Representatives John K. Delaney, D-Md., John Carney, D-Del., and Jim Himes, D-Conn., are putting together a housing finance reform proposal that uses private sector market forces to price risk while providing the security of a government guarantee behind the program.
"We believe we will get bipartisan support," Delaney told HousingWire. "It’s a complicated bill so we wanted to get it out so it can be looked at thoroughly."
Delaney said he plans to introduce legislation based on the proposal in a few months, after getting input from colleagues and industry leaders.
"This arose from an amendment I was proposing during the final markup for the PATH Act, but the chairman (Rep. Jeb Hensarling, R-Texas) was complimentary about it to the point I thought we should explore doing this on its own," Delaney said.
Delaney said he believes the proposal he is crafting will create a housing finance system that is fair to borrowers, lenders, and taxpayers.
"I believe government should be adding liquidity and capacity to the housing market but not taking on additional risk," he said.
The core of the proposal allows the government to expand the capacity of housing finance while allowing the private sector to price all of the risk. The reform package also is supposed to create incentives for private capital’s market share in housing to grow over time.
Most importantly, for those in the market, Delaney said it creates a path for Fannie Mae and Freddie Mac to be sold as independent companies without any government support or monopoly status.
The Delaney-Carney-Himes housing finance proposal creates a structure that enables the government to significantly expand the availability of capital in the insurance market, while ensuring the mortgage market is open and efficient – with private capital participating in the market and pricing all of the risk.
The plan adds discipline to the mortgage market, creates meaningful paths and incentives for private capital to flow into the mortgage market, and ensures that the mortgage market benefits from the liquidity provided by government participation.
According to Delaney, this structure creates a unique public-private partnership mechanism whereby private "first loss" capital of up to 5% is required in all mortgage securitizations, and the government – acting through Ginne Mae – in partnership with private capital will provide reinsurance of up to 95% of any mortgage securitization.
Specifically, Ginnie Mae will provide reinsurance and prospectively contract with private reinsurance companies to share in the government’s reinsurance policy. Both the private reinsurance carrier and the government will receive the exact same pricing and bear the exact same risk.
"To ensure a stable housing finance system, we must move past the current state to a new system that engages more private sector capital and private sector pricing of risk in partnership with an explicit government role in the provision of stabilizing liquidity to the market – this bill does that. Chairman Hensarling has shined an important spotlight on housing reform and understands, deeply, how important this debate is to the economy and our fiscal future," Delaney said. "There are a lot of good ideas out there -- I think this one strikes the right balance between public and private sector involvement in the housing market."