Senate push to jumpstart GSE reform goes nowhere fast

Bill barring Treasury stake sale on hold over G-fees?

The latest effort in the Senate to advance a legislative package that would “Jumpstart GSE Reform” may be stalling.

Sen. Bob Corker’s, R-Tenn., “Jumpstart GSE Reform” package would reverse the recent Fannie Mae and Freddie Mac CEO compensation increase and prohibit the U.S. Treasury from selling or otherwise disposing of its shares in the government-sponsored enterprises without Congressional consent.

The bill was fast-tracked in the Senate, but now Sen. Sherrod Brown, D-Ohio, reportedly placed hold on the package. “Fast-track” legislative procedures are special procedures that Congress adopts to promote timely committee and floor action on a specifically defined type of bill or resolution.

The House version of the bill would prohibit Congress from using G-Fees for budgetary purposes. It explicitly prohibited the sale, transfer, liquidation, relinquishment, or divestment of the Treasury’s senior preferred stock holdings in the GSEs.

The reversal of the CEO compensation package, while contentious in the industry, isn’t controversial in political circles. But there is opposition to the prohibition on Treasury sales of its shares in the GSEs.

Further hampering it, Sen. Elizabeth Warren, D-Mass., who co-sponsored the original version, withdrew her support because it no longer includes the prohibition on using G-Fees for general purposes.

Earlier this summer, Congress came under fire when it tried to use G-fees for costs related to a comprehensive Transportation bill.

“Passage of the Jumpstart GSE Reform language would be a negative event for current GSE shareholders as it would foreclose on an administrative path for action and leave the issue squarely in the hands of Congress where it would surely languish until 2017 at the earliest,” says Isaac Boltansky at Compass Point Research & Trading, in a client note.

The Senate version is substantively similar to the House-passed version but may have certain limiting factors including a limited applicability to the CEOs only during conservatorship, Boltansky says.

Also at issue, the language at the center of the current unanimous consent package maintains the prohibition on Treasury selling its shares in the GSEs but does not include the G-Fee language.

“There is broad, bipartisan support for a legislative reversal of the recent GSE CEO compensation increase and we maintain our 70% odds of passage for this effort,” Boltansky says. “The prohibition on UST sales of its shares in the GSEs faces a more complicated path to passage, however, and we assign only a 25% probability for passage in this Congress.

“Our sense is that there are some Senate Democrats who see neither operational nor political upside to clearing the ‘Jumpstart GSE Reform’ language and the House seems disinterested in addressing any GSE issues beyond CEO compensation,” he says.

Earlier this year, Federal Housing Finance Agency Director Mel Watt authorized the GSEs to propose new executive compensation plans for the position of CEO that could have been as high as the 25th percentile of the market, or approximately $7.26 million a year.

If successful, that's a dramatic raise from their current annual salaries of $600,000.

After that, U.S. Representative Ed Royce, R-Calif., pushed a bill through the House Financial Services Committee with a 57-1 vote, the Equity in Government Compensation Act of 2015, to limit compensation packages for the CEOs at Fannie Mae and Freddie Mac.

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