The House Financial Services Committee held a full committee hearing on the Protecting American Taxpayers and Homeowners Act last Thursday, during which trade groups and industry participants offered mixed views on the bill.
The legislation would wind down government mortgage giants Fannie Mae and Freddie Mac over five years, and would increase the Federal Housing Administration’s minimum down payment requirement from 3.5 percent to five percent for all non-first-time borrowers, Housing Wire reports.
“Americans clearly deserve a better housing system,” HFSC Chairman Jeb Hensarling, who introduced the legislation, said. “One that protects homeowners and taxpayers, so that every American who works hard and plays by the rules can have opportunities and choices to buy homes they can actually afford to keep. One that protects hardworking taxpayers, so they never again have to bail out corrupt government sponsored enterprises like Fannie Mae and Freddie Mac, whose top managers engaged in extensive accounting fraud to trigger huge executive bonuses for themselves. America needs a housing policy that is sustainable over time, not one that causes endless boom-bust cycles in real estate that harms our economy.”
The American Bankers Association expressed support for a number of the bill’s provisions but voiced concern regarding a part of the bill that provides for the replacement of Fannie and Freddie with a “public utility,” which would oversee the establishment and maintenance of a single platform for mortgage sales that would be securitized by investors.
“While ABA believes that the federal role in mortgage finance needs to be significantly reduced, we continue to support a fully priced and fully paid for guarantee by the federal government for a class of well underwritten loans within clearly defined and targeted loan limit boundaries,” the ABA said. “[A] targeted federal role is essential to progress from the present reality…Furthermore, a carefully targeted federal role can contribute to market stability, more directly and assuredly maintain equitable market access for originators of all types, sizes and geographic locations, and provide a fully operational and effective ‘safety valve’ for instances of market failure to ensure that mortgage credit remains available in all economic conditions.”
The National Association of Home Builders echoed that sentiment, saying that while private capital should be the main source of mortgage credit, ensuring the health and safety of the housing finance system cannot be left solely to the private sector.
“The historical record clearly shows that the private sector is not capable of providing a consistent and adequate supply of housing credit without a federal backstop,” NAHB CEO Jerry Howard said.
Mark Zandi, the chief economist at Moody’s Analytics, said the PATH Act was a comprehensive but not viable proposal to privatize the mortgage market.
“If fully implemented, the PATH would lead to significantly higher mortgage rates, particularly in tough economic times, and would put 30-year fixed rate mortgage loans out of reach for most Americans,” Zandi said, according to Housing Wire. “If the PATH becomes law, the Federal Housing Administration would account for no more than one-fifth of the mortgage market on average through the business cycle. The rest of the market would receive no government support.”