WASHINGTON — Housing finance reformers are pushing full steam ahead to get a bill introduced before the political calendar makes passage nearly impossible.
A draft of a bill leaked this week that would put Fannie Mae and Freddie Mac into receivership and replace them with multiple guarantors and create a housing finance system where the majority of mortgages would be backed by an explicit government backstop. The leak was a clear sign that there will be a push to get congressional action soon.
“With the Senate’s agenda likely to fill up with efforts to pass a banking deregulation bill during the first quarter, and perhaps an infrastructure package thereafter— and with election year ‘rigor mortis’ already setting in — housing finance reformers need to establish momentum quickly to have even a prayer of making it into the queue for floor action,” said Chuck Gabriel, an analyst for Capital Alpha, in a note to clients this week.
However, the bill faces political headwinds, including opposition from consumer groups that worry the plan does not go as far as the current system to support affordable housing.
“The bill is kind of a nonstarter for us at this point,” said Scott Astrada, director of federal advocacy at the Center for Responsible Lending.
Astrada said the biggest issue for CRL is that while the plan provides funding to two housing trust funds while creating a separate market access fee that could arguably expand subsidies from the current system, it takes away regulations that would require private guarantors to serve all markets.
“The big ticket items at least that we are looking for is the national duty-to-serve and affordable housing goals that have enforcement mechanisms that have a regulator able to enforce those,” said Astada. “It is really not the amount that is going in there … it is really a regulator's inability to enforce.”
But proponents of the plan argue that with a Republican-controlled Congress and administration, the subsidy model has a more viable path than keeping the same regulatory requirements Fannie and Freddie currently comply with. They also warn that if housing finance reform isn’t passed this year, a more conservative Federal Housing Finance Agency director could take Fannie and Freddie in a different direction.
“Industry stakeholders need to wake up to the fact that a broad legislative fix may be our last hopeful resolution to this conservatorship before administrative reforms take hold. That, combined with a new FHFA director, could mean vastly different roles for the GSEs going forward,” said David Stevens, president and chief executive of the Mortgage Bankers Association, which is supporting the bill.
The biggest challenge for reformers is to garner enough support before Congress becomes enveloped by midterm election politics. But any deal on housing appears to be in line behind a number of other legislative priorities.
“I am concerned about the amount of legislative time this year to tackle it in the way that it should be,” Rep. French Hill, R-Ark., said in an interview.
Lawmakers in both chambers are working on housing finance reform proposals, but since passage in the Senate is more difficult because of filibuster rules and the GOP's narrow 51-49 majority, most observers are watching to see if a deal can be struck in the upper chamber.
Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., are said to be spearheading negotiations in the Senate Banking Committee, but mustering enough Democratic support is challenging. Four Democrats on the panel, including Warner, are already getting backlash from the progressive side of the Democratic Party for supporting the Dodd-Frank regulatory package.
Corker and Warner have yet to put their stamp of approval on any GSE deal.
A recent email from Sen. Elizabeth Warren, D-Mass., to reporters also makes supporting the draft housing finance reform bill more difficult.
“I appreciate the dedication Senators Warner and Corker have shown to addressing this critical issue, but this draft isn’t even close to a solution that works for families who hope to buy homes,” Warren said. “This bill would end up creating more problems than it solves.”
Democrats could also be considering how voters would view a housing reform bill going into the midterm elections. A bill that is considered a resounding success could give Republicans something to hang their hats on.
However, Democratic lawmakers said they are still open for business.
“I think we are going to see a number of proposals and I think the key is to make sure we get everybody around the table and make sure everybody’s ideas are considered and then figure out where we go from here,” said Sen. Chris Van Hollen, D-Md., who could be a key ally for Warner to bring a bill forward.
Stevens said time is running out.
“If this doesn’t start to take hold in both chambers within the next couple weeks," he said, "then we are going to end up with some form of administrative reform.”