WASHINGTON Reps. John Delaney, D-Md., John Carney, D-Del., and Jim Himes, D-Conn., unveiled the outlines of a new housing finance reform plan on Thursday that would provide an explicit government backstop for the market, while requiring increased private sector participation.
The plan, which will be formally introduced this spring, would unwind Fannie Mae and Freddie Mac and be based on a mortgage reinsurance system organized around Ginnie Mae, with private companies pricing and sharing in the risk on mortgage-back securities.
"To ensure a stable housing finance system, we must move past the current state to a new system that engages more private sector capital and private sector pricing of risk in partnership with an explicit government role in the provision of stabilizing liquidity to the market this bill does that," Delaney said in a press release.
The Democratic plan comes at a time when mortgage finance reform has stalled in the House. The Republican-majority House Financial Services Committee approved a bill this summer down party lines that would get rid of Fannie Mae and Freddie Mac and remove any government backstop from the market, but it's still unclear the plan has enough support to win a vote on the chamber floor.
Leaders on the Senate Banking Committee, meanwhile, are also said to be developing legislation that is likely to draw on earlier work by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., to remove the government-sponsored enterprises, but establish an explicit government guarantee for the market.
Supporters of the new proposal argue their plan takes attractive elements from both approaches maintaining the explicit government guarantee laid out in the Corker-Warner bill, while adopting private sector pricing for the securities.
"Our proposal today doesn't come in a vacuum," Carney said in a meeting with reporters Thursday. "What we try to do, and I think we've done it well, is to try and strike the right balance."
Issuers would be required to hold 5% first loss capital under the plan before they can securitize their mortgages through Ginnie Mae. The government corporation would separately contract with private reinsurance companies, locking in rates based on the private market assessment of risk and sharing the risk with the private entities. Ginnie Mae would assume 90% of the risk and the private companies 10%.
The lawmakers told reporters that they are continuing to reach out to numerous stakeholders and participants, including industry groups, the Obama administration and colleagues on the banking panel such as Rep. Jeb Hensarling, the committee's chairman.
"I think the chairman wants the [Protecting American Taxpayers and Homeowners Act] to pass the House of Representatives and go to conference with the Senate that's his objective. We respect that, we understand that," Delaney said. "What we're trying to do is develop an alternative framework that can appeal to his principles and the principles of other people in his party so we try to keep him in the loop in a very cordial and construct way."
The legislation would also include support for affordable housing, popular with Democrats, that is similar to the provisions laid out in the Corker-Warner bill. Ginnie Mae would charge a fee of 5 to 10 basis points on each security that would be used to fund the Housing Trust Fund and the Capital Magnet Fund. Any government profits derived under the new system could also potentially be used for additional programs, the lawmakers said.