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Senate Banking Committee Lays Out GSE Reform Framework

Robert Ottone
Mar 12, 2014

Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) have announced that they have come to an agreement regarding a bill reforming housing finance and the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac. Administrators, stakeholders and politicians from both sides of the aisle have reportedly signed onto the bill, which will hold a markup over the next few weeks. “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,” said Sen. Johnson. “Ranking Member Crapo has been a great partner to work with from the start, and I appreciate all of the important contributions Members of the Committee made to this effort. Specifically, I want the thank Senators Warner and Corker for providing us a strong framework to build on. I look forward to moving this effort through committee once Members have had a chance to review our forthcoming legislation.” Some of the refinements to the bill include: ►Protect taxpayers from bearing the cost of a housing downturn. ►Promote stable, liquid, and efficient mortgage markets for single-family and multifamily housing. ►Ensure that affordable, 30-year, fixed-rate, prepayable mortgages continue to be available, and that affordability remains an important consideration. ►Provide equal access for lenders of all sizes to the secondary market. ►Facilitate broad availability of mortgage credit for all eligible borrowers in all areas and for single family and multifamily housing types. Reactions to the bill have been largely positive: "NAHB commends Sens. Johnson and Crapo for reaching a bipartisan agreement to reform the nation's housing finance system. The plan would provide a federal backstop to ensure that the 30-year mortgage, the bedrock housing finance tool for most consumers, remains readily accessible and affordable,” said National Association of Home Builders (NAHB) Chairman Kevin Kelly. “The proposal also includes many elements advocated by NAHB that will boost private capital in the marketplace and ensure a reliable and adequate flow of liquidity for single-family and multifamily housing. NAHB looks forward to working with the Senate to create a strong, sustainable housing finance system. We urge the Senate to move quickly so that housing finance reform legislation can be enacted into law before the midterm elections." “ICBA is encouraged by provisions of the draft Johnson-Crapo plan that would specifically support continued access for community banks to successfully securitize and sell their loans,” said Independent Community Bankers of America (ICBA) President and CEO Camden R. Fine. “Community banks must continue to be able to sell individual loans for cash and have the option to retain the servicing on those loans to maintain access and participation in the secondary market.” “This announcement reinforces the immediate need to address GSE reform in a substantive, transparent way. 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,” said David H. Stevens, head of the Mortgage Bankers Association (MBA). “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.” “There will be plenty of time to refine this bill. Serious obstacles stand in the way of these ideas becoming law and will slow the process. First, there are liberal Democrats and Conservative members of the committee that have to be brought on board. Then, the bill must win the 60 votes necessary to pass it in the Senate. But the biggest lift will be in the Republican controlled House,” said Rick Lazio, former U.S. Representative from New York, and current leader of law firm Jones Walker’s affordable housing and housing finance practice. “There, the test will be whether there is enough in it for Republicans—whose odds of controlling both houses of Congress next year have increased—to accept provisions that were added to attract liberal Democrats in the Senate. Add to this Senate Majority leader Harry Reid’s announced opposition to GSE reform, the spigot of Freddie and Fannie dollars being diverted to the U.S. Treasury, and new FHFA Director Mel Watt’s watchdog role and it translates to a full bucket of reasons to be cautious about prospects for GSE reform.”
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