On August 6, 2013, President Obama outlined key principles of comprehensive housing finance reform. These principles closely mirror the outline presented by NAR to the administration in early 2011. The President’s plan is centered on four core principles for reform:
- ensure a limited government role, which encourages a return of private capital;
- a privatized system with a federal catastrophic reinsurance if private capital proved to be insufficient;
- preserve widespread access to safe and responsible mortgages like the 30-year fixed rate mortgage; and
- protect the American dream of affordable homeownership for all qualifying borrowers in every community.
NAR believes these principles will contribute to the long-term stability of our nation’s housing market and provide consumers with access to affordable mortgage credit, even during economic downturns. However, NAR has serious concerns with other aspects of the Administration’s proposal. Specifically, the Administration favors lower FHA loan limits, which the Obama Administration believes are appropriate changes to give sufficient incentive for the private sector to resume making mortgages without FHA or GSE involvement.
After the release of the Obama Administration’s housing finance reform report, Congress began serious discussions regarding the future of the GSEs, as well as the need for overall reform of the U.S. housing finance system. In the 113th Congress, the Senate Banking Committee and the House Financial Services Committee held several hearings on housing finance reform, and both Committees have passed their versions of housing finance reform legislation.
U.S. House Legislation: "The Path Act"
On July 24, 2013, the House Financial Services Committee passed H.R 2767, "The Protecting American Taxpayers and Homeowners (PATH) Act", introduced by Rep Garrett (R-NJ). NAR opposes this legislation, which includes reforms to FHA, the GSEs, and the financial regulatory law known as the Dodd-Frank Act. NAR opposed the bill based on two major concerns: 1) We strongly opposed the end of federal guarantee for a secondary mortgage market; and 2) we strongly opposed the dramatic restructuring and targeting of FHA.
The bill winds down Freddie Mac and Fannie Mae over a five-year period. It would create a new Utility to promote the securitization of mortgages. However, the bill does not provide for a federal guarantee for the Utility.
NAR sent a letter to the Full Committee opposing the bill and asking for a no vote. The bill did not reach the House floor during the previous Congress.
U.S. Senate Legislation: "The Housing Finance Reform and American Protection Act of 2013"
On June 25, 2013, Senators Bob Corker (R-TN) and Mark Warner (D-VA) introduced "The Housing Finance Reform and American Protection Act of 2013" that would also phase out Fannie Mae and Freddie Mac. But, unlike the House bill, the federal government would remain as an insurer of last resort, much like the FDIC is the insurer of last resort for troubled banks. NAR has long called for replacing Fannie Mae and Freddie Mac while ensuring continued mortgage market liquidity through the maintenance of an explicit federal presence in the market. On that basis, the Senate approach is the better starting point of the two.
The bill was the subject of hearings but was not taken up for a vote.
On May 15, 2014, the Senate Banking Committee passed S. 1217, the “Housing Finance Reform and Taxpayer Protection Act of 2014,” to overhaul the secondary housing finance market. The bill built on S. 1217 by including bipartisan changes drafted by Senate Banking Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID). Commonly referred to as the Johnson-Crapo bill, the legislation expanded on the bill released by Bob Corker (R-TN) and Mark Warner (D-VA) that would wind down Fannie Mae and Freddie Mac and replace them with a new agency, known as the Federal Mortgage Insurance Corporation (FMIC).
NAR continues to support the Congressional discussion and legislative process for GSE reform. The Johnson-Crapo legislation contained many positive aspects such as an explicit government guarantee, continuing HERA conforming loan limits, and a lower down payment for first-time homebuyers; however, NAR remains concerned with the potential impact on overall mortgage costs for consumers under this bill. NAR continues to be proactive in ongoing discussions on the Johnson-Crapo legislation, and remains supportive of efforts to improve and further the process of GSE reform while ensuring that qualified borrowers have access to mortgage credit.
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