Blog
Reform Bill Would Wind Down GSEs, Boost Ginnie Mae Role
The 114th Congress’srnfirst attempt at housing financial reform legislation hit the House hopper onrnThursday. The bill, H.R. 1491 establishes an insurance program through GinniernMae and winds down Fannie Maernand Freddie Mac and allows them to be sold and recapitalized. </p
The legislation is sponsoredrnby John K. Delaney (D-MD). John D. Carney (D-DE), and James A. Himes (D-CT),rnall members of the House Financial Services Committee and currently has 10rncosponsors. Tagged as The Partnership to Strengthen HomeownershiprnAct, text of the bill is not yetrnavailable on the Thomas-Library of Congress website, but is apparently similarrnif not identical to one introduced by the trio in the last Congress (H.R. 5055)rnwhich never made it out of committee. </p
The following informationrnwas taken from a press release issued by Himes’ office. </p
The bill, isrndesigned to “protect the fixed-rate 30-year mortgage…and shield American taxpayersrnfrom future bailouts by reforming the housing finance system.” It “combines the private sector’s superiorrnability to price risk with the federal government’s unique ability to provide capacity.” </p
Under the proposed insurance program all government guaranteed single-familyrnand multi-family mortgage-backed securities would be supported by a minimum ofrn5% private sector capital, which will stand in a first loss position. Thernremaining 95% of the risk will be shared between Ginnie Mae and a privaternreinsurer on a pari passu* basis. </p
Ginniernwill design and study two types of programs, then implement one, although theyrncould implement both if they further an effective, efficient secondary mortgagernmarket and maintain the risk sharing principles outlined above.</p
Programrn1 – Reinsurance Bid Program</p<ul class="unIndentedList"<liAggregatorsrnand issuers will be permitted to deliver qualified mortgage pools tornGinnie. The price Ginnie charges for the guarantee will be ascertainedrnthrough the following insurance bidding process. </li<liForwardrnreinsurance contracts will be secured on a periodic basis (30-90 days), withrnthe assistance of a reinsurance broker appointed annually in a competitivernprocess. The bids will seek coverage forrntwo levels of risk on each securitization – the 5% "first loss" and thernremaining 95% "second loss."</li</ul<ul type="disc"
Program 2:rnBond Guarantor Program </p<ul type="disc"
Under either of the programs, each MBSrnmeeting the outlined private sector capital requirements will carry the fullrnfaith and credit of the United States Government, but with private sectorrndirected pricing.</p
Banks, life insurance companies, RealrnEstate Investment Trusts (REITs), insurance companies and other Ginnie approvedrnmarket participants will be eligible to participate in the insurance andrnrisk sharing transactions with Ginnie Mae. All market participants will bernoverseen by Ginnie Mae and Ginnie will have authority to establish necessaryrncapital levels and stress tests.</p
The bill provides forrnFannie Mae and Freddie Mac to remain as aggregators of mortgage loans for smallrnlenders without sufficient volume to create new securities unless adequaternprivate sector alternatives exist. The FederalrnHome Loan Banks (FHLBs) will be authorized to aggregate and pool mortgages forrnsmall lenders.</p
The issuing platform will allow forrnstandardized securities and for creating a single security and a deeper andrnmore liquid TBA market. Regulation ofrnGinnie Mae and oversight of the secondary market will be the responsibility ofrnthe Federal Housing Finance Agency (FHFA). Mortgages eligible for the fullrnfaith guaranty must meet minimum underwriting standards.</p
Ginnie Mae will charge a fee of 10rnbasis points of the total principal balances of mortgages it insures. The fees will be allocated to the HousingrnTrust Fund (75%), the Capital Management Fund (15%) and the Market Access Fundrn(10%) to strengthen affordable housing programs.</p
The government sponsored enterprisesrn(GSEs) will be wound down over a five year period and their multifamilyrnbusiness will be spun out as separate entities. Ginnie will bernrequired to create and implement a workable multifamily guarantee that utilizesrnprivate sector pricing consistent with the single family model. The GSEs’rncurrent multifamily businesses will continue to function within the newrnmultifamily housing market as purely private organizations with an explicitrngovernment guarantee provided by Ginnie Mae and a private sectorrnreinsurer. </p
The GSEs’ government guarantee andrncharter will be removed and they will repay the government with interest forrnthe government’s investment in the institutions. The repayment must takerninto account both the injection of capital and overall exposure to therngovernment. The assets of Fannie and Freddie will be returned to thernprivate sector and may operate within the new mortgage system as issuers and/orrnaggregators. </p
The bill also envisions arnwell-functioning TBA market under which investors will receive timely principlernand interest payments through Ginnie Mae. rnThe model will also ensure that one standardized security is deliveredrnto the TBA Market. This will increase liquidity and limit disruptions to thernsecondary mortgage market, which will ultimately benefit consumers.</p
In separate statements each of the bill’srnprimary sponsors emphasized the bill’s merger of government and private sectorrninterests and abilities and the potential of the legislation to providernhomeowner access to affordable home ownership. rnDelaney said in part, “The financial crisis and the bailout of FanniernMae and Freddie Mac made it clear that we need reform to protect taxpayers. ThernPartnership to Strengthen Homeownership takes the best ideas from both partiesrnto create a 21st century housing finance system that combines the strengths ofrnthe private sector and the public sector. Housing finance reform is toornimportant for us to ignore and I look forward to working with my colleagues inrnboth parties in moving this legislation forward.” </p
Through a statement issued by David H.rnStevens its President and CEO the Mortgage Bankers Association (MBA) expressedrnsupport for the proposed legislation, calling it a constructive proposal andrnone that furthers MBA’s primary objectives of ensuringrnliquidity for all forms of housing while reducing taxpayer risk.</p
Stevens said, “Wernparticularly appreciate the bill’s approach regarding the appropriate level ofrnprivate “first-loss” capital required, its mechanisms for the pricing of arnfederal guarantee, and its recognition of the unique attributes and importancernof the multifamily finance market. Furthermore, MBA believes the proposal willrncomplement ongoing efforts by the Federal Housing Finance Agency to strengthenrnthe secondary mortgage market.” </p
*Accordingrnto Investopedia, pari passu is a Latin phrase meaning “equal footing” thatrndescribes situations where two or more assets, securities, creditors orrnobligations are equally managed without any display of preference.
All Content Copyright © 2003 – 2009 Brown House Media, Inc. All Rights Reserved.nReproduction in any form without permission of MortgageNewsDaily.com is prohibited.
About the Author
devteam
Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.
See all blogsLatest Articles
By John Gittelsohn August 24, 2020, 4:00 AM PDT Some of the largest real estate investors are walking away from Read More...
Late-Stage Delinquencies are SurgingAug 21 2020, 11:59AM Like the report from Black Knight earlier today, the second quarter National Delinquency Survey from the Read More...
Published by the Federal Reserve Bank of San FranciscoIt was recently published by the Federal Reserve Bank of San Francisco, which is about as official as you can Read More...
Comments
Leave a Comment