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The Senate Banking Committee is preparing to vote next week on a plan to replace government-owned mortgage firms Fannie Mae (FNMA) and Freddie Mac (FMCC) as fading Democratic backing for the measure dims its chances of becoming law.

Six Democrats whose support is crucial agreed in a private meeting yesterday that they wouldnt vote for the bipartisan proposal to replace the finance companies with a government re-insurer, according to three people familiar with the meeting.

The six senators -- Elizabeth Warren of Massachusetts, Charles Schumer of New York, Sherrod Brown of Ohio, Jeff Merkley of Oregon, Robert Menendez of New Jersey and Jack Reed of Rhode Island -- agreed that the measure needed major revisions: The structure of the re-insurer seemed unworkable and the bill lacked sufficient support for affordable housing goals. Changing the bill to address those concerns could weaken Republican support for the bill.

The overhaul is effectively dead until 2015, said Isaac Boltansky, a policy analyst at Compass Point Research and Trading LLC in Washington.

Senate Banking Committee Chairman Tim Johnson, a South Dakota Democrat, and Senator Mike Crapo of Idaho, the top Republican on the panel, have the backing of six Democrats and six Republicans on the 22-member committee. However Senate Majority Leader Harry Reid has said the bill needs to attract more support from Democrats, who hold a slim majority in the chamber, before he will bring it to the floor for a vote.

The Johnson-Crapo package will still likely clear the committee, but without any of the six targeted Democrats signing on it is highly doubtful that the measure will get a floor vote, Boltansky said.

Shares of Fannie Mae rose to $4.24 at 10:30 a.m. in New York, up 2 percent from $4.16 at Thursdays close and 41 percent from $3.01 on Dec. 31. Freddie Mac was trading at $4.15, a gain of 1 percent from Mondays close and 43 percent for the year.

A delay in winding down the companies could benefit stockholders including Bruce Berkowitzs Fairholme Capital Management, hedge fund Perry Capital LLC, and Bill Ackmans Pershing Square Capital Management LP. Ackman, whose firm holds about 11 percent of Fannie Mae and Freddie Macs outstanding common shares, said May 5 that the stock could be worth $23 to $47 a share over time.

Fannie Mae and Freddie Mac, which buy loans and package them into securities, were taken into U.S. conservatorship in 2008 and received a $187.5 billion taxpayer bailout. Theyve since returned to profitability. Fannie Mae on Thursday reported net income of $5.3 billion for the three months ended March 31. Freddie Mac reported earnings of $4 billion for the period.

Sean Oblack, a spokesman for Johnson, said yesterday that the senator would continue to seek more support for the bill.

Continued here:
Key Democrats Join to Say No to Housing Finance Overhaul