House Democrats released a plan for housing finance reform Thursday, offering a contrast to legislative efforts created by Republican lawmakers.

House Financial Services Committee Ranking Member Maxine Waters, D-Calif., is spearheading the initiative, which aims to keep the 30-year, fixed-rate mortgage alive, prevent disruptions to the housing market during a transition to a new finance system, force more transparency, ensure access to affordable housing and maintain access for all qualified borrowers that can sustain homeownership. 

"Committee Democrats take housing finance reform very seriously," Waters said in a statement.

She continued, "We are being very methodical in how we approach this immense undertaking to reform a $10 trillion market that makes the dream of homeownership a reality for millions of Americans. These principles are our first step in moving forward on this important issue."

The proposed 'critical core principals' come in response to the House Republicans proposed Protecting American Taxpayers and Homeowners (PATH) Act, which has set a goal to end the taxpayer-funded bailout of Fannie Mae and Freddie Mac while phasing out the enterprises within five years.

While both sides of the aisle have opposing reforms on various levels, the one issue they both agree on is creating a robust mortgage market that is required for a growing middle-class and broad economic growth.

One of the biggest oppositions between both sides is what mortgage products to keep in place. 

House Democrats want the traditional 30-year, FRM to stay as the main instrument of home access for potential buyers.

They believe the traditional mortgage tool provides certainty to homebuyers and concentrates interest rate risk within institutions — that can manage this risk through hedges — rather than borrowers.

Another principle includes ensuring that a government guarantee must be paid for by the private sector with an explicit, ex ante fee that is priced fairly, but provides adequate revenue to cover the risks.

This core initiative will make sure sufficient private capital is in place to take a first-loss position and prevent any one or more entities from presenting a threat to the financial system, Waters contends.

The proposed principals also call for transparency in underwriting and securitization standards so that borrowers, investors and regulators can evaluate products accordingly.

Meanwhile, House Democrats wants to ensure that downpayment requirements and credit score criteria do not cut out underserved borrowers that could sustainably own homes, including low- and middle-income families. 

"After exploring the issues related to housing finance reform with interested advocates, academics, and industry representatives at a series of working roundtables this year, we Democrats on the House Financial Services Committee, have agreed to a set of critical core principles for housing finance reform," Waters explained.

She concluded, "We will oppose any legislation that is inconsistent with these principles."

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