Seeking to “restart the much-needed dialogue around housing finance reform,” U.S. Rep. Jeb Hensarling (R-Texas), chairman of the House Committee on Financial Services, along with Rep. John K. Delaney (D-Md.) and Rep. Jim Himes (D-Conn.), on Thursday introduced a discussion draft of a bipartisan government-sponsored enterprise (GSE) reform bill that recycles some of the ideas of past proposals.
The proposed “Bipartisan Housing Finance Reform Act” would create a new program through Ginnie Mae that provides borrowers with access to conventional home loans and “maintains the full faith and credit of the federal government and protects taxpayer investment by requiring necessary private sector capital and accurate pricing of government risk,” the legislators say in a release.
The proposal incorporates numerous elements of the Partnership to Strengthen Homeownership Act, which was filed by Delaney, Himes and former Rep. John Carney (D-Del.) in 2014, and then re-introduced in 2015 with some slight changes.
Under the proposal, the federal government would direct Ginnie Mae to establish a new program called Ginnie Mae Plus, which would be charged with preserving the 30-year fixed rate mortgage. The program would offer borrowers the ability to gain access to conventional home loans by guaranteeing payment to investors of pooled loans backed by private credit enhancers through Ginnie Mae Plus.
The legislators say borrowers would benefit by having increased options to obtain a safe and affordable loan funded with a Ginnie Mae guarantee.
Importantly, the proposal would remove Ginnie Mae from the U.S. Department of Housing and Urban Development and establish it as an independent entity.
Ginnie Mae would gain the authority to guarantee eligible MBS backed by private insurance, provided the mortgages meet qualifications through Ginnie Mae Plus and the insurance is provided by qualified a private credit enhancer (PCE).
The proposal would also establish a new non-government, not-for-profit Mortgage Security Market Exchange to develop common “best practices” standards for the private securitizing, pooling, and servicing of mortgages, and operate a publicly accessible securitization outlet to match loan originators with investors.
It would also transform the Common Securitization Platform (CSP), developed by Common Securitization Solutions, a tech firm established by the GSEs, from a proprietary secondary market access point jointly owned by Fannie Mae and Freddie Mac – and built only for their benefit – to an open market utility operated by the Exchange.
Also important, the legislation would repeal the statutory charters for the GSEs, as established under their contracts with the U.S. government. The charters would be phased out after five years to help ease the transition – the goal being to ultimately re-privatize Fannie and Freddie, without the special privileges and advantages they have today under conservatorship.
“Today, on the ten-year anniversary of the federal takeover of the failed housing GSEs, Fannie Mae and Freddie Mac, we’re putting forward a bipartisan compromise to rid the toxic mess of systemic risk that consumes the housing market,” Hensalring says in a statement. “By repealing the GSEs’ charters, and permanently ending their monopoly, we can preserve much of what is demanded in the current system: liquidity, the TBA market, and the 30-year pre-payable fixed-rate mortgage.”
“Ten years after the financial crisis, our housing finance system remains broken,” says Delaney. “There’s still too much entity risk, not enough affordability, and we haven’t taken comprehensive action to make the system safer for taxpayers long-term.
“It’s imperative we deliver a solution and this discussion draft is a bipartisan blueprint for how we can substantially increase our investment in affordable housing, make the housing finance system more stable, protect the thirty-year fixed-rate mortgage, and preserve the successful GSE multi-family business,” Delaney adds.
Himes says the discussion draft “ensures that new homeowners will have access to the affordable, predictable financing options they need, makes access to affordable housing a priority, and shields taxpayers and our economy from future housing-related downturns.”
“This draft brings together market efficiency in pricing risk with government’s ability to provide scale to create a safer, more liquid housing market that preserves access to affordable housing for American families,” Himes adds.
As the legislators point out in the proposal, “In many ways, the disaggregated Ginnie Mae issuer model that the Bipartisan Housing Finance Reform Act contemplates as a replacement for the pre-crisis GSE model is already happening, and happening with private capital not taxpayer dollars.”