Consumer Lending, Housing Market

Democratic lawmakers introduce Delaney-Carney-Himes housing finance reform plan

MortgageDemocratic Reps. John K. Delaney (Md.), John Carney (Del.) and Jim Himes (Conn.), all of whom are members of the House Financial Services Committee, outlined a proposal last week to reform the housing finance system using private sector market mechanisms.

The proposal, which they plan to introduce in the spring, is designed to create incentives for the injection of private capital in the housing finance market and establishes a framework for the sale of government-sponsored enterprises Fannie Mae and Freddie Mac as independent firms without government support.

Ultimately, the bill would establish a system of government reinsurance for certain mortgage-backed securities, and the government guarantee of the system would be explicit, though the lawmakers said taxpayer funds would be protected under a framework of private sector capital and accurate government reinsurance pricing.

“To ensure a stable housing finance system, we must move past the current state to a new system that engages more private sector capital and private sector pricing of risk in partnership with an explicit government role in the provision of stabilizing liquidity to the market – this bill does that,” Delaney said. “[Committee] Chairman Hensarling has shined an important spotlight on housing reform and understands, deeply, how important this debate is to the economy and our fiscal future.”

Under the system, issuers would be required to secure five percent private capital provided by capitalized insurance firms, and issuers may then securitize mortgages through the Department of Housing and Urban Development’s Ginnie Mae.

After the Ginnie Mae platform has been established, Fannie and Freddie will operate as one of several expected insurers for five years, after which time the director of the Federal Housing Finance Administration would ensure the market share of MBS insured by the GSEs does not exceed 30 percent of total market share.

“I’m excited to join this effort to merge the efficiency of markets with the scale of government to create a safer, more liquid housing market that will help make housing more affordable while reining in the risk to our economy,” Himes said. “I look forward to gathering input from housing experts across the spectrum and am particularly interested in working to improve the availability of multi-family housing.”

Fannie and Freddie will be allowed to continue as mortgage loan aggregators for small creditors such as credit unions and community banks that do not have sufficient volume to pool and create new securities with mortgages alone.

“My priority in developing this proposal is to preserve the thirty-year fixed rate mortgage while protecting taxpayer dollars,” Carney said. “Getting this effort right is critical to the success of our economy. Absent a smart, sensible solution, affording a home will become more expensive for families across the country, and taxpayers will remain on the hook in the event of another downturn in the housing market. There are a lot of good ideas out there — I think this one strikes the right balance between public and private sector involvement in the housing market.”

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