Sens. Mark Warner (D-Va.) and Bob Corker (R-Tenn.) introduced legislation June 26 that would reform America’s housing finance system by replacing the government-sponsored enterprises Fannie Mae and Freddie Mac with a privately capitalized system.
According to a release from Warner’s office, the bill would ensure institutions of all sizes, including credit unions, would have direct access to the secondary market despite dissolving the GSEs.
However, NAFCU President/CEO Fred Becker said in a statement that while the bill is a good first step in the housing finance debate, he has “some concerns about how the proposal would impact small financial institutions.
“Of primary importance to NAFCU is ensuring credit unions continue to have access to the secondary mortgage market in any housing reform proposal and get fair pricing based on the quality of their loans.”
Senate Bill 1217 – the Housing Finance Reform and Taxpayer Protection Act – would wind down Fannie Mae, Freddie Mac and the entire FHFA within five years, sell off their assets and revoke their federal charters.
Private investors would purchase mortgages from lenders and repackage them as securities that would then be sold to other investors.
The FHFA’s functions would be transferred to a newly created Federal Mortgage Insurance Corp., which Warner’s office said would be modeled after the FDIC and would mandate that investors retain 10% capital to protect against future bailouts. The FMIC would only deal with mortgages that would have a federal guarantee.
User fees would be collected from those participating in the secondary market system to fund the FMIC and create an accountable market access fund that would provide sufficient affordable housing for lower and middle-income buyers.
The bill is co-sponsored by six colleagues on the Senate Banking Committee: Sens. Mike Johanns (R-Neb.), Jon Tester (D-Mont.), Dean Heller (R-Nev.), Heidi Heitkamp (D-N.D.), Jerry Moran (R-Kan.) and Kay Hagan (D-N.C.).
“Five years after the financial crisis, it is past time for us to modernize our unstable system of housing finance,” Corker said. “The framework we’re presenting here will protect taxpayers while maintaining market liquidity.”
Gary Thomas, president of the National Association of Realtors, commended Warner and Corker for “taking a thoughtful and comprehensive approach to drafting a bill to restructure the secondary mortgage market in a way that provides sufficient liquidity to the market.”