Legislation

FSC’s Waters releases draft housing finance reform proposal

Maxine Waters

Maxine Waters

Rep. Maxine Waters (D-Calif.), the ranking member of the House Financial Services Committee, recently released a proposal for housing finance reform just after the release of another discussion draft by Sens. Tim Johnson (D-S.D.) and Mike Crapo (R-Idaho).

“Reforming a $10 trillion housing finance market is an immense undertaking that must be carefully considered,” Waters said. “Fannie Mae and Freddie Mac’s return to profitability and repayment of taxpayer dollars has led some to rightly speculate whether the enterprises need any reform at all. I believe that we have an opportunity to address some of the fundamental flaws of the current system, by ending the perverse incentives created by Fannie Mae and Freddie Mac’s ownership structure and providing an explicit government guarantee that is paid for by industry.”

The legislation—the Housing Opportunities Move the Economy Forward Act, or HOME Forward—provides for the wind-down of mortgage giants Fannie Mae and Freddie Mac and the establishment of a new, lender-owned Mortgage Securities Cooperative, which will serve as the single issuer of government-guaranteed securities and will be managed by vote.

The release of the legislation comes just after Johnson and Crapo, both of whom are members of the Senate Banking Committee, released another discussion draft of their housing reform proposal, which also provides for the wind-down of Fannie and Freddie and their replacement with the Federal Mortgage Insurance Corp.

Unlike Johnson and Crapo’s legislation, which stipulates a 10 percent first-loss provision, Waters’ legislation would require just five percent exposure for lenders.

Like the Johnson-Crapo bill, however, Waters’ bill calls for down payments to be set at 3.5 percent for all first-time homebuyers, though the mortgage utility would be able to lower the requirements.

“I am hopeful that this legislation will continue to move the conversation on housing finance reform forward,” Waters said. “While there are differences, this legislation and the two bipartisan proposals in the Senate 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.”

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