On way out, Hensarling makes final case for GSE reform

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WASHINGTON—The House Financial Services Committee devoted its last hearing of the year to a bipartisan housing finance reform bill that lawmakers and industry insiders largely used as a jumping off point to discuss their wish list for a future mortgage finance system.

The bill, which was introduced in September by Chairman Jeb Hensarling, R-Texas, and Reps. John Delaney, D-Md., and Jim Himes, D-Conn., would repeal the charters of mortgage giants Fannie Mae and Freddie Mac and use Ginnie Mae as a way to offer a government guarantee to the housing market.

The bill, titled the Bipartisan Housing Finance Reform Act, seeks to preserve key components of the current system, such as liquidity and the 30-year, pre-payable fixed-rate mortgage.

Even when it was proposed, the bill was a long shot, but its dim chances at legislative success did not deter Hensarling from holding a hearing to examine the legislation on one of his last days in Congress. Hensarling is retiring at the end of this year, along with Delaney, who has announced his candidacy for president in 2020.

However, lawmakers mainly used the hearing to ask the 10 witnesses about reform of the government-sponsored enterprises outside of the Hensarling-Delaney-Himes bill, focusing in particular on the future of the 30-year fixed-rate mortgage and affordable housing.

The proposal drew ire from some Democrats who felt that it didn’t provide enough specifics to address affordable housing, which Himes addressed during the hearing.

“There’s a blank in the proposal largely because I suspect we wouldn’t have agreed on what it should be,” said Himes. “That doesn’t reflect our lack or my lack of commitment to affordable housing.”

Some industry representatives agreed they needed more details on that issue.

"While this draft does not currently contain specific legislative text, it does include principles regarding the provision of affordable housing," said Robert Broeksmit, president of the Mortgage Bankers Association. "They focus on targeting and delivering aid to those most in need of assistance. MBA supports the need for strong affordable housing provisions and recommends the authors build out and strengthen this section."

Delaney also argued that the bill could help to facilitate affordable housing.

“Through the mechanism that’s been created in the bill we can create significant additional investments and liquidity in affordable housing and help the American people who are struggling so hard to find places to live near where they work,” he said.

Much of the hearing was also focused on the transition risk associated with a move to any new housing finance system.

“I see significant transition risks transferring from something that’s known to something that’s unknown,” said Don Calcaterra Jr., vice president at the Community Home Lenders Association.

Delaney also contended that transition risk should not be an argument against attempting housing finance reform.

“By definition, that argument can be used against any transformative change we want to make in public policy in this country,” he said. “Of course the transition risk is significant. This is a very big market.”

Some transition risk could be mitigated if the timetable for the proposal and obtaining data on its impact were to be accelerated so the private market would have adequate time to prepare for the change, said Ed DeMarco, president of the Housing Policy Council and former acting director of the Federal Housing Finance Agency.

“If we’re not willing to take transition risk, we’ll never change anything, but that said, we all ought to be mindful and prudent in how we go about that,” he said.

A number of lawmakers also brought up the 30-year fixed-rate mortgage, suggesting future debate about that particular element of the mortgage system and how it might exist outside of Fannie and Freddie.

However, as Hensarling noted, his bill was “designed to ensure that not only the 30-year fixed survived, it was designed so that the 30-year fixed would thrive.”

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