The pro­posal by Reps. Jeb Hen­sar­ling and John De­laney is a sign that a bi­par­ti­san con­sen­sus is build­ing on how to move on from Fan­nie Mae and Fred­die Mac.

National Mortgage News - - Contents - By Han­nah Lang & Neil Hag­gerty

This GSE plan may go nowhere, but it still mat­ters

The leg­isla­tive path is ex­tremely nar­row for a new hous­ing fi­nance re­form plan by House Fi­nan­cial Ser­vices Com­mit­tee Jeb Hen­sar­ling, but it in­jected a dose of hope for progress on an is­sue that is more of­ten stuck in neu­tral.

The plan, co-drafted with Democrats John De­laney and Jim Himes, won some praise but sev­eral law­mak­ers said it lacked specifics. Yet the bill, which en­vi­sions Gin­nie Mae step­ping in for Fan­nie Mae and Fred­die Mac, could help form the con­sen­sus for a fu­ture re­form push as both sides of the aisle now agree there should be some con­tin­ued gov­ern­ment back­ing for the mort­gage sys­tem.

Hen­sar­ling’s plan con­tin­ues to mark a shift in the re­tir­ing law­maker’s think­ing on the gov­ern­ment-spon­sored en­ter­prises. Af­ter pre­vi­ously tout­ing a GSE plan that would ef­fec­tively end the gov­ern­ment’s in­volve­ment, his bill shares some char­ac­ter­is­tics with the bi­par­ti­san frame­work de­vel­oped by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., that re­tained a fed­eral back­stop.

“I ap­plaud Chair­man Hen­sar­ling and Rep­re­sen­ta­tive De­laney on their bi­par­ti­san pro­posal,” said Corker in an emailed state­ment. “It is long past time to end the failed model of pri­vate gains and pub­lic losses, and I am glad to see that the House frame­work shares sig­nif­i­cant sim­i­lar­i­ties with the pro­pos­als we have laid out on a bi­par­ti­san ba­sis in the Se­nate. I am hope­ful that this will help con­tinue to grow sup­port to ad­dress this last un­fin­ished busi­ness of the fi­nan­cial cri­sis.”

The lat­est bill also keeps the spot­light on Gin­nie Mae as a po­ten­tial al­ter­na­tive to Fan­nie and Fred­die in pro­vid­ing sup­port for mort­gage-re­lated as­sets. A 2014 bill by De­laney and other House Democrats in­cluded a larger role for Gin­nie, as did the Corker-Warner frame­work.

Warner noted com­mon char­ac­ter­is­tics be­tween the House and Se­nate plans, but sounded skep­ti­cal that the Hen­sar­ling-De­laney-Himes plan would suf­fi­ciently main­tain ac­cess to hous­ing fi­nance op­tions.

“There are ideas in the draft that are sim­i­lar to those Sen. Corker and I dis­cussed in the Se­nate,” he said in a state­ment emailed through a spokesman. “But the draft con­tains lim­ited specifics on how mort­gage ac­cess and af­ford­abil­ity would be pro­tected in the pro­posed sys­tem, which is one of the more chal­leng­ing is­sues in­volved in hous­ing fi­nance re­form.”

Hen­sar­ling an­nounced the plan dur­ing a hear­ing on the 10-year- old con­ser­va­tor­ships of Fan­nie and Fred­die Mac. The pro­posal would re­peal the GSEs’ char­ters and trans­fer some of their re­spon­si­bil­i­ties to Gin­nie Mae.

The bill, ti­tled the Bi­par­ti­san Hous­ing Fi­nance Re­form Act, would still seek to pre­serve key com­po­nents of the cur­rent sys­tem, such as liq­uid­ity and the 30-year, pre-payable fixed mort­gage.

“This bi­par­ti­san pro­posal is a bold re­form to the cur­rent model,” De­laney, a Mary­land Demo­crat who has de­clared him­self a can­di­date for pres­i­dent in 2020, told re­porters. “In my judg­ment, it will make the hous­ing fi­nance sys­tem in this coun­try much safer and much more stable.”

Ac­cord­ing to a sum­mary of the draft, their ap­proach would “har­ness the ben­e­fits of the ex­ist­ing frame­work of Gin­nie Mae and the gov­ern­ment guar­an­tee it pro-

vides, while pro­vid­ing op­tions for how to fi­nance mort­gage lend­ing so that we max­i­mize choice for bor­row­ers, loan orig­i­na­tors and in­vestors.”

Such an idea has sur­faced be­fore. In 2014, De­laney and Himes, of Con­necti­cut, along with other House Democrats un­veiled the Part­ner­ship to Strengthen Home­own­er­ship Act, which pro­posed wind­ing down Fan­nie and Fred­die and es­tab­lish­ing an in­sur­ance pro­gram through Gin­nie Mae.

Ed DeMarco, for­mer act­ing direc­tor of the FHFA, also cowrote a pa­per on a plan that em­pha­sized uti­liz­ing Gin­nie Mae. The pa­per was writ­ten with Michael Bright, who has been nom­i­nated to run Gin­nie.

At the hear­ing, DeMarco noted there is in­creas­ing sup­port for in­creas­ing the back­ing of pri­vate mort­gage mar­ket par­tic­i­pants but still keep­ing a role for the tax­payer.

“Now with the chair­man’s an­nounce­ment, there cer­tainly seems to be broad con­sen­sus about es­tab­lish­ing a sin­gle mort­gage-backed se­cu­rity that has a cat­a­strophic guar­an­tee from the tax­payer but is backed by sub­stan­tial pri­vate cap­i­tal in a first loss po­si­tion,” said DeMarco.

How­ever, Hen­sar­ling is set to re­tire at the end of the year and the leg­isla­tive ses­sion is quickly com­ing to a close, leav­ing al­most no time for the new pro­posal to move for­ward. The House Fi­nan­cial Ser­vices Com­mit­tee hasn’t held hear­ings on the bill, and the ap­proach in the pro­posal lacks broader sup­port, wrote Jaret Seiberg, an an­a­lyst at Cowen Wash­ing­ton Re­search Group, in a note. “With just a hand­ful of leg­isla­tive days left in the year, the clock has ex­pired,” Seiberg wrote. NMN

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