Reuters and Bloomberg are reporting that the Chair and the Ranking Member of the Senate Banking Committee have agreed on the outline of a plan to wind down Fannie Mae and Freddie Mac. Senators Tim Johnson (D-SD) and Mike Crapo (R-ID) said the bill would build on a bill submitted earlier by Senators Bob Corker (R-TN) and Mark Warner (D-VA).
Details of the new agreement will be announced soon Johnson and Crapo said, in the meantime Reuters is reporting that the bill would provide for gradually phasing out the two government sponsored enterprises (GSEs), replacing them with a new government insurer, the Federal Mortgage Insurance Corporation. The new guarantee would be funded by a user fee like the existing guarantee issued by the GSEs.
Unlike that guarantee, however, the new one would require investors to cover at least the first 10 percent of any mortgage loss. The government would step in only after private funds were exhausted. This guarantee would help insure the continuation of a long term fixed-rate single-family mortgage market.
Reuters said the bill would require strict underwriting guidelines including a minimum 5 percent downpayment except for first-time homebuyers. The larger downpayment requirement (the minimum is now 3.5 percent) would be phased in over time. The bill is also said to eliminate affordable housing goals, providing funds instead to ensure available and affordable housing for both buyers and renters.
The bill would also set up a jointly owned cooperative for small lenders. It would provide a cash window to fund eligible loans and allow community banks and others to retain servicing rights on the mortgages they originate.
The two Banking Committee leaders had announced their intention of jointly producing a bipartisan bill last summer and again in early February. Bloomberg said that the two had been under increasing pressure to introduce a bill in time to push it through the Senate this year. If passed by the Senate the bill will need to conform to the wishes of the House Financial Services Committee which has held many hearings on housing finance reform. Republican members of the committee have submitted at least eight bills of their own dealing with various aspects of the subject.
In a statement Johnson said, "There is near unanimous agreement that our current housing finance system is not sustainable in the long-term and reform is necessary to help strengthen and stabilize the economy. This bipartisan effort will provide the market the certainty it needs, while preserving fair and affordable housing throughout the country."
“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."
