WASHINGTON The two authors of a Senate bill aimed at overhauling the mortgage finance system said Wednesday their legislation achieves the kind of balance needed to attract support from both parties.
Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., discussed their proposal to wind down Fannie Mae and Freddie Mac, and replace the two government-sponsored enterprises with private mortgage insurers, at an event sponsored by the Bipartisan Policy Center. The legislation would create a new agency, called the Federal Mortgage Insurance Corp., to regulate private insurers and provide them with a catastrophic guarantee.
Warner said the bill is a more serious attempt at gaining broad support than a competing plan in the House championed by Financial Services Committee Chairman Jeb Hensarling, R-Texas, and other Republicans. The House plan would fully privatize the mortgage finance market.
Hensarling's bill is "an ideologically pure exercise, which will never have a single Democratic supporter," Warner said. "I give [Hensarling] credit for an exercise that lays out a very coherent approach. I question whether outside of the [Financial Services] committee it will even get a broad base of Republicans. It will completely upend our housing finance system. It would destroy the 30-year fixed mortgage. It would destroy the ability of so many of the purchasers of these securities both domestic and particularly foreign purchasers because they need that government backstop."
Corker, meanwhile, defended Hensarling's efforts, noting that he introduced a similar bill in the Senate just two years ago. Yet he acknowledged that the House legislation would be difficult to pass.
"I found myself as the only sponsor of this piece of legislation," Corker said of his earlier bill that would have cut out government involvement in the market. He said his plan crafted with Warner "strikes the appropriate balance."
The lawmakers also defended their decision to require private capital to cover the first 10% of credit risk in the plan, a figure that has drawn some skepticism from observers.
"The bottom line is, around here you make everything up, so we decided on 10% and that's where we are," Corker said jokingly.
Warner said the market will ultimately be crucial for helping to determine how that 10% is structured. Both lawmakers emphasized during the discussion that the bill is a work in progress and will benefit from industry input.
"That whole notion of taking that 10%, it may be tranched into different components. I'd rather overshoot on protecting the taxpayer and recognize that it may be tranched it may be tranched such that the first 5 or 6% is priced at a higher rate of return than the balance. I actually think the market can help us get this right."