Real Estate

Democrats reject end to Fannie, Freddie support

(AP) –WASHINGTON — Senate Democrats have rejected a Republican proposal to end the government’s support of mortgage giants Fannie Mae and Freddie Mac.

The vote was 56-43. Instead, the Senate voted to instruct the Treasury to recommend how the government can end its relationship with the two housing finance companies.

The GOP plan also would have repealed the companies’ mandate to promote affordable housing. Republicans said the Democratic plan simply put off a decision that should be addressed in conjunction with new financial regulations. The taxpayer bill for rescuing the two stands at $145 billion.

Under the adopted proposal, Treasury has to consider winding down and liquidating Fannie and Freddie, privatizing the two companies or breaking them up into smaller companies.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below.

WASHINGTON (AP) — The Senate voted unanimously to peer into Federal Reserve decision-making Tuesday, authorizing an examination of the U.S. central bank’s emergency lending to financial institutions in the months surrounding the 2008 financial crisis.

Passed 96-0 as an amendment to a comprehensive financial regulation bill, the measure requires a one-time audit of more than $2 trillion in lending and the disclosure of all recipients of that assistance. A proposal for a broader review of the bank, known as the Fed, failed.

The vote came as the Fed ramped up its emergency program to keep a European debt crisis from spreading further. In a sign of the Fed’s sensitivity to congressional scrutiny, Fed Chairman Ben Bernanke on Tuesday promised weekly reports on its efforts to help protect the euro.

The Fed has become a target of public anger in the aftermath of Wall Street’s near meltdown in late 2008, taking blame for not seeing the coming collapse and for having what some perceive as too cozy a relationship with the nation’s largest institutions. That, coupled with its closely guarded lending, has created a bipartisan environment to get the Fed to open up.

“The Fed can no longer operate in the kind of secrecy that it has operated in forever,” said Sen. Bernard Sanders, an indpendent aand the main author of the audit amendment.

Sanders’ initial audit proposal _similar to one approved by the House last year — drew stiff opposition from the Treasury and the Fed, both of which feared that a broader examination would interfere with the Treasury’s authority to set interest rates and determine monetary policy.

Sanders agreed to narrow his proposal to a single audit carried out by Congress’ investigative arm, the Government Accountability Office, and covering a period beginning in December 2007. The GAO was specifically directed to examine potential conflicts of interest between the Fed and the banks receiving assistance.

The Fed’s short-term lending, designed to increase the liquidity of banks reeling from the crisis, grew dramatically at the height of Wall Street meltdown. At its peak at the end of 2008, the Fed’s lending totaled $1.16 trillion. Overall, the Fed’s balance sheet of loans ballooned to $2.3 trillion, more than double where it stood before the crisis struck

Momentum for a more transparent Fed grew last week after Sanders reduced the scope of the audit, and the Obama administration and Bernanke withdrew their earlier opposition. A proposal for a broader audit failed 62-37 Tuesday.

On Sunday, to help contain the European emergency, the Fed essentially reopened a program put in place during the 2008 global financial crisis under which dollars are shipped overseas through the foreign central banks. In turn, these central banks can lend the dollars out to banks in their home countries that are in need of dollar funding to prevent the European crisis from spreading further.

The program reopened on Sunday will expand the Fed’s balance sheet, economists say. However, the program poses little credit risk to the Fed because the arrangements are with other central banks, they added.

Meeting privately, Bernanke told lawmakers Tuesday that the Fed will provide weekly updates — broken out by central bank — on the amount of dollars shipped abroad. During the 2008financial crisis, this information was reported in aggregate, not itemized by participating countries. Such breakouts, however, were later provided in monthly reports.

The contracts with each participating central bank also will be posted on the Fed’s web site as soon as possible.

“You already have an influence on the conduct of the Fed in terms of the transparency issues,” said Senate Banking Committee Chairman Christopher Dodd, a Democrat.

Associated Press writer Jeannine Aversa contributed to this report.

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