Congress may now finally be gearing up to reform government-sponsored enterprises Fannie Mae and Freddie Mac.
Senate Banking Committee Chairman Mike Crapo (R-ID) released an outline Friday for housing finance reform legislation. The outline incorporates elements of many plans and principles for housing finance reform legislation that have been discussed by legislators, analysts, stakeholders and thought leaders.
“We must expeditiously fix our flawed housing finance system,” Crapo said. “My priorities are to establish stronger levels of taxpayer protection, preserve the 30-year fixed-rate mortgage, increase competition among mortgage guarantors, and promote access to affordable housing.”
“I invite my Senate and House colleagues, the Administration and all interested stakeholders to work together to enact this critically needed reform,” he said.
Here are some of the goals for Crapo’s proposed legislation:
- Reduce the systemic, too-big-to-fail risk posed by the current duopoly of mortgage guarantors
- Preserve existing infrastructure in the housing finance system that works well, while significantly increasing the role of private risk-bearing capital
- Establish several new layers of protection between mortgage credit risk and taxpayers
- Ensure a level playing field for originators of all sizes and types, while also locking in uniform, responsible underwriting standards
- Promote broad accessibility to mortgage credit, including in underserved markets
“We have engaged in a robust process over the past several Congresses on housing finance reform, holding many hearings, briefings, meetings and negotiations,” Crapo said. “The time is now to resolve this issue and I look forward to working with my colleagues as we move forward.”
And the outline is already drawing support.
“The outline released today by Senate Banking Committee Chairman Crapo is a great reflection on the work that has been done to date by members of the committee, including the chairman, and takes into account some of the key lightning rod concerns of stakeholders,” said David Stevens, former head of the Mortgage Bankers Association and Federal Housing Administration.
“It draws a bright line between guarantors and banks,” Stevens said. “It limits the role of the guarantor. It provides for multiple private guarantors, reducing too-big-to-fail concerns. It protects the use of mortgage insurance on loan-to-values over 80%. It locks in a level playing field on pricing for all lenders and requires FHFA to approve all pricing. It takes into account the Ginnie Mae programs and its role as a securitization entity.”
Former Ginnie Mae president Michael Bright, who is now president and CEO of the Structured Finance Industry Group, also announced his support.
“A future state for housing finance should have clearly defined roles for who is taking on risk, private capital or the government,” Bright said. “It must also ensure that our housing markets work for all Americans. The current structure of conservatorship has helped our country to transition from crisis to economic growth, and the Federal Housing Finance Agency should be commended for the work it has done.”
“But an opportunity exists to make meaningful changes that enhance consumer access to credit, add financial stability guardrails, and ensure a more vibrant and liquid secondary market that does not put taxpayers at direct risk of loss,” he said. “In our view, a role for Congress is critical to effectuate these important changes.”
The National Association of Home Builders commended Crapo for his leadership on GSE reform.
“NAHB commends Senate Banking Committee Chairman Mike Crapo for taking this important step to move the debate forward on overhauling Fannie Mae and Freddie Mac, and the U.S. housing finance system,” NAHB Chairman Randy Noel said. “He has consistently taken a leadership role on this issue.”
“Sen. Crapo’s plan would maintain a limited federal backstop to the nation's housing finance system, a critical element recommended by NAHB to achieve meaningful housing finance reform,” Noel said.
The National Association of Federally Insured Credit Unions expressed its support, saying it looked forward to working with Congress toward housing reform.
“We appreciate Chairman Mike Crapo’s commitment to reforming our housing finance system, including the recognition of the need for fair pricing and access for financial institutions of all sizes,” NAFCU President and CEO Dan Berger said. “We look forward to working alongside Congress and the Administration to ensure that credit union interests are protected in any housing finance reform proposal that is ultimately enacted.”
The MBA also said it looks forward to working together for bipartisan housing reform.
“MBA welcomes the release of Chairman Crapo’s principles for housing finance reform as a significant sign of his continued commitment to work toward finally ending the conservatorships of Fannie Mae and Freddie Mac and ensuring a stable and liquid market – with an explicit, paid-for government guarantee – for both single-family and multifamily mortgages,” MBA President and CEO Robert Broeksmit said. “MBA looks forward to continuing to engage on a bipartisan basis with congressional leaders, the administration and other key stakeholders on reform efforts to create a system that supports borrowers, serves lenders of all sizes and business models and protects taxpayers.”