Ellen Seidman, a part-time senior fellow at the Urban Institute, says that Johnson-Crapo is something that most in the housing industry forgot could happen – a thoughtful bill crafted after “extensive and substantive hearings put forth on a bipartisan basis.
“It builds on the foundation laid last summer by Senators Bob Corker, R.-Tenn., and Mark Warner, D-Va., and their ten bipartisan co-sponsors, but it shows clear signs that its authors were listening carefully and benefited from last fall’s hearings, as well as from endless conversations with interested parties from across the political spectrum,” Seidman said.
The Urban Institute is a non-profit think tank that gathers data, conducts research, evaluates programs, and offers educational materials on housing, social and economic issues.
Text of the bipartisan reform initiative of the government-sponsored enterprises, penned by Senate Banking Committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho, is now available online. There was considerable reaction in housing finance last week. The legislative text can be found here
Johnson-Crapo would wind down Fannie Mae and Freddie Mac over five years and establish a system under which the government would—standing behind significant private capital—provide a paid-for-in-advance catastrophic guarantee backing standardized mortgage backed securities, thus providing the predicate for continuation of the long-term fixed rate mortgage at reasonable interest rates. But Johnson-Crapo also takes some major steps forward.
So why is the Urban Institute on board?
1) A holistic approach recognizing the roles of all parties
Seidman says the bill recognizes that the goal is to “facilitate the broad availability of mortgage credit and secondary mortgage market financing through fluctuations in the business cycle for eligible single family and multifamily lending across all” regions, localities, institutions, property types (including properties serving renters) and eligible borrowers.
“It is essential that we recognize that the contextual, legal and financial support provided by the government to the housing system is there to serve American homeowners and renters. Profitability of lenders, issuers, guarantors and servicers is a means to that end (although it was good to see non-profits’ role recognized also) and protection of taxpayers essential to its sustainability, but the goal is to serve the public who need shelter,” she says.
2) It recognizes the role of multifamily
More than one-third of American households rent today, and there is every indication that number will increase, at least in the near term. And affordable rental housing is in short supply.
“Building on the work of many over the past several years, the bill includes a faster transition plan for multifamily than for single family, retention of effective risk-sharing mechanisms currently in use, affordability requirements, and special attention to under-50-unit properties,” Seidman says.
3) Better, smarter regulation
“Johnson-Crapo sets up a stronger and more comprehensive regulatory system. While there will clearly be issues of coordination among existing regulators, state and federal, and the FMIC, the bill provides the FMIC with critically important powers over those who will participate in the new system,” Seidman says.
Seidman says there is work to be done getting the details right on the bill – she says that the capital provisions still are too lenient when securities issuers directly approach the government for a guarantee, and too strict for the well-diversified guarantors envisioned as the primary gateway to the guarantee—raising the real specter of another securities-led race to the bottom, this time with a government guarantee. And she says that the equal access provisions, while a definite improvement, still raise serious questions.