When U.S. Rep. Barney Frank announced last month his interest in possibly abolishing mortgage giants Fannie Mae (FNM: 1.01, 0.01, 1%)  and Freddie Mac (FRE: 1.23, 0.03, 2.5%), it was a stunning reversal of his years-long support of the two mortgage associations.

For two decades, Frank championed the two agencies’ mission of increasing access to affordable housing and has been an unabashed defender of their role in the housing market

Indeed, Frank has publicly defended their fiscal stability and independence repeatedly over the years.

In 2003, the Massachusetts Democrat famously dismissed the prospect of issues at the two government sponsored enterprises as they are known, calling them “fundamentally sound financially.” Later that same year during a hearing of the House Financial Services Committee on a proposal to develop a regulator for the GSEs, Frank stressed that he wanted the agencies to remain independent enough to continue their mission of providing affordable housing. He said the agencies posed no financial risk to the government, adding that rather than see them over regulated, he would rather they “roll the dice…towards subsidized housing.” In July 2008, Frank repeated his support of their financial health, advising that the two agencies were “fundamentally sound,” adding that while they had problems, “their prospects going forward are very solid.”

Fast forward a couple months and the two agencies were near collapse and being taken over by the federal government at a cost that has grown to more than $100 billion and is likely to go even higher.

To many, Frank is the poster child – alongside mortgage brokers – for the plight of the housing market. So, why the sea change on the part of Frank, seen in some circles as the architect of the mortgage collapse because of his unabashed support for the agencies and their lax lending standards? Perhaps more importantly, can he still be trusted to lead the reworking of the two GSEs?

“It wasn’t just that he downplayed the risk; he created the risk,” said Charles Calomiris, a professor in Columbia Business School’s economics department and a visiting scholar at the conservative American Enterprise Institute for Public Policy Research. “Fannie and Freddie had a huge exposure to subprime and alt-A mortgages, and that came from the initiatives that Barney Frank championed.”

His goal now, said several political analysts, is to distance himself from those policies, and abolishing the GSEs is a good first step.

“Rightly or wrongly, he has been made sort of the fall guy for the collapse because he was a supporter,” said Fred Bayles, director of the Boston University School of Communications statehouse reporting program. “I suppose he is looking for a little cover and he may also be looking at this in terms of the fact that times have changed and the mortgage world is a lot different than it used to be.”

Bayles said the recent upset election of Republican Scott Brown to the Senate seat held for decades by Ted Kennedy has Frank and other Democrats rethinking their stance on several issues. Brown won the race in what was believed to be a backlash vote against several policies of the Obama administration.

“He changed his point about Fannie and Freddie and a cynical person would suggest that he is doing that because they are now the focus of at least some anger over the financial mess and specifically the mortgage problem,” Bayles said.

Richard Parker, a senior fellow at the Shorenstein Center, part of Harvard University’s Kennedy School of Government said Frank’s reversal is likely the result of some political horse trading going on behind the scenes. Frank is smart enough to know the political winds have changed, so changing direction may be the best way to gather some political chits for the future.

“I think Barney is looking at them and thinking ‘we don’t have a political environment where we can get regulation. If I go to bat for these two and get them back up and running with $50 billion of federal funds and they tank again I’m ruined. If I agree to steady dismantling of them I’ve got some aces in my hand in this poker game,’” he said.

Others are more cynical in their assessment of Frank’s motives. In the wake of the financial crisis, Democrats have become the standard bearers of the financial reform movement. Efforts at reining in executive pay and proposals to tax Wall Street trading have garnered the party support from voters hammered by the crisis.

Frank’s move may be an effort to further tap into that angst, said Larry Sabato, director of the Center for Politics at the University of Virginia and author of several books on the political process.

“One of the overriding political themes this year is populism, and the two parties are in a race to corner the populist market,” Sabato said in an e-mail. “To most people outside the Beltway, Fannie Mae and Freddie Mac look like the very epitome of insider-dom, and thus they make a good target in 2010.”

No Sea Change?

 A spokesman for the House Financial Services Committee, which Frank chairs, said the Congressman has pushed for and supported several efforts to reform the agencies, including one championed in 2005 by Rep. Mike Oxley (R-OH), who has said the Bush administration stood in his way. Franks voted to pass that bill through committee, but voted no on the House floor when the bill was amended.  According to the spokesman, Frank has known since the crisis began that a change in structure was necessary.

“He has said many times that the current structure of Fannie and Freddie is not sustainable and we’ll have to take a look at the framework for housing finance going forward,” said spokesman Steve Adamske.

Asked to respond to reports that Frank has stood in the way of reform at the two mortgage agencies since as far back as 1992, including one in 2000 that Frank reportedly dismissed, saying there was “no federal liability there whatsoever,” Adamske said Frank’s position has long been distorted by conservatives.

“It’s a conservative notion that he is the one who prevented the further regulation of Fannie Mae and Freddie Mac and that’s just not true,” he said.

Instead, Frank has pointed out that he spearheaded a 2007 effort at reform that was passed by the House.

But some of his colleagues on the Financial Services Committee remember Frank’s stance on the two agencies differently. Rep. Scott Garrett, (R-NJ) said Frank’s recent statement is a 180-degree shift from the past.

“Having been there I know he has been one of the leaders of the opposition to true reform and certainly to dismantling the GSEs from day one,” Garrett said. “He is right when he says there has been Republican opposition too, but whether in the majority or the minority he was the point man in saying we should not go as far as myself and others have advocated. He has been saying no in committee and no on the floor.”

The problem Frank could face now, Calomiris said, is outrunning his years-long support of the GSEs long enough to lead his committee – and later the full House – to reform them.  

“He can’t really afford to attract much attention to himself on this because if he does there is a long list of quotes and actions that are embarrassing to him,” Calomiris said. “He does not want this to be the topic of conversation for long.He wanted it on the record that he is for reform and now I think he wants to let that conversation sit for awhile.”

Garrett said it remains to be seen whether Frank and the committee continue efforts to reform or abolish the GSEs or whether his recent comments were a smokescreen to simply change the names but keep the structure. In public comments, Frank has set no timeline for the abolishment of the agencies.

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