senators Charles Schumer of New York, Sherrod Brown of Ohio, Jeff Merkley of Oregon, Robert Menendez of New Jersey, Elizabeth Warren of Massachusetts, and Jack Reed of Rhode Island held a private meeting and agreed to pull their support for Johnson-Crapo.

A note to clients from Compass Point Research & Trading says that the markup will continue, but that Johnson-Crapo likely won’t make it out of committee to the Senate floor.

“Without the support of any of these Democrats it will be difficult for the legislation’s proponents to compel a floor vote. We expect the Johnson-Crapo package to be cleared by the Senate Banking Committee but continue to believe that a floor vote on the measure is highly unlikely. We remain committed to our view that there is <5% chance that GSE reform becomes law in this Congress,” the note says.

The next steps, Compass Point analysts say, is that the committee will markup the bill during the week of May 12.

“As detailed in the table below, we believe that Johnson-Crapo will clear the committee with either 12 or 13 of the 22 committee members voting to advance the bill. Senators Brown (D-OH), Warren (D-MA), Reed (D-RI), Schumer (D-NY), Menendez (D-NJ), and Merkley (D-OR) have all reportedly decided to vote against the Johnson-Crapo proposal which changes the dynamics for floor consideration of the bill. Although the Johnson-Crapo proposal will clear committee, we do not believe that it will receive a floor vote in 2014,” Compass Point says.

Compass Point also expects Federal Housing Finance Agency director Melvin Watt's May 13 speech won’t announce an immediate and seismic shift in FHFA policy, but rather a pause in the GSE contraction championed by his predecessor and the beginning of a slow march toward easier mortgage credit at Fannie Mae and Freddie Mac.

“We expect Director Watt – either through his speech or corresponding FHFA releases – to touch on at least 3 policy fronts that impact our coverage: (1) multifamily origination targets; (2) mortgage credit affordability for first-time home buyers; and (3) GSE risk-sharing transaction goals,” they said.

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