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As the pace of the GSE reform efforts appears to be quickening, we offer the following frequently asked questions about what the Obama administration wants, widening Democratic support for a bill, and when GSE reform is likely to happen.
August 9 -
Sen. Bob Corker, R-Tenn., a co-author of housing finance legislation, urged the House and Senate to pass their bills that offer different replacements for Fannie and Freddie. The bills can be reconciled in negotiations later, he said.
July 25 -
The House Financial Services Committee was expected to approve a Republican-backed bill to remove government support in a new housing finance system, but senators continue to back a more bipartisan approach that preserves a federal backstop.
July 23
WASHINGTON House Financial Services Committee Chairman Jeb Hensarling said Tuesday that he remains hopeful the House will vote this fall on his bill to reform the mortgage finance market and move quickly towards a conference with the Senate to resolve ongoing policy disagreements.
The Texas Republican introduced a bill with several senior members of the banking panel last month, which would unwind Fannie Mae and Freddie Mac, and privatize the secondary mortgage market. But the legislation has since come under fire for not including at least a catastrophic government backstop for the market, a provision that Senate Democrats and the White House have said is necessary. A competing GSE reform plan in the Senate led by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., would get rid of the government-sponsored enterprises but maintain a limited government guarantee.
Although some observers have questioned whether Hensarling has the votes to pass his bill through the House, he said Tuesday that Majority Leader Eric Cantor "is anxious to bring the [bill] to the floor."
"I have an open mind, and we are speaking to many people now about some revisions and improvements that could be made to that act before it goes to the floor," said Hensarling during a question and answer session at an event hosted by the Bipartisan Policy Center.
He added that he is "cautiously optimistic" that Senate Banking Committee Chairman Tim Johnson and Sen. Mike Crapo, the top GOP panel member, will also move legislation in the fall.
He said any differences between the two bills could get worked out during a House-Senate conference.
"To extent anything I have to say about it, we would go to conference," Hensarling said, adding that he is feeling more encouraged about mortgage finance reform after President Obama's housing address last week.
Still, the remarks during the Q&A period contrasted to some degree with Hensarling's prepared remarks, which signaled little willingness to compromise with his Senate counterparts on the biggest conflict facing lawmakers whether any new system should include a government guarantee.
"Much has been said in this debate about the so-called 'need' to have GSEs or their equivalent in our housing finance system. First, we should recognize that the U.S. is practically alone in the modern industrialized world in having GSEs directly guarantee mortgage securities," Hensarling said during the speech. "By almost any measure Fannie and Freddie have not propelled the U.S. to housing finance nirvana."
He added that the jumbo mortgage market continues to exist without a guarantee, noting that before the crisis it accounted for roughly 20% of the total market.
Hensarling also defended his bill, which passed the House Financial Services Committee last month, against several repeated criticisms, including concerns the legislation would do away with the 30-year fixed mortgage and make it harder for middle class families to buy homes.
"It is worth noting here that Section 213 would be the first time that the FHA is ever specifically required to offer a 30-year fixed rate insurance product, which should conclusively refute the argument regarding the 30-year fixed rate mortgage," he said, arguing that the Dodd-Frank Act, not his legislation, is what would drive up the costs of buying a home for many borrowers.
"[T]he Dodd-Frank Act could cut the number of mortgages in half and double the cost of those that remain. It's that bad," Hensarling said.
He also pushed back on concerns that the mortgage market would not attract enough private capital to sustain it, arguing that the equity markets are more than twice as large and survive without government backing and calling into question how lawmakers would be able to determine what the right amount of capital would be.
"Just how much capital is 'sufficient' for housing finance? I don't know the answer to that and I suspect no one in this audience knows, either," he said. "But I do know that whatever that number is, it must be sustainable. That is the key concept."
In response to concerns that the legislation is too partisan, Hensarling emphasized how the bill would move the market away from the status quo.
"I know some have alleged the PATH Act is 'ideological.' But it seems to me those who defend the failed status quo of taxpayer bailouts, economic crises and mediocre homeownership rates are the ones being ideological," he said. "Instead, the PATH Act is sustainable sustainable for homeowners so they buy homes they can actually afford to keep; sustainable for taxpayers so they never have to bail out our housing finance system again; and sustainable for our economy so we avoid the seemingly never ending boom-bust cycles of our housing market. Perhaps in Washington that's ideological. In the Fifth Congressional District of Texas, that's common sense."
The Texas Republican, meanwhile, gave a quick nod, but not much more, to other housing finance reform efforts, including recent remarks by Obama, in which the president backed a plan similar to that being developed in the Senate.
"I could not be more gratified that last week the President finally added his voice to this important debate," he said. "Although I heard few specifics, I welcome him to this debate and recognize he is indispensable to a solution."
Hensarling added: "Other important voices in the debate are those of Senator Corker of Tennessee and Senator Warner of Virginia, and I commend them for their leadership. As someone who has worked for years on the complicated and contentious issue of housing finance reform, I salute anyone who works hard and produces an actual plan."
