GSE Reform Faces an Uncertain Future
Housing finance reform legislation passed the Senate Banking, Housing and Urban Affairs Committee on May 15 but its future is uncertain.
The Housing Finance Reform and Taxpayer Protection Act cleared by a 13-9 vote. Against it were Sens. Jack Reed (D-R.I.), Bob Menendez (D-N.J.), Sherrod Brown (D-Ohio), Jeff Merkley (D-Ore.), Chuck Schumer (D-N.Y.), Elizabeth Warren (D-Mass.), Richard Shelby (R-Ala.), Patrick Toomey (R-Pa.) and David Vitter (R-La.).
“I remain concerned that this bill in its current form does not do enough to produce a housing market that works for middle class America,” Warren said.
The legislation would phase out Fannie Mae and Freddie Mac and replace the Federal Housing Finance Agency with the Federal Mortgage Insurance Corporation. The FMIC would provide insurance on certain mortgage-backed securities and regulate the secondary mortgage market.
A mutual securitization company would also be created to help small lenders access the secondary market.
“It is modeled after the FDIC, which has protected Americans’ bank deposits and helped provide for a vibrant community banking industry for more than 80 years,” said Senate Banking Committee Chairman Tim Johnson (D-S.D.).
“As the economy and housing market continue to recover, the legislation goes to great lengths to ensure a smooth transition from the old system to the new system. It is carefully constructed to ensure small lenders continue to have access to the secondary market. And there are market-based incentives built in to make sure rural and underserved communities are not shut out of the housing market,” he added.
CU Times asked Ryan Donovan, CUNA senior vice president of legislative affairs, if he thought the committee's vote was strong enough to solidify floor time for a full Senate vote on the bill.
“The conventional wisdom is that the strength of the vote, even though you had a majority and it was a bipartisan vote, that the strength of the vote may not have been enough to secure that floor time this summer,” Donovan said.
“It could very well be true but it remains to be seen. We know that the floor time will be limited this summer and we’re going into an election. I think it's important to keep in mind that generally speaking, major bills like this are not proposed and enacted in one Congress,” he added.
Donovan disagreed with those who suggest the bill is dead.
“I think you need to look at it through an appropriate lens and know that it's going to take time for Congress to work through these issues. It may not go anywhere this year but that doesn't mean it dies in committee or it dies because it didn't get a strong enough vote,” he said.
“The circumstances that have drawn Congress to look at this issue continue to exist and they will likely to continue to exist in the future so I would expect Congress to continue to wrestle with this issue,” Donovan added.
Brad Thaler, NAFCU vice president of legislative affairs, said the midterm elections and the recovering housing market have affected the urgency to take up the bill.
He also cited the lack of support from liberal members of the committee as another roadblock for passage of the bill.
“Given the fact that half of the Democrats on the committee did not support the bill, S. 1217 remains a longshot to come to the Senate floor this year,” Thaler said.
“A number of those senators have questions about the overall cost and workability of the proposal in its current form and would be unlikely to change their position without major changes to the bill,” he added.
Thaler said it may take until 2017 for housing finance reform to pass out of Congress. He also pointed out that Senate Majority Leader Harry Reid (D-Nev.) has been reluctant to advance GSE reform in the past.
“Given the fact that (Reid) has previously indicated that he is not disposed to advance housing finance reform, and the limited availability of floor time before the November elections, there is an uphill climb for this legislation getting through the Senate,” Thaler said.
Reid has said he does not agree with eliminating Fannie Mae and Freddie Mac.
“The president said just a few days ago we are going to have to take a look at Fannie and Freddie. These are the government organizations that have made homeownership so easy. I don't agree with the president,” Reid said in August 2013. “He says he wants to get rid of them. I think we’d better be very, very careful in doing that. I will look closely at his recommendations because on their face, I don't like them.”
Reid's office did not return a request for comment.