Senate Banking Committee leaders Tim Johnson of South Dakota and Mike Crapo of Idaho released yesterday details of their comprehensive housing finance reform legislation, entitled the Housing Finance Reform and Taxpayer Protection Act of 2014.
The 2014 bill builds off one introduced last year in the Senate (S. 1217) of which Senator Sanders and Senator Leahy were co-sponsors. The bill proposes gradually winding down Fannie Mae and Freddie Mac and replacing them with the Federal Mortgage Insurance Corporation, a government agency that would provide catastrophic reinsurance for mortgage-backed securities. Key roles of this new agency are listed in the table below.
VHFA and its partner state finance agencies (HFAs) through the National Council of State Housing Agencies are working hard to ensure that the future system capitalize on the strategic and uniquely effective role that HFAs play in the housing market. HFAs have done uniquely well in the case of first-time home buyer lending through a time-tested combination of low-cost financing; traditional fixed-rate, long-term products; flexible, but prudent, underwriting with careful credit evaluation; diligent loan documentation and income verification; down payment and closing cost assistance; homeownership counseling; and proactive servicing. They employ the same kind of discipline in their multifamily housing underwriting and asset management.
Proposed roles for the new Federal Mortgage Insurance Corporation
- Establish standards (similar to the Consumer Financial Protection Bureau’s Ability-to-Repay/Qualfied Mortgage Rule) that loans in each security would have to meet for that security to be eligible for the federal reinsurance.
- Require for all loans in FMIC-backed securities a minimum down payment of 3.5 percent for first-time homebuyers and 5 percent (phased in over three years) for non-first-time home buyers. All state HFA loans would be eligible for the federal guarantee.
- All FMIC-backed securities be traded on a common securitization platform, which would be owned and operated by its members including state HFAs.
- To help small lenders take advantage of FMIC, the bill would authorize FMIC to establish a mutually owned company that would allow its members, including state HFAs, to sell individual loans at the cash window and/or pool their loans together into mortgage-backed securities.
- Replace Fannie Mae and Freddie Mac’s affordable housing goals with a new requirement directing FMIC to support the primary mortgage market to help ensure that all eligible borrowers, including traditionally underserved consumers, have equitable access to mortgage loan credit.
- Establish a user fee of 10 basis points on all securities FMIC guarantees to capitalize the state-administered Housing Trust Fund, the Treasury-administered Capital Magnet Fund, and a newly established Market Access Fund, which FMIC would administer to support research and development of innovative new ways to support affordable home lending.
- Require Fannie Mae and Freddie Mac to spin off their multifamily subsidiaries into separate entities. These entities would continue Fannie Mae’s and Freddie Mac’s multifamily businesses as they currently operate.
- Although the bill does not currently authorize Ginnie Mae to securitize FHA-HFA Risk-Sharing loans, Committee staff said they plan to consider this as the bill moves forward.