Experts weigh in on housing reform at House hearing

Express support for the Bipartisan Housing Finance Reform Act of 2018

Friday, the House Financial Services Committee held a hearing titled A Legislative Proposal to Provide for a Sustainable Housing System: The Bipartisan Housing Finance Reform Act of 2018.

During this hearing, a group of experts from the housing industry gave their opinion on the bill including U.S. Mortgage Insurers President Lindsey Johnson, Mortgage Bankers Association President and CEO Robert Broeksmit, who testified in favor of the bill, Community Home Lenders Association Vice President Don Calcaterra, Tower Federal Credit Union President and CEO Rick Stafford, who testified on behalf of the National Association of Federally Insured Credit Unions, National Association of Home Builders CEO Jerry Howard, Housing Policy Council President Edward DeMarco, National Low Income Housing Coalition President and CEO Diane Yentel, National Association of Realtors President-Elect Vince Malta, Financial Markets Distinguished Senior Fellow Alex Pollack and The Heritage Foundation Director of the Center for Data Analysis Norbert Michel.

The experts weighed in on their opinion as to what is needed for housing finance reform, and their opinion of the housing finance reform bill, which was introduced by Committee Chairman Jeb Hensarling, R-Texas, and Rep. John Delaney, D-Md.

The bill would repeal the charters of Fannie Mae and Freddie Mac and transition to a system that allows qualified mortgages backed by an approved private credit enhancer with regulated, diversified capital resources to access the explicit, full government securitization guarantee provided by Ginnie Mae

USMI testified that it supported the bill, but gave several recommendations that it said could strengthen it.

Recommendation 1:

Johnson explained that in order to better protect taxpayers and promote stability in the conventional market the discussion draft should require loan-level credit enhancement issued at the time of origination.

She also stressed that protection should be provided by entities available through economic cycles in order to promote stability. And to better protect taxpayers, a government guaranty should be conditional on private capital covering all but remote credit loss, drawn only in catastrophic scenarios.

“To achieve this, it is essential that as a condition to receive the government’s explicit guaranty, all loans must be credit enhanced—through a combination of a borrower’s equity and first loss risk protection from an entity-based credit enhancer—to cover all expected losses,” Johnson said.

Recommendation 2:

Johnson said that in order to protect taxpayers, the discussion draft should establish a coordinated and consistent housing policy between conventional and government-insured markets. She said the discussion should include FHA reforms.

Recommendation 3:

Finally, Johnson said the discussion draft should establish a level playing field and increase transparency and accountability. She advocated that the FHFA should set comparable standards for participation of all private credit enhancement in the market place using a transparent Administrative Procedure Act process.

In prepared testimony, NAFCU’s Stafford acknowledged positives of the proposal, “including the requirement of strong capital standards, a guaranteed cash window for small lenders who are permitted to retain the servicing rights on their loans, the maintenance of a vibrant [Federal Home Loan Bank] System, and the preservation and enhancement of credit risk transfer transactions and the [Common Securitization Platform].”

NAHB also supported the bill, saying it was looking forward to working on it with Congress.

“We support many aspects of the Bipartisan Housing Finance Reform Act of 2018, and are especially pleased that the draft legislation includes an explicit government backstop that assures market participants that the federal government will maintain stability, keep credit flowing and make investors whole in catastrophic circumstances,” NAHB CEO Jerry Howard said in his testimony before the committee. 

But not everyone was in favor of the bill. During the hearing, CHLA’s Calcaterra raised concerns over the bill including:

  • Counterparty risks under a Ginnie Mae Model could make it harder for small and mid-sized independent mortgage bankers to securitize GSE loans
  • Ginnie Mae does not have the infrastructure to handle such a significant increase in volume
  • Transition risk to a Ginnie Mae model would be significant
  • Multiple GSE guarantors are not necessary and could harm smaller lenders

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