Sen. Bob Corker (R-Tenn.) and bill co-sponsors Sens. Elizabeth Warren (D-Mass.), David Vitter (R-La.) and Mark Warner (D-Va.) have reintroduced the Jumpstart GSE Reform Act (S. 2038) to “provide certainty that Congress and the administration will undertake substantial and structural housing finance reform.”
The bill, introduced and sent to the Senate Banking Committee on Sept. 16, would prohibit the use of guarantee fees to offset other government spending: “An increase in the guarantee fee required to be charged by an enterprise may not be used to offset an increase in outlays or a reduction in revenues for any purpose other than those related to the enterprises’ business functions under 1) the congressional budget; 2) the Balanced Budget and Emergency Deficit Control Act of 1985; or 3) the Statutory Pay-As-You-Go Act of 2010.”
When government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac buy single-family mortgages, the lender usually receives a mortgage-backed security (MBS) in exchange for the loan, and the GSEs guarantee the payment of the principal and interest on their MBS and charge a fee for providing that guarantee. The guarantee fee (or g-fee) covers projected credit losses from borrower defaults over the life of the loans, administrative costs and a return on capital.
The Jumpstart GSE Reform Act also would place a limit on the sale of preferred stock: “Notwithstanding any other provision of law or any provision of the Senior Preferred Stock Purchase Agreement, the secretary [of the Treasury] may not sell, transfer, relinquish, liquidate, divest, or otherwise dispose of any outstanding shares of senior preferred stock acquired pursuant to the Senior Preferred Stock Purchase Agreement, until such time as Congress has passed and the president has signed into law legislation that includes a specific instruction to the secretary regarding the sale, transfer, relinquishment, liquidation, divestiture, or other disposition of the senior preferred stock so acquired.”
“The reality is that if Congress were to spend g-fee revenue from the GSEs on other programs, reforming these mortgage behemoths would become nearly impossible. At the same time, if Treasury were to decide to sell its preferred share investment without Congress having first reformed our housing sector, we would just be returning to a time where gains are for private shareholders and losses are for taxpayers,” Corker said. “Neither of these is an acceptable outcome, so I’m very happy that Sens. Warner, Vitter and Warren have joined me in this effort, and I hope Congress will take the necessary steps to ensure housing finance reform can happen as soon as possible.”
In April, the Federal Housing Finance Agency (FHFA) completed a comprehensive review of its policy for guarantee fees charged by the GSEs. Based on its review, the FHFA decided that there was no compelling economic reason to change the general level of fees.
“FHFA’s review focused on reaching an appropriate balance between FHFA’s statutory obligations to: 1) ensure the safety and soundness of the Enterprises, and 2) foster a liquid national housing finance market. In light of this balance, FHFA determined, based on both internal and external analysis, that the current average level of guarantee fees appropriately reflects the current costs and risks associated with providing the enterprises’ credit guarantee,” the FHFA stated when it released its review.
Related Articles
FHFA adopts final rule on Fannie, Freddie housing goals
FHFA Enterprise Housing Goals Final Rule 2015-2017