House Democrats kick off housing finance reform debate

Three House Democrats on Thursday introduced a measure that would overhaul the housing finance system and preserve a government guarantee on mortgages.

Reps. John Delaney (Md.), John Carney (Del.) and Jim Himes (Conn.) said their measure would wind down mortgage giants Fannie Mae and Freddie Mac in five years, protect the fixed-rate 30-year mortgage and shield taxpayers from future bailouts. 

{mosads}”The financial crisis and the bailout of Fannie Mae and Freddie Mac made it clear that we need reform to protect taxpayers,” Delaney said. 

“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,” he said. 

House and Senate lawmakers have tried and failed several times to move legislation that would wind down Fannie and Freddie, which were taken over by the government during the financial crisis in 2008. 

So far, efforts have yet to accelerate in the GOP-controlled Congress to tackle the complex issue. 

“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,” Carney said.

But a separate report released Wednesday by the inspector general for the Federal Housing Finance Agency (FHFA) lays bare the fact that Fannie and Freddie will see dwindling profits in the future that could lead more borrowing from the Treasury. 

While the information isn’t new, it is a reminder that the financial crisis started more than six years ago and a legislative solution has yet to emerge. 

“The report strengthens my long-held belief that one of the biggest issues for Congress to address, and the last major unfinished business from the 2008 financial crisis, is passing comprehensive legislation to wind down Fannie Mae and Freddie Mac,” said Sen. Bob Corker (R-Tenn.) and a member of the Senate Banking Committee.

“Much bipartisan effort has been put forth, and for Republicans to have a majority in Congress and not take action would be completely irresponsible,” he said.

The Delaney-Carney-Himes legislation, which was first introduced last Congress, establishes an insurance program through Ginnie Mae to provide government backing of mortgages while protecting taxpayers.

Their proposal calls for all government guaranteed single-family and multi-family mortgage-backed securities to be supported by a minimum of 5 percent private-sector capital.

The remaining 95 percent of the risk will be shared between Ginnie Mae and a private reinsurer.

“This bill ensures that new homeowners will continue to have access to the affordable, predictable financing options they need, while safeguarding taxpayers and our economy from future downturns,” Himes said.

Housing experts expressed support for the legislation. 

Financial Services Roundtable Housing Policy Council President John Dalton said the “bill shows there are thoughtful members on both sides of the aisle who recognize the need for change.”

David Stevens, head of the Mortgage Bankers Association, called the legislation “a constructive proposal that will help move the ongoing housing finance reform debate forward.”

Stevens said he believes that the proposal will complement ongoing efforts by the FHFA, which oversees Fannie and Freddie, to strengthen the secondary mortgage market.  

He said that his group intends to keep talking with the leadership of the House Financial Services Committee, the bill’s authors and other key stakeholders to advance legislative efforts to reform Fannie and Freddie.

Co-sponsors are: Democratic Reps. Denny Heck (Wash.), Gregory Meeks (N.Y.), Patrick Murphy (Fla.), Jared Polis (Colo.), Mike Quigley (Ill.), David Scott (Ga.), Kyrsten Sinema (Ariz.) and Peter Welch (Vt.).