Jun 25 2013
Banking Committee Senators Introduce Legislation to Modernize and Reform America’s Broken Housing Finance System
Bill Protects Taxpayers, Winds Down Fannie Mae & Freddie Mac, Preserves Mortgage Market Liquidity
U.S. Senators Bob Corker, R-Tenn., Mark Warner, D-Va., Mike Johanns, R-Neb., Jon Tester, D-Mont., Dean Heller, R-Nev., Heidi Heitkamp, D-N.D., Jerry Moran, R-Kan., and Kay Hagan, D-N.C., all members of the Senate Banking, Housing and Urban Affairs Committee, today introduced legislation to strengthen America’s housing finance system by replacing government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac with a privately capitalized system that preserves market liquidity and protects taxpayers from future economic downturns.
“Five years after the financial crisis, it is past time for us to modernize our unstable system of housing finance,” said Corker. “The framework we’re presenting here will protect taxpayers while maintaining market liquidity, and is the best opportunity we’ll have to finally move beyond the failed GSE model of private gains and public losses.”
“Housing finance is the last piece of unfinished business remaining after the 2008 economic meltdown,” Warner said. “We have designed thoughtful reforms that will protect taxpayers from future downturns while responsibly preserving the availability of the 30-year fixed-rate mortgage for homebuyers. We believe the housing market is ready for reforms like this, and that the private sector has been waiting for new rules of the road.”
“We owe it to American taxpayers to listen to the lessons of history and work to prevent massive bailouts at their expense,” Johanns said. “With nearly 90 percent of home loans backed by government guarantees, we need a better model that takes taxpayers off the hook for future bailouts if we ever have a repeat of the 2008 housing crisis. This bill fully pays back taxpayers for the last bailout, and ends the risk of another one in the future.”
“We’ve come a long way since the economic crisis, but the housing market remains our greatest piece of unfinished business,” Tester said. “With the housing market beginning to show signs of strength, now is the time to create a framework built to withstand the next financial crisis – a system that protects taxpayers, preserves the 30-year fixed rate mortgage, and ensures that small financial institutions can continue to serve rural communities.”
“Much of the difficulty Nevadans are facing today can be traced back to the collapse of the housing market,” said Heller. “My state and Americans across the country cannot wait any longer for Congress to finally tackle a major contributing factor to the 2008 economic downturn. I am pleased that my Republican and Democratic colleagues could come together to address this piece of the puzzle and prevent another devastating housing crisis in the future.”
“I ran for the U.S. Senate because I wanted to help find solutions to major problems facing our country,” said Heitkamp. “For far too long, Washington has kicked the can down the road when it comes to our housing financing system. I am committed to moving forward a bipartisan plan that protects taxpayers, provides certainty to the industry, and ensures that the 30-year-fixed-rate mortgage is available for North Dakotans in the future.”
“Growing our economy will require a change in the way Washington does business with respect to housing financing,” Moran said. “The overwhelming number of mortgages written in this country are done so with substantial backing by the American taxpayer. I am encouraged by the positive steps this bill takes to return private investment to the housing finance sector. This is a conversation that matters a great deal as housing and homeownership play vital roles in the health of our economy. I look forward to working with my colleagues on this issue as we seek to make a good bill even better.”
“This bipartisan bill provides an important roadmap for strengthening our housing finance system and protecting taxpayers while ensuring access to affordable, long-term, fixed rate mortgage products for borrowers,” Hagan said. “I look forward to working with my colleagues to debate this important issue and advance bipartisan legislation that will put our housing finance system on a stable path.”
In 2008, Fannie Mae and Freddie Mac were taken into government conservatorship and given a $188 billion capital injection from taxpayers to stay afloat. As a result of this bailout, the private market has almost completely disappeared, and so nearly every loan made in America today comes with a full government guarantee. Despite this unsustainable situation, there has still been no real reform to our housing finance system since the financial crisis.
The Housing Finance Reform and Taxpayer Protection Act (S. 1217):
- Mandates 10 percent capital, up front, for the system to protect taxpayers against future bailouts.
- Winds down Fannie Mae, Freddie Mac and the Federal Housing Finance Agency (FHFA) within five years of bill passage.
- Transfers appropriate utility duties and functions to the modernized, streamlined and accountable Federal Mortgage Insurance Corporation (FMIC), modeled in part after the FDIC.
- Replaces the failed “housing goals” of the past with a transparent and accountable market access fund that focuses on ensuring there is sufficient decent housing available. The fund is NOT paid for with tax dollars, but through a small FMIC user fee that only those who choose to use the system pay.
- Ensures institutions of all sizes have direct access to the secondary market so local banks and credit unions aren’t gobbled up by the mega banks when Fannie and Freddie are dissolved.
A summary of the legislation and bill text are attached.