Senate Banking Committee Chairman Tim Johnson (D-S.D.) and Ranking Member Mike Crapo (R-Idaho) announced on Tuesday that they have reached a bipartisan agreement on housing finance reform after months of negotiations.
“There is near unanimous agreement that our current housing finance system is not sustainable in the long-term and reform is necessary to help strengthen and stabilize the economy,” Johnson said. “This bipartisan effort will provide the market the certainty it needs, while preserving fair and affordable housing throughout the country. Ranking Member Crapo has been a great partner to work with from the start, and I appreciate all of the important contributions Members of the Committee made to this effort. Specifically, I want the thank Senators Warner and Corker for providing us a strong framework to build on. I look forward to moving this effort through committee once Members have had a chance to review our forthcoming legislation.”
The agreement stipulates the wind-down of government-sponsored enterprises Fannie Mae and Freddie Mac and its replacement with the Federal Mortgage Insurance Corporation, which will be modeled in part after the FDIC. The agreement would also create a mortgage insurance fund to protect American taxpayers against future bailouts.
“This agreement moves us closer to ending the five-year status quo and beginning the wind down of Fannie and Freddie while protecting taxpayers with strong private capital, building the components for a stable secondary market and avoiding repeating the mistakes of the past,” Crapo said. “Government control of Fannie and Freddie with no private capital to protect taxpayers against losses is unacceptable. Chairman Johnson and a bipartisan coalition of Senators deserve a tremendous amount of credit for making the hard decisions that will move us toward a stronger housing system that provides a balance between providing broad access to mortgages while protecting taxpayers from losses.”
Additionally, the proposal would require strict underwriting standards identical to those under the CFPB’s “qualified mortgage” definition and require a down payment of five percent for homebuyers, except for first-time homebuyers, who would be required to put down just 3.5 percent.
The proposal has been welcomed by several financial services groups, including the American Bankers Association, Independent Community Bankers Association and Mortgage Bankers Association.