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At a hearing Thursday, Rep. Scott Garrett, R-N.J., grilled Treasury Secretary Timothy Geithner on when the administration will release a GSE reform plan that is more detailed than its April white paper, which provided a rough sketch of three different options.
October 7 -
In appearances before the House and Senate, the Treasury secretary testifies about the housing market, community banks, financial stability, and America's exposure to the European debt crisis.
October 6 -
WASHINGTON — While President Obama is still seeking a comprehensive plan to dismantle the government-sponsored enterprises, House Republicans are pursuing an alternate route to that goal, introducing a series of bills designed to tackle the issue in a piecemeal fashion.
May 13 -
Taking a piecemeal approach to housing reform, House Republicans introduced a series of bills Tuesday to scale back Fannie Mae and Freddie Mac.
March 29
WASHINGTON — Rep. Scott Garrett unveiled a reform plan on Thursday designed to draw the private sector back to the secondary-mortgage market after troubled Fannie Mae and Freddie Mac are eventually terminated.
"It's time to turn the page for planning what occurs post Fannie and Freddie," Garrett told reporters at a press conference on Capitol Hill announcing his legislative proposal.
Already, Republicans have introduced a total of 15 bills to dismantle the government-sponsored enterprises, covering everything from capping the GSEs liability to taxpayers to raising the enterprises' guarantee-fee.
"Even all of that, if you think about it, are incremental steps that we've been taking to date," said Garrett, chairman of the Financial Services subcommittee on capital markets and government-sponsored enterprises. "Now we are at the next step" in beginning to draw a picture of what the private market will look after Fannie and Freddie are gone.
At a hearing earlier this month, Garrett grilled Treasury Secretary Tim Geithner on when the administration would release a more detailed GSE reform plan beyond the initial white paper the administration released in April.
Geithner said he was happy to discuss the three options laid out by the administration, but said Treausry would need more time to craft a concrete plan due to other pressing priorities.
"As you know, we've been a little busy. We had a little crisis in Europe, we had a little debt limit debate," Geithner said at the Oct. 6 hearing.
For that reason, Garrett said it was time to press ahead with or without the administration's support.
"We were expecting to hear back from the administration with some more detailed explanations on some of these things," said Garrett. "We're still waiting from April. We think this is important and that we need to continue to move on in the process. So we had the vetting process, we've had nine, ten months now of 17 hearings on this, we're ready to move on to the next process."
The legislation, dubbed The Private Mortgage Market Investment Act, would do a number of things, including repealing the risk-retention provision in Dodd-Frank, which requires a securitization sponsor to retain a portion of the risk at 5%, along with a special exemption for a "qualified residential mortgage."
Beyond that, his proposal would call on the Federal Housing Finance Agency to establish a uniform set of underwriting standards for mortgages that would be eligible to be securitized in the new market.
The agency would have the power to set up as many classes of loans it deemed necessary. Garrett's proposal suggested three classes based on various credit characteristics. The credit risk of each class of mortgage would be based on a number of factors including debt-to-income, loan-to-value, credit history and loan documentation.
The agency would also take steps to standardize the securitization process, as well as establish clear rules and provide greater transparency and disclosures to investors.
"That would be important for those investors who are purchasing those securities to have an understanding of the level of risk within each of these categories so they would feel comfortable," Garrett said.
So, for example, FHFA would standardize pooling and servicing agreements; purchase and sale agreements; and trust agreements under Garrett's proposal.
To offer greater clarity, the new standardized securitization market would provide uniform definitions; uniform representations and warranties; address conflicts of interest between servicers and investors; and establish a dispute resolution process.
Lastly, Garrett's proposal would beef up the quality of individual loan disclosures and give investors enough time to review and analyze loans before making an investment decision. It would also assign an individual tracking number to each loan within the securitized pool of mortgages.
