Reps. John Campbell (R-CA) and Gary Peters (D-MI) have introduced a bipartisan plan to reform the mortgage market—HR 1859: The Housing Finance Reform Act of 2011—putting an end to taxpayer-funded bailouts, while preserving access to affordable mortgages for middle class families. The Campbell-Peters plan would overhaul the federal mortgage finance system and wind down the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, while establishing a new system of private associations—funded by private capital—to continue ensuring liquidity in the secondary mortgage market. While mortgage investments would still be backed by a government guarantee, the plan mandates strict standards, safeguards and capital requirements to protect taxpayers.
“Housing is one of, if not, the most important consumer elements of the American economy," said Rep. Campbell. "This bill is a practical solution that replaces the unlimited government guarantee of Fannie Mae and Freddie Mac with multiple private companies competing in the marketplace. There would be a catastrophic government guarantee of their securities, not of the companies themselves, moving us away from “too big to fail” institutions. The taxpayers would be protected by the judgment of a highly independent regulator and several layers of private capital."
While some on the right have proposed removing the government from the secondary mortgage market altogether, most housing experts and economists agree that this would drastically raise the cost of mortgages for average families—and could jeopardize the housing recovery.
"As Congress moves forward on this issue, which is so vital to our housing recovery, I want to thank the sponsors for putting forward this thoughtful legislation," said Michael D. Berman, CMB, chairman of the Mortgage Bankers Association (MBA). "MBA looks forward to working with the leadership of the House Financial Services Committee and Senate Banking Committee on comprehensive legislation that reforms our housing finance system in a way that encourages the return of private capital while also providing for a limited but explicit government role in backing the availability of affordable mortgage products through all market conditions."
HR 1859: The Housing Finance Reform Act of 2011 would replace the existing system with privately capitalized entities authorized to purchase an explicit and limited guarantee covering the securities they issue. The proposed system would be built on the concept of the Federal Deposit Insurance Corporation (FDIC), and would ensure that bedrock housing financial products like the 30-year fixed-rate mortgage remain accessible for qualifying households.
"This bill is not only the right way to fix the problem, but also happens to be a solution that falls directly in the political center of the issue, making it very attractive to broad, bi-partisan support," said Rep. Campbell. "We know this legislation has the support it needs to become law by the end of this session, but we still have work to do in order to get it there.”
Securities issuers would be required to keep healthy capital reserves, which would stand in between taxpayers and potential losses, and would also pay into a privately-capitalized catastrophic reinsurance fund. The fund could only be tapped in after the issuer’s assets had been exhausted, and would cover payment of principal and interest on mortgage-backed securities to investors only.
“This is a reasonable, bipartisan approach to achieving two key goals: Putting an end to taxpayer-funded bailouts and ensuring that responsible, middle class families can still achieve the dream of homeownership,” said Rep. Peters. “The status quo is unacceptable, but eliminating any government role in the mortgage market would undermine the fragile housing recovery and essentially eliminate the 30-year fixed rate mortgage.”
