A Republican-backed measure to reform the U.S. housing market would eliminate Fannie Mae and Freddie Mac and replace them, in part, with a non-government, not-for-profit entity.
According to an executive summary of the legislation announced Thursday, the “National Mortgage Market Utility would be regulated by the Federal Housing Finance Administration, but would be forbidden from originating, servicing or guaranteeing any mortgages or mortgage-backed securities.”
Instead the Utility would act as something like a referee for the buying and selling of mortgages by developing standard-form mortgage agreements and guidelines for loan- level data disclosures, the pooling and servicing of loans, representations and warranties, indemnification and remedies and trustee responsibilities.
The Utility would control and own the mortgage loan origination platform which is currently owned by Fannie Mae and Freddie Mac and use it as an “open access common securitization platform.”
The platform would allow all qualified mortgages and non-qualified mortgages of any size to be securitized, according to the bill, and forbid charging fees based on the size, business line, composition or loan volume of the issuer.
The bill also would shrink the GSE's portfolio of mortgage-backed and other securities by 15% per year for five years until, finally, they would be “stripped of their government charter, liquidated and any remaining assets sold off.”
The Federal Housing Administration's mortgage insurance program would be targeted at first-time home buyers and moderate- to low-income borrowers defined as below 115% of area median income nationwide or 150% of AMI in higher cost areas.
The agency would also not be allowed to insure loans of more than $625,000 or less than $200,000 and would have to require greater down payment, moving it from 3.5% to 5% for first time borrowers.
“House Republicans are committed to fixing the failed housing finance system that required the biggest taxpayer-funded bailout of all time – nearly $200 billion for Fannie Mae and Freddie Mac,” said Financial Services Committee Chairman Jeb Hensarling (R-TX), in a statement about the bill. “America needs a housing policy designed for homeowners and taxpayers – not for Wall Street and the housing industry,” Hensarling said.
“America needs a housing policy designed to give every American who works hard and plays by the rules both opportunities and choices to buy a home they can actually afford to keep,” he said.
“Our plan helps taxpayers and homeowners. It gives power and control back to consumers,” the Texas Republican said.
“Under the current broken system, unaccountable Washington elites have more of a say over who gets a mortgage than your local bank. The current system is a government monopoly run by the same types of Washington bureaucrats who run the IRS. America can do better. Americans deserve better,” he added.
The Senate also has a bill before it that would eliminate Fannie Mae and Freddie Mac.