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Ads Claim Fannie, Freddie Overhaul Is ‘Obamacare for the Mortgage Industry’

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By
Nick Timiraos
CONNECT

A conservative group is labeling bipartisan proposals to overhaul Fannie MaeFNMA -0.25% and Freddie MacFMCC -0.50% “Obamacare for the mortgage industry” in a new $1.6 million ad campaign.

The campaign, which targets seven senators for their support of the overhaul, argues that the plans would harm shareholders of the bailed-out mortgage-finance giants. The position is noteworthy, since conservative organizations haven’t traditionally come to the defense of Fannie and Freddie.

The ad blitz offers the latest sign that a wide-ranging group of special interests, from liberals that support more explicit support of affordable housing to hedge-fund investors that have bet on the firms’ revival, could form an unlikely alliance to put the brakes on any revamp of the mortgage market.

The 60 Plus Association, the conservative seniors group that purchased the advertisements that began airing Monday, says it opposes current legislation to replace Fannie and Freddie because it mistreats the companies’ shareholders, including retirees.

“First, it was Obamacare. Millions of Americans saw their health plans canceled,” says one ad running against Sen. Kay Hagan, a North Carolina Democrat facing a tough re-election battle. “Now, Kay Hagan is teaming up with Barack Obama to take over the mortgage industry.”

The ad says replacing Fannie and Freddie would harm “ordinary investors” in the firms’ stock.

Ms. Hagan’s re-election campaign issued a statement Monday calling the ad a “scare tactic…from a group that has no credibility on retirement security.”

The ads target two other Democrats—Sens. Joe Manchin of West Virginia and Mark Warner of Virginia—and four Republicans—Sens. Mike Crapo of Idaho, Dean Heller of Nevada, Mark Kirk of Illinois and Jerry Moran of Kansas.

After Fannie and Freddie were rescued in 2008, hedge funds and other distressed-equity investors began buying up shares in the two firms as many other investors dumped the stock. They could make a windfall if Fannie and Freddie are allowed to recapitalize.

The government has injected nearly $188 billion in Fannie and Freddie to stabilize the firms and the U.S. mortgage market. Two years ago it began requiring the companies to send all of their profits to the Treasury as dividend payments.
The White House supports bipartisan legislation unveiled last month by the leaders of the Senate Banking Committee to replace Fannie and Freddie with a new system of federal mortgage insurance.

The Senate bill, which would maintain the Obama administration’s policy of sweeping away the firms’ profits, is “patently unfair,” said 60 Plus Chairman Jim Martin in a written statement. The group said it had purchased $1.6 million for the campaign, which was broadcasting ads on radio, tv, and online in seven states.

The organization said it doesn’t disclose its donors and rejected the idea that it was doing the bidding of distressed investors. “We pay no need to the hedge-fund community,” he said in the statement.

In recent years, Fannie, Freddie and federal agencies have backed as many as nine in 10 mortgages. Consequently, the claim that the Senate bill would amount to a government takeover of the mortgage market is “hardly honest,” said Jeb Mason, a Treasury policy adviser in the Bush administration.

“The point of reform would be to try to bring private capital back into the mortgage industry, not the opposite,” said Mr. Mason, who is now a partner at Cypress Group, a financial-services consultancy.

A separate advocacy group, called Shareholder Respect, is setting up meetings between shareholders and lawmakers next week on Capitol Hill. The group is led by Ralph Nader, a longtime critic of the companies who also owned their stock when the firms collapsed.

The group is also supported by Tim Pagliara, chief executive officer of CapWealth Advisors, a wealth management firm that invested in Fannie and Freddie shares after their collapse on behalf of its clients. Mr. Pagliara said he isn’t involved in the 60 Plus ad campaign.

Last month, Sen. Pat Toomey (R., Pa.) raised concerns in written questions to Treasury Secretary Jacob Lew that a local pension fund would be harmed by the Treasury’s bailout terms. It later turned out that the pension fund referenced by Mr. Toomey wasn’t invested in Fannie or Freddie shares. The county official said he had been introduced to the issue by a friend who is a lobbyist.

Supporters of an overhaul of Fannie and Freddie said the ad campaign is a sign that well-heeled investors in the companies are growing more organized.

“First they bring us an aggrieved Ralph Nader; then a fake grass-roots uprising,” said Jim Parrott, a former housing adviser in the Obama White House. “If the political system has a healthy bone left in its body, this increasingly strained campaign won’t work.”
http://blogs.wsj.com/moneybeat/2014/04/02/ads-claim-fannie-freddie-overhaul-is-obamacare-for-the-mortgage-industry/?mod=yahoo_hs