Bipartisan Housing Reform Bill said ready for Senate

Reuters and Bloomberg are reporting that the Chairrnand the Ranking Member of the Senate Banking Committee have agreed on thernoutline of a plan to wind down Fannie Mae and Freddie Mac.  Senators Tim Johnson (D-SD) and Mike Craporn(R-ID) said the bill would build on a bill submitted earlier by Senators BobrnCorker (R-TN) and Mark Warner (D-VA). </p

Details of the new agreement will be announced soon Johnson and Crapo said,rnin the meantime Reuters is reporting that the bill would provide for graduallyrnphasing out the two government sponsored enterprises (GSEs), replacing themrnwith a new government insurer, the Federal Mortgage Insurance Corporation.  The new guarantee would be funded by a userrnfee like the existing guarantee issued by the GSEs.  </p

Unlike that guarantee, however, the new onernwould require investors to cover at least the first 10 percent of any mortgagernloss.  The government would step in onlyrnafter private funds were exhausted.  Thisrnguarantee would help insure the continuation of a long term fixed-rate single-familyrnmortgage market. </p

Reuters said the bill would require strict underwriting guidelines includingrna minimum 5 percent downpayment except for first-time homebuyers.  The larger downpayment requirement (thernminimum is now 3.5 percent) would be phased in over time.  The bill is also said to eliminate affordablernhousing goals, providing funds instead to ensure available and affordablernhousing for both buyers and renters. </p

The bill would also set up a jointly owned cooperative for smallrnlenders.  It would provide a cash windowrnto fund eligible loans and allow community banks and others to retain servicingrnrights on the mortgages they originate.  </p

The two Banking Committee leaders had announced their intention of jointlyrnproducing a bipartisan bill last summer and again in early February.  Bloomberg said that the two had been underrnincreasing pressure to introduce a bill in time to push it through the Senaternthis year.  If passed by the Senate thernbill will need to conform to the wishes of the House Financial ServicesrnCommittee which has held many hearings on housing finance reform.  Republican members of the committee havernsubmitted at least eight bills of their own dealing with various aspects of thernsubject.</p

In a statement Johnson said, “There is near unanimous agreement thatrnour current housing finance system is not sustainable in the long-term andrnreform is necessary to help strengthen and stabilize the economy.  This bipartisan effort will provide the marketrnthe certainty it needs, while preserving fair and affordable housing throughoutrnthe country.”</p

“This announcement reinforces the immediate need to address GSE reform in a substantive, transparent way,” said MBA President and CEO, David Stevens.  “Chairman Johnson and Ranking Member Crapo are to be commended for coming together in a bi-partisan fashion and advancing a comprehensive solution to improve the function of the secondary mortgage market in a way that engages private capital and reduces risk for taxpayers.  MBA looks forward to continuing to work with members of the Senate Banking Committee as well as other policymakers and stakeholders to create a system that allows for a vibrant and liquid residential and multifamily mortgage market.”

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