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Barclays: 4 reasons Johnson-Crapo is dead until post-election

Plus one reason it may be dead after that

Congress
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The GSE reform measure put forward by Chairman Tim Johnson, D- S.D., and Sen. Mike Crapo, R-Idaho, of the Senate Committee on Banking, Housing, and Urban Affairs, isn’t going to pass before election year is over, according to the analysts at Barclays.

Johnson-Crapo is one of three GSE reform measures on the Hill. The other two primary contenders are the House’ PATH Act and the Senate’s Corker-Warner.HousingWire has this side-by-side breakdown of the three measures.

On March 27, U.S. Rep. Maxine Waters, D-Calif., unveiled her own GSE reform plan that offers co-operatives as an alternative and an elimination of much of the free market system, but it has less chance than any of the other three.

Few in the industry or in Washington expect any real movement on GSE reform before the 2014 mid-term elections in November. This is despite the fact that the GSEs currently back 90% of mortgages, and the current structure is keeping private label capital out of the market.

Most in the industry want some kind of reform, but few are committing to supporting any of the main reform measures.

Barclays, meanwhile, offers its own thinking on why Johnson-Crapo isn’t going to be a 2014 thing.

1) No discrimination protection

"Several influential civil rights groups cited Johnson-Crapo’s lack of provisions to ensure the housing finance system is non-discriminatory."

2) The White House is running on empty

"The Obama administration has not yet spent significant political capital in support of the Johnson-Crapo bill despite issuing supportive commentary."

3) Support among progressives isn’t strong enough

"While key groups on the left remain engaged, the opposition is likely strong enough to deter progressives from pushing to get the bill to the Senate floor in 2014."

4) Lots to do and little time

"As another headwind, the Senate Banking Committee mark-up has been set for April 29, after Easter recess, leaving a smaller window for full Senate consideration."

“Accordingly, we now doubt this issue will pose a headwind to the housing stocks this year. Longer term, however, we believe the framework has been largely set for GSE reform in 2015,” Barclays reports.  

Barclays adds that the similarities between Corker-Warner, Johnson-Crapo, and the newly announced House Waters bill suggest that a general consensus for GSE reform exists.

However, given that the best quantitative early forecasts call for strong odds that the Republicans will gain control of the Senate, Johnson-Crapo's fate would appear to be entirely dependent on the outcome of the 2014 mid-terms, and not just being held up until then.

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