WASHINGTON -- In trying to revamp how Americans finance their homes, key to about 20 percent of the U.S. economy, Sen. Bob Corker knows he has stepped into a special-interest minefield. Forces on all sides rank among the nation's most powerful lobbying interests and campaign contributors.
Corker, R-Tenn., has been working for nearly a year to garner support for legislation to make mortgage lending more dependent on private capital and less on the federal government. He would put out of business, within five years, the two government-sponsored entities that fuel most mortgage lending now -- the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
He would replace them with a new Federal Mortgage Insurance Corporation that would backstop private mortgage lending much like the Federal Deposit Insurance Corporation backstops banks.
However, private firms would shoulder the first 10 percent of any losses themselves.
Corker's bill has been adopted by the chairman of the Senate Banking Committee, Sen. Tim Johnson, D-S.D., and on Tuesday, the panel begins voting on possible amendments. The Obama administration also supports reducing the government's role in mortgages.
The Tennessee senator has taken on a subject vital to finance, insurance and real estate interests that spent close to $500 million lobbying Congress in 2013, according to the Center for Responsive Politics. So far in the 2013-14 election cycle, they have given nearly $149 million to federal candidates.
Corker said not everybody wants change.
"There are very, very wealthy investors at hedge funds in New York who want to kill this bill," he said in an interview.
It was a reference to various funds that own stock, especially preferred stock, in Fannie Mae and Freddie Mac. Fund managers see Corker's bill as ending any chance of shareholders ever seeing a dividend again. Since August 2012, the Treasury Department has been keeping all of the profits from the two "government-sponsored enterprises."
Corker said hedge funds want the status quo, with the federal government responsible of 90 percent of mortgage lending, "because they benefit." In addition to Fannie Mae and Freddie Mac, other agencies involved are the Federal Housing Administration and the Department of Veterans Affairs.
But the 100 percent government guarantee behind such lending, Corker said, "is not what the American taxpayers want."
One of those who represents Fannie Mae and Freddie Mac investors in Tennessee is Timothy Pagliara, chairman of CapWealth Advisors in Franklin.
Pagliara, who has supported Corker politically and helped him raise campaign money, couldn't be in more disagreement with the senator when it comes to his housing finance proposal. He describes the refusal to consider compensation for shareholders as an unconstitutional taking of their property.
"They started with a faulty premise that Fannie and Freddie had to go," Pagliara said. "I call it residential Obamacare."
Others contend the better-financed interests in the battle back Corker, especially Wall Street investment bankers who want a chance at the profits Fannie Mae and Freddie Mac now reap.
In contrast to their image at the height of the 2008 financial crisis -- as embodying all that was wrong with federal housing policy -- Fannie Mae and Freddie Mac both operate in the black today. Their combined profits for 2013 topped $130 billion.
"This would be huge for the financial sector. They are drooling," Dean Baker of the liberal Center for Economic and Policy Research, said of the Corker bill.
But Baker and other critics question whether a new agency, the FMIC, should continue the practice of taxpayers guaranteeing mortgages. Even a 90 percent guarantee would be pretty sweet for private firms, they contend.
"I can't believe we would be going back to that," Baker said. "Were these people not alive in 2008?"
Julia Gordon, a housing expert at the Center for American Progress, said that lawmakers should revisit a part of the bill that could let Wall Street engage in the same kind of risky practices that led to the housing crisis, leaving the taxpayer on the hook yet again. "You don't want to give the keys to the car back to the guy who drove it into the ditch," Gordon said.
But Corker said his bill "levels the playing field" by giving local lenders, like credit unions, access to many of the databases and other technologies Fannie Mae and Freddie Mac employ.
"It's going to create a tremendous amount of entrepreneurship across the country," the senator said.
But Pagliara wonders why Corker is in such a hurry to tinker with such a large chunk of the economy.
"They don't even know what's in their own bill," he said of Corker and his staff. "You screw up the finances of this and you shut down an entire industry."