The Wall Street Journal editorial board has weighed in on Johnson-Crapo, and the verdict is they are not impressed.

The editors are pretty merciless, and the withering fire starts right in the very first sentence.

The Senate is finally moving to reform housing policy, more than five years after the financial panic that Washington did so much to cause. So it's a disappointment to see Washington returning to old habits in new political clothes.

Johnson-Crapo would wind down the GSEs Fannie Mae and Freddie Mac, which owned or guaranteed close to $5 trillion in mortgage assets, and which back in 2009 took a $188 billion bailout, submitting to conservatorship. The GSEs still back 80% of new mortgages and close to $6 trillion in mortgages.

The bad news is that the Senators want to replace Fan and Fred with multiple private mortgage bond issuers that would each also have a taxpayer guarantee. The supposed reform is that the issuers that get the new guarantees would have to raise a capital level of 10% against the value of their mortgage loans and would take that much in losses before taxpayers were on the hook.

The ambiguity of what happens next is noted.

Or the lenders could use a federally approved bond guarantor to insure against losses. The rub here is that the guarantors wouldn't have to reach the 10% capital level for a decade, and in the interim a new federal mortgage insurer and regulator is supposed to make sure the guarantors hold an "appropriate" level of capital. Expect lobbying by the Realtors to urge the feds to go low and slow.

Buried in the bill are provisions that create if not an affordable housing mandate, then certainly the next best thing.

While Johnson-Crapo claims to end Fan and Fred's "affordable housing" requirements, the bill is larded with provisions to encourage and subsidize loans to non-creditworthy borrowers while driving up the price of housing. The bill includes a new 0.1% tax on federally insured mortgages that will be distributed to housing slush funds across the bureaucracy.

They don’t fault the push for bringing in more capital, but rather the mechanisms.

A private market for housing capital is the right goal. But the political danger is that Johnson-Crapo's capital standards will be gamed or whittled down over time. As always.

…Under their proposal, the FMIC could raise the size of mortgages eligible for federal insurance as home prices rise. But it bars the agency from ever lowering this so-called conforming loan limit. Guess what would happen the next time a President runs for re-election?

The numbers are troubling as well. This also means taxpayers will be subsidizing borrowers who want mansions.

According to the National Association of Realtors, February's median sales price of an existing U.S. home was $189,000. Yet Fannie and Freddie offer mortgages up to $417,000 across the country and in high-cost areas they run as high as $625,500. That means that with 20% down a borrower can get taxpayer help when paying more than $780,000 for a house. In most places that's called a mansion.

…Subsidies make us all poorer by driving up home prices and taking capital away from more productive uses.

The bill contains everything needed for another artificial run-up in home prices – the very kind of bubble that got us in this mess in the first place. Worse, homeowners (goaded by real estate agents) look at homes as a perpetual money growth machine/ATM, rather than what it is.

As Michael Milken recently wrote in these pages, politicians have done great harm by encouraging Americans to view housing as an investment, rather than as a good to be consumed for shelter.

Johnson-Crapo is expected to have only a 10% chance of passing, but that depends on the mid-term elections in November, what with the Senate seriously up for grabs and the House pretty certain not to change hands.

To that end, they think the PATH Act deserves to be the contender to kill Fannie and Freddie.

The Senate should go back to the drawing board and come up with a reform that doesn't use the demise of Fan and Fred to create a dozen mini-me replacements that could grow to become the same monsters.