House GOP Offers Housing Bill Without Government Guarantee
House Financial Services Committee Chairman Jeb Hensarling introduced a housing finance reorganization bill today that would liquidate U.S.-owned mortgage financiers Fannie Mae and Freddie Mac and limit government mortgage guarantees.
The proposed legislation, seen as a Republican counterproposal to a bipartisan bill unveiled June 26 in the Senate, is unlikely to gain support in the Democratic-led Senate and has yet to attract broad support among House Republicans.
Hensarling, a Republican from Texas, proposes to eliminate the two government-sponsored enterprises within five years and replace them with a securitization platform. Unlike the Senate housing bill, the House Republican measure wouldn’t include any government guarantee for mortgages securitized through the platform, even in a crisis. It would guarantee only loans insured by the Federal Housing Administration and similar agencies.
“The American people want a housing policy that is focused on taxpayers, focused on homeowners -- existing and would-be,” Hensarling said at a briefing. “As much as we all respect those who build our homes and sell our homes we will not have a policy that is principally designed for the housing industry.”
The emphasis on near-complete privatization of the mortgage market places Hensarling at odds with Senate colleagues who introduced a bill last month allowing for some government assistance in a crisis. The House bill also faces an uphill fight in Hensarling’s own committee where Democrats and some Republicans say a government role is needed to sustain a the popular 30-year, fixed-rate mortgage.
“It is difficult to imagine how this legislation can gain traction because it lacks a government guarantee,” Isaac Boltansky, an analyst with Compass Point Research & Trading LLC in Washington, said in an e-mail. “We believe that the House GSE reform legislation starts at a distinct disadvantage” to the Senate bill.
Representative Carolyn B. Maloney, a New York Democrat who sits on Hensarling’s committee, said in an e-mail that the bill would “entrench some of the worst practices of the housing bubble by handing over the mortgage-backed securities market to the same institutions that caused the housing crisis in the first place.”
Rising mortgage rates as the economy recovers from the 2008 credit crisis may diminish support for the bill, said Jaret Seiberg, a senior policy analyst at Washington Research Group, a unit of Guggenheim Securities LLC.
“It’s an interesting policy debate to have over what homeowners’ rates should be but that’s very different from completely pulling back government support and experimenting with whether the market can stand on its own feet,” Seiberg said.
The House Republican bill would replace Fannie Mae (FNMA) and Freddie Mac with a National Mortgage Market Utility to operate as a voluntary securitization platform for loan originators, aggregators, security issuers and investors. The utility would be prohibited from originating, servicing or guaranteeing any mortgage or mortgage-backed security.
Hensarling’s bill also would overhaul the FHA, focusing it on first-time borrowers and limiting its loans to 115 percent of an area’s median home price. The measure also would increase the entity’s down payment requirement for non-first-time buyers to 5 percent from 3.5 percent.
The legislation would repeal the Dodd-Frank Act’s risk-retention requirement and delay Basel III mortgage provisions for two years for community banks. It also would exempt asset-backed securities from the Volcker Rule’s restrictions on banks’ investments in covered funds.
Hensarling said he plans to hold a hearing on his bill July 18 and move it out of his committee by the end of the month.
The Senate bill would would replace Fannie Mae and Freddie Mac (FMCC) with a government reinsurer and force banks to hold capital of 10 percent of the principal of the underlying securities to cover any first loss of the loans.
It would also allow the new government entity to cover a greater share of the losses in an “unusual and exigent circumstance” that threatens mortgage-credit availability and the housing-finance system, according to the bill. The House bill provides no such crisis assistance.
Hensarling’s bill is cosponsored by Representatives Randy Neugebauer of Texas, Scott Garrett of New Jersey and Shelley Moore Capito of West Virginia, all Republicans. No Democrats cosponsored the measure.
Washington-based Fannie Mae and McLean, Virginia-based Freddie Mac package mortgages into securities on which they guarantee 100 percent payment of principal and interest. The companies have begun posting record profits after drawing a total of $187.5 billion in aid from taxpayers to stay afloat since 2008.
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