Story updated 12:10 p.m. ET
The Senate Banking, Housing and Urban Affairs committee is kicking the housing reform can down the road a week or so, delaying a markup of the Johnson-Crapo housing reform measure to enable supporters to get a few more votes after a two-week recess.
Johnson-Crapo is one of four GSE reform measures on the Hill. The other primary contenders are the House’s PATH Act, the House’s HOME Forward Act, and the Senate’s Corker-Warner. (The full report on the measures from the Structured Finance Industry Group can be read or downloaded here.)
“I am confident that if we held the vote this morning, we would have more than the minimum number of votes needed to pass it on to the Floor,” said Sen. Mike Crapo, R-Idaho, the ranking minority member and co-author of the bill. “Nevertheless, while I do not relish the idea of a short delay, I am pleased that a number of Senators believe with just a brief period of additional time to consider it, they will have the opportunity to productively join us in efforts to reform the current system.
“I look forward to working with my colleagues in the coming days, to listening to their questions or concerns to help us find a bipartisan consensus with even stronger votes,” Crapo said.
The four reform measures could have substantial impact on housing and mortgage rates.
David Stevens, president and CEO, said Johnson-Crapo has the votes to make it from committee already, 12-10, but that sponsors wanted other senators returning from a two-week recess to have more time to get on board.
"We expect the vote by the end of next week," Stevens said.
Should the Republicans take the Senate, as it appears they could at this time, it’s very likely Johnson-Crapo could be scrapped or modified in favor of something that looks more like the House PATH Act. But a more conservative measure in turn would face a roadblock at the White House.
Johnson-Crapo would unwind the role of Fannie and Freddie, replacing it with a model where financial entities would issue mortgage-back securities and be required to take losses before any government insurance relief is available.
“Housing finance reform remains the most significant piece of unfinished business from the 2008 financial crisis. Fannie Mae and Freddie Mac greatly contributed to the housing bubble, the financial crisis, and the dramatic government intervention that resulted,” Crapo said. “The current system is unsustainable, leaves taxpayers exposed to potentially trillions of dollars in liabilities, and has left the mortgage market in a state of limbo, forcing private capital out of the market.”
Despite having more bipartisan support than the other three GSE reform bills, there is no shortage of critics on all sides.
Ken Blackwell, a director of the bipartisan Coalition for Mortgage Security, said the delay isn't a matter of timing, but declining support.
“Today’s brief Senate Banking Committee markup session on the Johnson-Crapo bill is an indication of the growing opposition – across the political spectrum – to bad legislation. This bill will not reform Fannie Mae and Freddie Mac intelligently, it does not protect property rights and it actually keeps in place the mechanisms that could lead to another financial collapse," Blackwell said. “While short in duration, today’s statements from Senator Crapo and Senator Johnson still move us a step closer to invading property rights and establishing an ill-conceived, untested and risky system for housing and mortgages. This will only cause more opposition to mount. There’s a better way to wind down Fannie and Freddie, one that will win bipartisan support while protecting property rights and shareholders.”
A source in a Washington think tank tells HousingWire that lobbyists hired by hedge funds are going to see that Johnson-Crapo is watered down, though there's uncertainty to what degree.
GSE shareholders, meanwhile, want recapitalization and their shares before any reform.
Many fiscal conservatives and Republicans oppose the heavy hand government will play under Johnson-Crapo.More than two dozen free market organizations including the Competitive Enterprise Institute, the National Taxpayers Union, and the Club for Growth oppose the Johnson-Crapo bill.
The National Community Reinvestment Coalition and 300 other community groups sent a letter to senators Johnson and Crapo, outlining their concerns with the access provisions in the Johnson-Crapo housing finance reform legislation.