Fannie Mae/Freddie Mac Reform Bills Considered
July 28, 2005 - Both the House Financial Services and the Senate Banking Committees have considered legislation to reform the regulation of Fannie Mae, Freddie Mac and the Federal Home Loan Banks (GSEs).
House: On May 25, 2005, the House Financial Services Committee voted (65-5) to send legislation to reform the GSEs to the House floor. The Federal Housing Finance Reform Act of 2005 (H.R. 1461) would create a new regulator for the GSEs to ensure their financial safety and soundness.
The bill includes several NAR supported provisions, including a proposal to increase the conforming loan limits in high cost areas. This will allow more homeowners to take advantage of the beneficial interest rates available for conventional loans.
It also would not require the GSEs to shrink their retained mortgage portfolios. NAR opposes a "statutory limitation" and instead supported giving the regulator the authority to adjust both portfolios and capital requirements for safety and soundness purposes. The provision in the bill reflects NAR views.
Although the bill would still require the new regulator to define the areas where GSEs could do business, it exempts their automated underwriting systems, consumer education and counseling. This section would require the regulator to define "loan origination" and "secondary market" and allow the GSEs to operate only in the secondary market.
The bill creates a new "affordable housing fund" composed of 5% of the GSEs after tax profits that will be used for grants and programs to provide low and extremely low income housing. This fund is in addition to historic low and moderate income housing goals for the GSEs. Conservative House Members oppose this provision and fear that it will be used to lobby on behalf of the GSEs.
Read H.R. 1461 (419K PDF File)
Senate: On July 28, 2005, the Senate Banking Committee reported S. 190, the "Federal Housing Enterprise Regulatory Reform Act of 2005." The bill was passed on a straight party line vote of 11-9.
The Committee accepted a substitute bill authored by Banking Chairman Richard Shelby (R-AL). They disagreed to a Democratic substitute by Ranking Member Paul Sarbanes (D-MD). The Sarbanes substitute would have created an affordable housing fund based on the GSEs' profits, eased portfolio limits, streamlined program approval and increased the conforming loan limits for high cost areas. It failed 9 yeas to 11 nays.
Due to the political differences being expressed in both Chambers, it is becoming more difficult to move either bill to the floor for consideration without negotiated changes. NAR will work to ensure that any final legislation contains priority provisions.
Read S. 190 (363K PDF File)
CONTACTS: Jeff Lischer 202-383-1117
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