Like the other three housing finance reform proposals now before Congress, Waters' bill, dubbed the Housing Opportunities Move the Economy (HOME) Forward Act, calls for the wind-down of Fannie Mae and Freddie Mac within five years.
But unlike the other bills, it calls for replacing Fannie and Freddie with a cooperative of lenders that would be the sole issuer of mortgage-backed securities guaranteed by the government – thus creating an entity akin to a mortgage ‘utility.’
Waters' proposal also calls for the establishment of a Mortgage Insurance Fund that would provide a federal guarantee on eligible mortgages. In addition, it would establish a new regulator, the National Mortgage Finance Administration (NMFA), that would oversee the Federal Home Loan Banks and the new cooperative. The NMFA would determine the fees to be charged for insurance on securities backed by eligible mortgages, capital and underwriting standards, as well as overseeing all guarantors to which the Issuer is exposed.
Like the other proposals, Waters' plan calls for maintaining the 30-year fixed rate mortgage, establishing safeguards to protect taxpayers, and bringing private capital back into market, as well as minimizing disruptions during the transition period. In addition, it aims to give smaller lenders equal access to the secondary market.
However, unlike the latest Senate bill introduced by Sen. Tim Johnson, D-S.D., and Sen. Mike Crapo, R-Idaho, which requires private capital to take the first 10% loss, Waters' bill would require only 5% exposure.
Like the Johnson-Crapo bill, Waters' proposal would set minimum down payments at 3.5% for first-time buyers and 5% for all other borrowers – however, it would allow the to-be-formed regulator to lower those requirements at its discretion.
Waters reports that she has been working with her committee colleagues on the proposal for months. She says she sought input from numerous industry stakeholders, as well as consumer and affordable housing advocates, ‘to craft a measure that ends the incentives created by the ownership structure of the government-sponsored enterprises' (GSEs) while preserving the role of small financial institutions, providing a more flexible approach to placing credit risk in the markets, and ensuring access to affordable rental housing for low-income families,’ according to a statement on the committee's website.
‘Reforming a 10 trillion dollar housing finance market is an immense undertaking that must be carefully considered,’ Waters says in the statement. ‘Fannie Mae and Freddie Mac's return to profitability and repayment of taxpayer dollars has led some to rightly speculate whether the enterprises need any reform at all. I believe that we have an opportunity to address some of the fundamental flaws of the current system, by ending the perverse incentives created by Fannie Mae and Freddie Mac's ownership structure and providing an explicit government guarantee that is paid for by industry.’
‘I am hopeful that this legislation will continue to move the conversation on housing finance reform forward,’ she adds. ‘While there are differences, this legislation and the two bipartisan proposals in the Senate embrace a number of common themes. These include preserving the 30-year, fixed rate mortgage, protecting taxpayers from the costs of a housing downturn by establishing a strong new regulator, and ensuring that small and community financial institutions can participate in the new system.’