WASHINGTON House Republicans on Thursday proposed legislation that would eliminate Fannie Mae and Freddie Mac within five years and all but remove the government guarantee on mortgages, putting it at odds with a Senate bill tackling the issue.
Under the Protecting American Taxpayers and Homeowners, or PATH Act, proposed by House Financial Services Chairman Jeb Hensarling, R-Texas, Fannie Mae and Freddie Mac would be wound down over five years and the federal guarantee on mortgages they provide would be eliminated.
The bill would create a new utility-like platform for investors to securitize mortgages without a government guarantee, while repealing new curbs on the mortgage bond market in the Dodd-Frank financial overhaul bill. It also proposes restricting access to loans backed by the Federal Housing Administration to first-time buyers and moderate-income borrowers.
The House bill is sure to raise opposition from Democrats, who see a continued role for the government in guaranteeing mortgages, and from credit unions and community banks, which see a need for protections for smaller market players.
NAFCU called the bill an important step in moving the debate along for reforming Fannie and Freddie, but said it has reservations about the proposal to eliminate the federal guarantee on mortgages altogether.
“We have serious concerns about the lack of a government role in the future of housing finance in this bill and the impact that omission could have on reliable access for credit unions to the secondary market,” said NAFCU President Fred Becker.
Last month, a group of eight senators four Republicans and four Democrats introduced a bill that also would wind down Fannie and Freddie over five years, replacing the companies with a new system that provides for guarantees of certain mortgage-backed securities.
While both Republicans and Democrats appear to agree that Fannie and Freddie should be replaced, and that the private sector should play a greater role in the mortgage market, Democrats said the proposal advanced such radical changes to the housing finance market that it ultimately could hinder any bipartisan effort.
Emergence of the dueling bills is sure to speed the reform effort over the two secondary market mortgage giants, which have been run under federal receivership since September 2008. Though leaders from both parties favor a greater privatization, the reality is since the collapse of the private label mortgage-backed securities market in 2007, Fannie and Freddie now buy a staggering 90% of all residential mortgages originated by lenders, making the elimination of a government backstop problematic.
