Over the past few weeks, a quiet effort to deal with a pair of housing finance agencies still in conservatorship has been quietly trudging through committees in the House and Senate. There are now two bills in the hopper to overhaul the system, and battle lines are starting to form. Ellen Seidman, a senior fellow at the Urban Institute who's done the rounds of regulatory agencies and helped on a recent reform proposal, describes the camps in simple terms:
"You've got an ideological right that wants no government guarantee at all, except grudgingly through the Federal Housing Administration," she says. "And you have sort of everybody else wanting some sort of guarantee."
A lot's encapsulated within that "everybody else." Indulging for a moment the idea that both chambers of Congress might actually pass something in the not-too-distant future, here's a look at the two plans, and who's pushing for what.
In the Senate, Mark Warner (D-Va.) and Bob Corker (R-Tenn.) have introduced a bill that would:
- Create a "Federal Mortgage Insurance Corporation," based on the Federal Deposit Insurance Corporation, that would collect insurance premiums and provide a backstop only after a certain amount of private capital is exhausted--incentivizing companies securitizing mortgages to manage risk more carefully
- Wind down Fannie Mae and Freddie Mac within five years, and transfer all resources of the Federal Housing Finance Agency to the new FMIC as soon as it's established
- Levy a small fee on every loan securitized by the FMIC for a Mortgage Access Fund to support affordable housing programs
The bill hasn't had a hearing yet, and most groups cautiously applauded the introduction of the first serious, bipartisan measure to do something about Fannie and Freddie. Already, though, divergent opposition has emerged:
- Conservatives at the Heritage Foundation are upset that the bill basically maintains the existing government guarantee in the shape of a new entity -- as the National Review put it, "make the two-headed monster that is Fannie Mae and Freddie Mac into a one-headed monster."
- Consumer groups, led by the Center for American Progress and the National Community Reinvestment Coalition, worry that the Mortgage Access Fund won't generate enough to meet affordable housing needs and that increased down payment requirements will shut out low-income home buyers.
In the House, Rep. Jeb Hensarling (R-Tex.) has offered the PATH Act, which moves more aggressively toward privatization of the mortgage market. It would:
- Wind down Fannie and Freddie within five years
- Centralize all housing finance operations within a Federal Housing Administration, independent of the Department of Housing and Urban Development.
- Establish limits for federally-insured mortgages, including a minimum down payment of 5 percent and 3.5 percent for first-time home buyers, and caps on the price of the home depending on the area median income. It also prohibits borrowers from getting another FHA mortgage for seven years after they go into foreclosure.
- Set up a National Mortgage Market Utility as a nonprofit platform that develops standards for servicing, pooling, and securitizing residential mortgage loans, as well as serves as a repository for mortgage data
- Delay some effective dates of "all Dodd-Frank mortgage rules" for another year to allow community financial institutions time to comply
- Repeal the provision of Dodd-Frank that requires securitizers to maintain an interest in the credit risk of asset-backed securities, which was designed to incentivize viable underwriting rather than mortgage origination volume.
The PATH Act is a more extreme measure than the Corker-Warner bill, and opinions are even more polarized.
- Community banks like the bill's relaxation of Dodd-Frank deadlines and repeal of the credit risk retention requirement, but worry that the new Mortgage Market Utility will lend itself to domination by large banks, forcing smaller players out of the market. Economist Mark Zandi backs up that concern.
- Liberal lawmakers and consumer protection advocates, like the Center for Responsible Lending, oppose the bill because scrapping the government guarantee and increasing down payment requirements would make it much more difficult to obtain a 30-year fixed-rate mortgage, curtailing opportunities for low-income, minority home buyers. "Those are the ones to whom we're about to say, 'sorry the window's closed.' Let them eat rent," says John Taylor, president of the National Community Reinvestment Coalition, of Hensarling's proposal. "Do people in his district pay any attention to what he's doing? Because he's basically advocating for homeownership for the rich only."
- The National Association of Home Builders, who are interested in ensuring that as many people can buy new homes as possible, shares consumer advocates' concerns. "By simultaneously leaving all federal support for housing to FHA, and then by greatly reducing the overall scope and reach of FHA's programs, the PATH Act would greatly limit homeownership and rental housing opportunities for many financially responsible and qualified Americans," said CEO Jerry Howard.
- Conservatives and libertarians, like the American Enterprise Institute's Peter Wallison and Mark Calabria of the Cato Institute, love the bill's plan to take the government out of the mortgage business, and say that the private market will step in to replace it. Wallison wants the mortgage utility to be controlled by industry representatives, saying that government monopolies haven't worked well in the past.