A ‘middle ground’ housing finance reform proposal that uses private-sector market forces to appropriately price risk, while putting the scale and security of a government guarantee behind the program, has been reintroduced in Congress.
The Partnership to Strengthen Homeownership Act, which was originally introduced last July by Reps. John K. Delaney, D-Md., John Carney, D-Del., and Jim Himes, D-Conn. – all members of the House Committee on Financial Services – would establish a new government reinsurance agency that would back all qualified mortgages, but at the same time, require issuers to maintain a 5% private capital reserve to cover first losses.
As per the proposal, after securing the minimum level of private capital, issuers would be able to securitize their mortgages through Ginnie Mae. Separately, private insurers would be invited to contract with Ginnie Mae and share the reinsurance pricing and risk, with the private insurer assuming a minimum 10% on a pari passu basis.
In addition, the bill would return government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac back to the private market, thus ending the government's monopoly in the mortgage business. However, the companies would no longer write guarantees and would only serve as issuers.
‘Without access to quality affordable housing, there's no American Dream for millions of middle-class families,’ says Rep. Delaney, in a statement. ‘I'm proud to work with Rep. Himes and Rep. Carney on legislation that keeps the fixed-rate 30-year mortgage alive and preserves a government guarantee while introducing greater fiscal responsibility and stability to the housing finance system.
‘The financial crisis and the bailout of Fannie Mae and Freddie Mac made it clear that we need reform to protect taxpayers,’ Delaney adds. ‘The Partnership to Strengthen Homeownership Act takes the best ideas from both parties to create a 21st century housing finance system that combines the strengths of the private sector and the public sector. Housing finance reform is too important for us to ignore, and I look forward to working with my colleagues in both parties in moving this legislation forward.’
‘This proposal seeks to preserve housing affordability while protecting taxpayers from another bailout,’ adds Rep. Carney. ‘It finds the middle ground between public-sector and private-sector involvement in the housing sector. If we want to preserve the dream of homeownership and make sure taxpayers aren't on the hook for another bailout, the status quo has to change. Our bill is the right policy, and it's also an approach that appeals to both sides of the aisle. As Congress works to reform our housing finance system, I'm optimistic that a proposal like ours – that combines private-sector pricing with the government's ability to expand access to credit – can cut through the partisan divide.’
Rep. Himes adds that the proposed bill ‘brings together the market's efficiency in pricing risk with government's unique ability to provide scale to create a safer, more liquid housing market that preserves access to affordable housing for American families.’
During an interview with MortgageOrb last July, Delaney said he felt the bill had a good chance of passing in the Republican-controlled House because it addresses many of the ‘flaws’ in other housing finance reform proposals, including the Housing Finance Reform and Taxpayer Protection Act of 2014, introduced by Senate Banking Committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho (and built on a 2013 proposal by Sen. Bob Corker, R-Tenn., and Sen. Mark Warner, D-Va.), and the Protecting American Taxpayers and Homeowners Act of 2013, introduced by Financial Services Committee Chairman Jeb Hensarling, R-Texas.
‘I think our proposal has a lot of merit – because we realistically allow for a government guarantee to stay in housing, but we insist on it being priced in the private market,’ Delaney said in the July interview. ‘I think the housing debate is looking for a compromise – and I think our bill could be that compromise – not so much in terms of watering down the [other proposals] and mashing them together but, rather, a new and innovative approach that appeals to each side's principles.’
One interesting aspect to the Delaney-Carney-Himes alternative is that it gives investors who continue to hold shares in Fannie Mae and Freddie Mac a chance to recoup on those investments, as the GSEs will be returned to the private market.
‘This legislation is a constructive proposal that will help move the ongoing housing finance reform debate forward,’ says David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA) in a statement. ‘[The] MBA appreciates the chance to have been part of the stakeholder dialogue leading up to the bill's introduction, and we are pleased that it furthers our primary objectives of ensuring liquidity for all forms of housing while reducing taxpayer risk.
‘We particularly appreciate the bill's approach regarding the appropriate level of private 'first-loss' capital required, its mechanisms for the pricing of a federal guarantee, and its recognition of the unique attributes and importance of the multifamily finance market,’ Stevens says. ‘We look forward to working with the bill's authors to help them further assess the expanded role envisioned for Ginnie Mae in order to ensure a level playing field in both the residential market and the multifamily rental housing market.
‘Furthermore, [the] MBA believes the proposal will complement ongoing efforts by the Federal Housing Finance Agency to strengthen the secondary mortgage market,’ Stevens adds. ‘[The] MBA is eager to continue engaging with the leadership of the House Financial Services Committee, the bill's authors and other key stakeholders to advance legislative efforts to reform the government-sponsored enterprises and further stabilize the housing finance system for consumers.’