Dodd seeks to quell panic over mortgage giants’ losses

Senate Banking Chairman Christopher Dodd (D-Conn.) on Friday sought to calm investor fears about Fannie Mae and Freddie Mac, saying the mortgage giants have enough capital and won’t need a federal bailout.

Dodd cited assurances he received from Federal Reserve Chairman Ben Bernanke, Treasury Secretary Henry Paulson and the companies’ chief executives that the two mortgage giants could cover their losses.

{mosads}"There's sort of a panic going on today, and that's not what ought to be. The facts don't warrant that reaction, in my opinion,” he said, adding that the bulk of the assets in the companies’ portfolios are 30-year fixed-rate mortgages.

“Fannie Mae and Freddie Mac were never bottom-feeders in the residential mortgage market. People ought to feel comfortable about that,” he said.

Both Fannie and Freddie’s stocks have slumped to more than 16-year lows in recent days, feeding speculation that that government will be called up to bail them out. The stocks rebounded somewhat after Dodd’s remarks.

The failure of one or both of the mortgage giants, which together hold $5 trillion in obligations, could shake financial markets around the globe and hurt homeownership in the U.S. The companies provide the bulk of financing to the home loan market; without them mortgage rates would surely spike.

Dodd said that, in discussions with administration officials, he learned that they are considering ways to extend a lifeline to the mortgage giants.

He cited one possible solution to quell the panic: opening the Fed’s discount window to the companies to provide them a line of credit.

Dodd stressed, however, that administrative action did not appear imminent, as the companies are not in need of government aid.

He and Senate Majority Whip Dick Durbin (D-Ill.) urged the swift passage of legislation pending in Congress that would strengthen the GSEs’ regulator.

Durbin, who joined Dodd at a news conference Friday, blamed Republicans for blocking for three weeks the bill, which cleared a penultimate hurdle in the Senate on Thursday. He stood next to a chart that said the U.S. is experiencing 8,427 foreclosures daily.

"Unfortunately, we have faced a series of procedural slowdowns and obstacles from the other side," Durbin said. "Every day we have been stalled in the Senate has taken its toll on the American economy."

The legislation surmounted a penultimate hurdle on Thursday when senators agreed to a procedural vote, 84-12, that sets up final passage.  

But the bill still has a long path to the president’s desk. The Senate will vote once again today before the legislation can be sent to the House, which will almost certainly make changes, potentially sending it back to the upper chamber.

Don Stewart, a spokesman for Minority Leader Mitch McConnell (R-Ky.), said if Democrats were serious about solving the housing crisis, they would call on House leaders to accept the Senate bill without amendments. Otherwise, Stewart said, the bill could be caught up in an endless ping-pong cycle.

Dodd expressed hope that the House will accept the bill as is, citing his talks with House Financial Services Chairman Barney Frank (D-Mass.). But Dodd said, "the realities are that may not happen."

Other lawmakers sought to quell the investor panic about Fannie and Freddie. Frank on Thursday said the GSEs were “well-capitalized.”

Rep. Paul Kanjorski (D-Pa.), who heads the Financial Services subcommittee on capital markets, said Friday that both Fannie and Freddie have “sufficient capital and liquidity”, citing a discussion with the GSEs’ regulator.