WASHINGTON — The Senate Banking Committee voted 19 to 2 to approve a bill that would create a new regulator for the government-sponsored enterprises and expand the government’s role in combating the housing crisis.
The large bipartisan vote was a victory for Chairman Chris Dodd, who had delayed previous votes several times in an effort to win Republican support. It also gives the legislation a significant boost as it heads to the Senate floor.
Several observers thought GSE reform would never clear the Senate Banking Committee with support from both parties. Bills passed in 2004 and 2005, but Democrats opposed both of them, and they were never taken to the Senate floor.
Sen. Dodd said Monday he is hoping to get it to President Bush by July 4. After approval by the full Senate, lawmakers will have to settle differences between the Senate version and similar legislation passed by the House two weeks ago.
The Senate bill includes a separate measure that would allow the Federal Housing Administration to insure mortgages worth more than the value of a home after lenders and servicers write down the loan to 87% of current market value.
The bill would require a GSE-funded affordable housing allocation to offset the costs of the loan refinancing program. Sen. Dodd said Monday it could insure $300 billion worth of mortgages. He estimated the FHA program would cost $500 million, which would all be borne by the affordable housing program.
The bill would allocate the entire affordable housing fund — which would require the GSEs to set aside an amount equal to 4.2 basis points per dollar of each enterprises' unpaid principal of total new business purchases — to the FHA rescue program in 2009; 50% in 2010; and 25% in 2011.
Any leftover funds from the GSEs would be redirected towards the affordable housing trust fund's "original purpose" in which 75% of the fund would benefit "extremely low income families" and the remaining 25% would benefit "very low-income families."
Previously, Democrats and Republicans had squared off over how much power a new GSE regulator should have over the enterprises’ minimum capital requirements and portfolio holdings. The new bill would give the regulator power over the portfolio holdings "to ensure that the holdings are backed by sufficient capital and consistent with the mission and the safe and sound operations of the enterprises." The bill also said the regulator "shall consider the ability of the enterprises to provide a liquid secondary market through securitization activities, the portfolio holdings in relation to the overall mortgage market, and adherence" to other standards.
The bill says that the regulator can revise minimum capital standards for the GSEs and the Federal Home Loan Banks to the extent needed to ensure that the regulated entities operate in a safe and sound manner.
The bill would allow the regulator flexibility to require temporary minimum capital increases for "a reasonable time frame" when "necessary" for "safe and sound operations… to support the risks that arise in the operations and management of a regulated entity."
The bill orders a study on the extent to which loans and securities used as collateral to support the FHLB's advances are consistent with the interagency guidance on nontraditional mortgage products. It also would require the Treasury Department to increase financial education programs covering counseling and homebuyer assistance.
