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GSE Reform Heats Up

A Breakdown of the Multiple GSE Reform Measures Put Forth on the Hill

GSE Reform - 4 ProposalsRecently, multiple proposals for GSE reform have been put forth in Congress. They aim to change the housing industry by significantly altering or removing and replacing government-sponsored enterprises Fannie Mae and Freddie Mac. Below, we take an deeper look at each GSE reform proposal.

 

GSE Reform Proposals

June 25, 2013

Housing Finance Reform and Tax Payer Act (Corker-Warner Bill)

Senators Mark Warner (D-VA) and Bob Corker (R-TN)
The Corker-Warner proposal aims to end the GSE roles in the secondary mortgage market, expand private mortgage insurance and create a single government entity known as the Federal Mortgage Insurance Corporation (FMIC) that would provide a securitization platform and catastrophic mortgage insurance for mortgage backed securities. The FMIC would not be allowed to participate in any mortgage originations. Regulatory leadership would come from a five member Board of Directors, none of whom would be allowed to concurrently serve as an FHA Director. The primary duties of the FMIC would be to create standard risk sharing mechanisms, provide insurance on eligible securities, ensure credit access in all geographic areas and develop and maintain a Mortgage Insurance Fund, among many other duties. This act would create a Mortgage Insurance Fund intended to cover losses on covered securities and issue standards for approving private mortgage insurance carriers.

July 11, 2013

Protecting American Taxpayers and Homeowners Act (PATH Act)

Representative Jeb Hensarling (R-TX)
A proposal by Rep. Jeb Hensarling called PATH would end the bailout of the GSEs and shut them both down within five years. It aims to increase competition by ending federal control of the mortgage financing system. The FHFA (federal housing finance agency) would be the primary regulator and would continue to oversee mandatory risk-sharing programs and set standards for the securitization of residential mortgages. The PATH act would establish a not-for-profit National Mortgage Market Utility that would regulate the RHS (Rural Housing Service) and FHA (Federal Housing Administration). It would not provide governmental guarantees on mortgage backed securities.

March 11, 2014

Housing Finance Reform and Tax Payer Act (Johnson-Crapo Bill)

Senators Tim Johnson (D-SD) and Mike Crapo (R-ID)
The Johnson-Crapo bill amends the Corker-Warner proposal, adding a focus on monitoring consumer and market access to credit. Like the Corker-Warner proposal, the Johnson-Crapo act aims to end the GSE roles in the secondary mortgage market, expand private mortgage insurance and create a single government entity through the Federal Mortgage Insurance Corporation (FMIC). In addition to the proposed Board of Directors in the Corker-Warner bill, Johnson-Crapo establishes a 9-member advisory committee that would advise an Office of Consumer and Market Access. Unlike Corker-Warner, this bill intends to continue the historic state-centered approach to insurance regulation.

March 27, 2014

Housing Opportunities Move the Economy Forward Act (Home Act)

Representative Maxine Waters (D-CA)
Rep. Maxine Waters (D-CA) introduced a proposal called HOME – Housing Opportunities Move the Economy – which would wind down Fannie and Freddie and create a lender-owned Mortgage Securities cooperative to issue mortgage backed securities eligible for federal insurance. This act creates a industry-funded government guarantee for a catastrophic insurance fund. The Home Act grants a federal agency the authority to create approval standards for private mortgage insurance carriers.

 

Though there appears to be great interest in moving away from the current GSE model, the chances of any of these four proposals being adopted before November’s mid-term elections are thin. The enormity of these undertakings coupled with some who do not wish to see the currently-profitable Fannie and Freddie brought to an end complicate the possible passage of any of the current proposals. However, we should all keep our eyes and ears open, as the push for GSE reform looks strong at some point in the future.

Read More:

Housing Wire – Breaking Down the GSE Reform Measures

National Mortgage Professional – Waters Introduces Housing Finance Reform Proposal

Association of Corporate Council – GSE Reform and PMI

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