WASHINGTON The House Financial Services Committee will meet Tuesday to consider Republican-backed legislation aimed largely at getting the government out of the mortgage market.
The bill, titled the "Protecting American Taxpayers and Homeowners Act," would require Fannie Mae and Freddie Mac to be shut down within five years. Unlike a bipartisan Senate bill, which would create a new agency similar to the Federal Deposit Insurance Corp. to cover private mortgage insurers' losses, the PATH Act envisions no new backstops. Instead, the GOP bill would create a "utility" essentially to referee the private securitization market.
In a hearing on the House bill Thursday, Financial Services Committee Chairman Jeb Hensarling, R-Texas, a co-sponsor of the legislation, said it would tear "down barriers to private capital and [free] homebuyers from a government-dominated system that puts Washington elites in control of deciding who can and cannot buy a home."
Democrats have been quick to reject the proposal, arguing the House GOP's plan would undermine a seamless transition for the mortgage market after Fannie and Freddie are gone and would raise borrowers' costs to the point of killing the 30-year fixed-rate mortgage.
"While the chairman's bill includes vague language about maintaining the 30-year fixed rate mortgage, wishing doesn't make it happen," said Rep. Carolyn Maloney, D-N.Y., at the hearing. "The bill would virtually eliminate the 30-year fixed rate mortgage by making it unaffordable and inaccessible to middle-class Americans."
Aside from ending Fannie and Freddie, the bill also calls for steps to reduce the role of the Federal Housing Administration in the mortgage market. Before Fannie and Freddie are dismantled, the bill would require portfolios of the two government-sponsored enterprises to fall by 15% per year until they hit a floor of $250 billion. Fannie and Freddie would also have to share 10% of the credit risk from new business every year with the private market.
The proposal is a striking contrast to the Senate legislation offered by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., which would create a new "Federal Mortgage Insurance Corp." to serve as a backstop for a reinvigorated private market. The new entity created in the House bill is more like a standards-setter. It would create the "National Mortgage Market Utility" to develop best practices for private mortgage players. The utility would be banned from any direct role in the market and could not provide guarantees.
The House committee's markup will come the same day as the Senate Banking Commitee is scheduled to discuss housing finance reform at a hearing later in the afternoon. Separately, the Senate committee is set to hold a hearing Wednesday on a bipartisan bill by Chairman Tim Johnson, D-S.D. and Sen. Mike Crapo, R-Idaho, the ranking member, aimed at fixing the FHA's finances.