Banking and Finance Law Daily Senate Banking committee considers housing reform plans
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Wednesday, September 11, 2019

Senate Banking committee considers housing reform plans

By Colleen M. Svelnis, J.D.

The Senate Banking Committee has held a hearing on housing finance reform proposals put forth by the Treasury Department and HUD.

The Senate Committee on Banking, Housing and Urban Affairs held a hearing considering administrative and legislative frameworks put forth for reform of the U.S. housing finance system. Chairman Mike Crapo (R-Idaho) opened the hearing by noting that it has been 11 years since the government bailed out and put Fannie Mae and Freddie Mac into conservatorship. Crapo stated that now, "these systemically important companies continue to be too-big-to-fail, are even more leveraged then they were before the financial crisis, and taxpayers remain on the hook in the event of the next market downturn."

In March 2019, President Trump directed the Treasury Department to develop an administrative and legislative framework to reform the country’s housing finance system to reduce taxpayer risks, expand the private sector’s role, modernize government housing programs, and achieve sustainable home ownership. HUD was also directed to develop a plan for administrative and legislative reforms to achieve several housing reform goals (see Banking and Finance Law Daily, March 28, 2019). The agencies submitted these plans earlier this week (see Banking and Finance Law Daily, Sept. 6, 2019).

Of the housing finance reform plans, Crapo stated that many of the legislative recommendations in the plans "are consistent with my outline to fix our housing finance system; including attracting private capital back into the market; protecting taxpayers against future bailouts; and promoting competition. The recommendations also preserve certain incremental reforms that have already taken place during the conservatorship era, including robust transfer of credit risk; the single security and common securitization platform; and loan pricing that does not vary based on a lender’s size."

Ranking Member Sherrod Brown also spoke at the hearing, stating that the proposed plans "will make mortgages more expensive and harder to get." Brown warned that there is "an affordable housing crisis in this country." He stated that "we need policies that focus on increasing service for underserved markets, like rural areas and manufactured homeowners, and borrowers who have been locked out of the housing market over decades of discrimination."

Mnuchin’s testimony. Secretary of the Treasury Steven T. Mnuchin testified at the hearing about the Treasury Department’s findings and recommendations. According to Mnuchin, Treasury’s reform plan "takes great care to preserve what works in the current system. Each of Treasury’s recommended reforms is incremental, realistic, and balanced." The plan would preserve Government support of the 30-year fixed-rate mortgage loan, but recommends that Congress authorize a guarantee that is limited to the timely payment of principal and interest on qualifying mortgage-backed securities.

According to Mnuchin, the administration prefers to work with Congress to enact housing finance reform legislation. Mnuchin also stressed that reform should proceed administratively, and expressed continued support for the Federal Housing Finance Agency’s administrative actions to enhance the regulation of the GSEs, promote private sector competition, and satisfy the preconditions set forth in the plan for ending the GSEs’ conservatorships.

Senator Jon Tester questioned how much input the Treasury Department received from rural America when completing the plan, Mnuchin responded that the Administration received input from a variety of sources, before promising, "This should very much help the people in Montana, not just the people in New York and California."

HUD testimony. Secretary of Housing and Urban Development Ben Carson presented an overview of HUD’s housing finance reform plan calling it a "key priority" of the administration. The plan submitted by HUD calls for refocusing the FHA to its core mission "of helping low- and moderate-income borrowers with good credit—yet limited assets—afford a home and build wealth." The plan also calls for the FHA to work with the Federal Housing Finance Agency "to ensure that government-supported mortgage programs are not competing and do not crowd private capital out of the marketplace, both in their Single Family and Multifamily programs." Other HUD recommendations would ensure no taxpayer bailouts by requiring the FHA to "build its capital ratio well above the statutory two percent minimum to ensure that it is able to weather stress events."

FHFA testimony. Dr. Mark A. Calabria, the Director of the Federal Housing Finance Agency, also testified at the hearing. Calabria acknowledged that there is a housing affordability crisis. Calabria put forth his plans to strengthen the FHFA, enable the Enterprises to build capital to match their risk profiles, and end the Enterprise conservatorships. He stated that the plans are "broadly consistent with my top priorities," to secure the FHFA as "a world-class regulator" and to restore Fannie Mae and Freddie Mac to safe and sound condition by building capital to match their risk profiles. Calabria stated that these reforms are "critical to building a resilient mortgage finance system that protects taxpayers and delivers a diverse range of housing options at market-affordable prices."

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