Three House Democrats introduced on Thursday the latest legislative volley aimed at overhauling the housing finance system.
Reps. John Delaney (Md.), John Carney (Del.), and Jim Himes (Conn.) offered a bill that preserves the 30-year fixed-rate mortgage and uses private-sector pricing to reduce the risk of future bailouts for taxpayers.
{mosads}The measure would wind down government-controlled mortgage giants Fannie Mae and Freddie Mac and replace them with a new system based on private capital.
“We’ve seen what happens when the housing market becomes distorted and policy fails the public: hard-working Americans lose their homes, the economy slumps and the taxpayer is left responsible,” Delaney said.
“By maintaining a government guarantee, introducing private sector pricing and increased taxpayer protections, our legislation can bring both sides of the aisle together.”
The bill also would provide a government guarantee to ensure credit availability but would require private investors to take the first loss on failing mortgages.
“We aren’t the first group to try to find a solution to reforming our housing finance system,” Carney said. “But we think our proposal has promise because it strikes the necessary balance between public- and private-sector involvement in the housing market.”
The trio of lawmakers have nine co-sponsors so far — Reps. Jared Polis (Colo.), Denny Heck (Wash.), Bill Owens (N.Y.), Kyrsten Sinema (Ariz.), Patrick Murphy (Fla.), Peter Welch (Vt.), David Scott (Ga.), Gregory Meeks (N.Y.) and Bill Foster (Ill.).
The bill establishes an insurance program through Ginnie Mae.
All government guaranteed single-family and multi-family mortgage-backed securities will 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.
The bill winds down Fannie and Freddie over five years and revokes their charter, but allows them to be sold and recapitalized as entities with different business plans without any of their current unique powers.
“This legislation ensures that new homeowners will continue to have access to the affordable, predictable financing options they need, while protecting taxpayers and our economy from future downturns,” Himes said.
“Our bill combines the market’s efficiency in pricing risk with government’s ability to provide scale to create a safer, more liquid housing market that preserves access to affordable housing for American families.”
Sen. Bob Corker (R-Tenn.), a member of the Senate Banking Committee, applauded the House lawmakers for their bill and welcomed “their thoughtful and productive contribution to this important issue.”
“Most who have spent any time on this issue understand that the status quo is unacceptable, and I hope many more will contribute to the debate on how we can move this effort forward,” Corker said.
The Financial Services Roundtable called the bill a positive step forward.
“Housing finance reform is one of the most important actions Congress can take to protect taxpayers and make our housing finance system stronger and more stable,” said John Dalton, president of the Housing Policy Council, a division of FSR.
“This bill is additional proof that across the political aisle, key lawmakers in both the House and Senate recognize the need for change in the nation’s housing finance system.”
In May, the Senate Banking Committee approved a bipartisan measure that has yet to gain enough momentum to reach the Senate floor.
About a year ago, the House Financial Services Committee approved a Republican measure that would put the majority of mortgage risk into the hands of the private sector.
Dalton said the latest bill shares some of the of the key reform principles contained in the Senate measure, which was crafted by Senate Banking Committee Chairman Tim Johnson (D-S.D.) and ranking member Sen. Mike Crapo (R-Idaho).
The National Association of Realtors also expressed support for the bill’s concepts.
“The efforts that you have undertaken reflect a methodical, measured and comprehensive approach that is based on practical application and not just academic theory,” said NAR President Steve Brown.
“By using such an approach there will remain a level of certainty in the marketplace that will allow our housing finance markets to continue operating until reform is fully implemented.”