Democrats on the U.S. House Financial Services Committee are the latest to float a comprehensive housing finance reform proposal. The Democrats’ bill, unveiled March 27, would create an explicit government guarantee. The guarantee would be paid for by industry and used to capitalize a catastrophic mortgage insurance fund. The Democrats’ plan differs from previous plans proposed separately by Senate Banking Committee lawmakers and House Financial Services Republicans.
The Democrats’ plan, known as the Housing Opportunities Move the Economy (HOME) Forward Act of 2014, would wind down Fannie Mae and Freddie Mac and create a new, cooperative-owned securities issuer. The lender-owned Mortgage Securities Cooperative would be the single issuer of government-guaranteed securities and would be governed on a one-member, one-vote basis. Democrats said this structure would help ensure that smaller lenders have effective access to the issuer.
The plan would establish a new regulator, the National Mortgage Finance Administration (NMFA), to oversee the Federal Home Loan Banks and the new securities issuer. The NMFA would establish a Mortgage Insurance Fund to provide a federal guarantee on eligible mortgages. The NMFA would determine the fees to be charged for insurance on securities backed by eligible mortgages, capital and underwriting standards. It would also oversee all guarantors to which the issuer is exposed.
The HOME Forward Act would establish a minimum of 5 percent private capital ahead of the government backstop.
Rep. Maxine Waters, D-Calif., ranking member of the House Financial Services Committee, hoped the Democrats’ plan will help advance the housing finance reform conversation started by Senate Banking Committee members who previously submitted proposals.
Sen. Tim Johnson, D-S.D., Banking Committee chairman, and Sen. Mike Crapo, R-Idaho, that committee’s top Republican, have been working on bipartisan housing finance reform legislation for months. Their plan, unveiled March 11, would create a new Federal Mortgage Insurance Corp. (FMIC), which would be modeled after the Federal Deposit Insurance Corp. The proposal would mandate 10 percent private capital up front and create a mortgage insurance fund for the housing finance system. The Johnson-Crapo plan would also create a member-owned securitization platform.
The plan is similar to S. 1217, bipartisan reform legislation crafted last year by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va.
Waters said that while there are differences between the plan forwarded by Financial Services Committee Democrats and the Senate proposals, the approaches “embrace a number of common themes.”
“These include preserving the 30-year, fixed rate mortgage, protecting taxpayers from the costs of a housing downturn by establishing a strong new regulator and ensuring that small and community financial institutions can participate in the new system,” Waters said.
The Democrats’ new plan differs fundamentally from yet another plan advanced by House Financial Services Republicans. That bill, HR 2767, is known as the Protecting American Taxpayers and Homeowners Act, or PATH Act.
The PATH Act would liquidate the government sponsored enterprises and establish a new non-government entity — the National Mortgage Market Utility. The utility would be regulated by the Federal Housing Finance Agency and would be expressly precluded from guaranteeing any mortgage or mortgage-backed securities.
House Democrats previously charged that the PATH Act would curtail borrowers’ ability to access affordable 30-year, fixed rate mortgages by removing the government’s mortgage guarantee and privatizing the secondary market.
View the text of the HOME Forward Act
View a section-by-section analysis of the HOME Forward Act
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