Cheat Sheet: House GOP's Vision of GSE Reform

WASHINGTON — House Republicans unveiled details on Thursday for their highly anticipated housing finance reform bill, previewing legislation that would largely remove the government from the housing market and restructure the Federal Housing Administration.

The bill is momentous because it marked the start of a significant effort by House GOP lawmakers to push forward on their vision of reform, one that is markedly different from a bipartisan bill pending in the Senate. Still, analysts said it is a signal that lawmakers from both chambers are getting serious about reforming the government-sponsored enterprises.

"This is a seminal moment in housing finance," said Jaret Seiberg, a policy analyst at Guggenheim Securities. "There are now two bills — one on each side of Capitol Hill — to bring about meaningful reform. You have to start somewhere and this is an actual push forward."

Yet there is little doubt that the bill from House Financial Services Committee Chairman Jeb Hensarling and other top panel leaders faces an uphill battle to enactment. Democrats were already blasting the bill on Thursday, arguing it would eliminate the 30-year fixed mortgage and make mortgages in general more expensive.

"This bill eliminates the 30-year fixed rate mortgage as we know it and consigns future generations of homeowners to the types of high interest, balloon-payment mortgages that caused the financial crisis," said Rep. Maxine Waters, the Financial Services Committee's top Democrat, in a press release.

More worrisome to Hensarling, however, is that industry groups are also likely to oppose the bill, something that could make it more difficult to win the Republican support necessary to pass the legislation out of the House.

"Any good committee chairman can get his own bill through his own committee, but it's very difficult to see this kind of measure getting through the full House," said Seiberg. "The Realtors and the Home Builders and even the community bankers are likely to be major impediments to full Republican support."

Isaac Boltansky, a policy analyst at Compass Point Research & Trading, said elements of the bill might attract support, but removing the government from the mortgage market may be too far.

"Any bill that doesn't contain a substantive government backing for the market isn't able to gain any meaningful traction — and that's the ballgame," he said.

Dubbed the Protecting American Taxpayers and Homeowners Act, the bill was co-authored by Reps. Hensarling, Scott Garrett of New Jersey, Randy Neugebauer of Texas and Shelley Moore Capito of West Virginia.

During a press briefing, Republicans unveiled a discussion draft, with more formal legislation expected later this month.

"At the end of the day, what we have before you is a draft document that I believe will be good for the homeowner and good for the taxpayer and will get us to what we're trying to achieve, which is a sustainable housing market," said Garrett at a press briefing on the legislation.

Following are some of the key provisions of the draft bill:

• The bill would mandate a five-year time line for unwinding Fannie Mae and Freddie Mac.
• Ahead of the dismantling of the GSEs, the bill calls for: shrinking the entities' retained portfolios of mortgage-backed securities by 15% per year down to a floor of $250 billion; reducing their conforming loan limits by $20,000 a year to $525,000; and establishing a credit risk-sharing program between the GSEs and the private market covering at least 10% of Fannie Mae and Freddie Mac's new business every year.
• The bill would significantly reduce FHA's role in the market. The plan would limit FHA loans to first-time homebuyers and low-and-moderate income borrowers; reduce the mortgage insurance coverage on individual loans over five years by 10% per year, from 100% to 50% of the original principal amount of the loan; spin off the agency from the Department of Housing and Urban Development; require quarterly financial reports using generally accepted accounting principles; and raise its mandatory capital reserve to 4% up from 2%.
• The National Mortgage Market Utility, a new entity under the plan, would develop "best practices" standards for private mortgage origination, servicing and securitization, but would be prohibited from originating, servicing or guaranteeing mortgages or mortgage-backed securities itself.
• The Federal Housing Finance Agency would be required to spin off its securitization platform to the utility as an open-access common securitization platform. Small banks would be able to securitize qualified mortgage and non-QM loans through the platform, and the Federal Home Loan Banks would be authorized to serve as aggregators to compile pools of mortgages originated by community banks for securitization for the platform.
• The plan would also mandate a delay of Basel III capital rules and Dodd-Frank mortgage rules for small banks; prohibit regulators from implementing the liquidity coverage ratio under Basel; and repeal Dodd-Frank's credit risk retention requirement.