New bill calls for GSEs to buy and securitize construction loans

New draft legislation in Congress would direct housing giants Fannie Mae and Freddie Mac to buy homebuilder construction loans and package them into bonds in the latest push to cut the cost of building homes and boost supply. 

The bill was one of three filed on Thursday aimed at reforming the two government-sponsored enterprises, all of them from Representative Scott Fitzgerald, a Wisconsin Republican. 

The moves came a day after President Donald Trump canceled the signing of a broad bill aimed at lowering housing costs that had passed both houses of Congress. That may make it hard for Fitzgerald to gain traction on new measures focused on the same goal, especially at a time when reforms of Fannie and Freddie have lost the political spotlight. 

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The most ambitious of Fitzgerald's proposals calls for an end to the government's conservatorship of Fannie and Freddie. Fitzgerald wants the move to be combined with a requirement to increase the use of private mortgage insurance and credit risk transfers and to limit the size of their retained portfolios. 

Another bill would simplify some of the mortgage disclosure rules passed after the 2008 financial crisis. 

The construction loan bill, called the "Working Families Home Construction Act of 2026," would require that homes financed with the loans be sold to people with incomes between 90 and 130 percent of the local median income.  

By shouldering more of the risks of bricks-and-mortar home construction, the two government-sponsored enterprises could make lenders more comfortable handing money to homebuilders, in turn easing their borrowing costs. 

"If construction financing becomes easier, more homes can be started, completed, and converted into permanent mortgages," said Kirill Krylov, a mortgage strategist at Baird & Co.

But construction loans are riskier than traditional residential mortgages, and Fannie Mae and Freddie Mac haven't been permitted to use their balance sheets in this way.