A housing finance reorganization bill introduced in the House of Representatives Thursday would liquidate government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, replacing them with a securitization platform, and limit government mortgage guarantees.
The proposed Protecting American Taxpayers and Homeowners (PATH) Act, introduced by Republican leaders of the House Financial Services Committee, aims to create a sustainable housing finance system by ending the taxpayer-funded bailout of the GSEs, liquidating them within five years, increasing competition in the housing finance market and providing consumers with more mortgage products to choose from.
Spearheaded by House Financial Services Committee Chairman Jeb Hensarling, the bill is being viewed as a counterproposal to a bipartisan bill introduced last month by a group of senators led by Tennessee Republican Bob Corker and Virginia Democrat Mark Warner. However, unlike the Senate bill, the PATH Act does not include any government guarantee for mortgages securitized through the platform. It would guarantee only loans insured by the Federal Housing Administration and similar agencies.
This is in contrast to the bipartisan Senate bill, which would replace the GSEs with a government reinsurer and force banks to hold capital of 10% of the principal of the underlying securities to cover any first losses. In addition the bipartisan bill would allow the government reinsurer to cover a greater share of the losses in the event another downturn threatens credit availability.
"House Republicans are committed to fixing the failed housing finance system that required the biggest taxpayer-funded bailout of all time – nearly $200 billion for Fannie Mae and Freddie Mac,’ Hensarling said in a statement. ‘America needs a housing policy designed for homeowners and taxpayers – not for Wall Street and the housing industry. America needs a housing policy designed to give every American who works hard and plays by the rules both opportunities and choices to buy a home they can actually afford to keep.’
The House bill is not expected to have support in the Democrat-led Senate and has yet to attract broad support among House Republicans.
It does, however, have the support of key industry trade groups including the Mortgage Bankers Association, which has been a strong proponent of reforms that would liquidate the GSEs, infuse more private capital into secondary mortgage market, and increase credit availability for borrowers.
‘The release of the PATH Act, along with the recent introduction in the Senate of the Corker-Warner GSE reform bill, means that the boundaries of the debate about the proper role of the federal government in the housing finance system have been set,’ the MBA said in a statement. ‘[The] MBA is well positioned to continue to play a critical role in this debate, and we look forward to working with the leadership and the members of the House and Senate committees to ensure that any final bill creates a vibrant, competitive secondary market that works for lenders of all sizes and business models to support both the owner-occupied and the multifamily rental housing markets.’
The MBA noted that it will likely take months of congressional debate before reforms are enacted.
‘Members should expect this debate to be a marathon, not a sprint,’ the MBA wrote. ‘It could take a year, and likely longer, to complete.’
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