This GSE plan may go nowhere, but it still matters

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This GSE plan may go nowhere, but it still matters


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WASHINGTON — The legislative path is extremely narrow for a new housing finance reform plan by House Financial Services Committee Jeb Hensarling, but it injected a dose of hope for progress on an issue that is more often stuck in neutral.

The plan, co-drafted with Democrats John Delaney and Jim Himes, won some praise but several lawmakers said it lacked specifics. Yet the bill, which envisions Ginnie Mae stepping in for Fannie Mae and Freddie Mac, could help form the consensus for a future reform push as both sides of the aisle now agree there should be some continued government backing for the mortgage system.

Hensarling’s plan continues to mark a shift in the retiring lawmaker’s thinking on the government-sponsored enterprises. After previously touting a GSE plan that would effectively end the government’s involvement, his bill unveiled Thursday shares some characteristics with the bipartisan framework developed by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., that retained a federal backstop.

House Financial Services Committee Chairman Jeb Hensarling’s plan continues to mark a shift in the retiring lawmaker’s thinking on the government-sponsored enterprises.

Bloomberg News

“I applaud Chairman Hensarling and Representative Delaney on their bipartisan proposal,” said Corker in an emailed statement. “It is long past time to end the failed model of private gains and public losses, and I am glad to see that the House framework shares significant similarities with the proposals we have laid out on a bipartisan basis in the Senate. I am hopeful that this will help continue to grow support to address this last unfinished business of the financial crisis.”

The latest bill also keeps the spotlight on Ginnie Mae as a potential alternative to Fannie and Freddie in providing support for mortgage-related assets. A 2014 bill by Delaney and other House Democrats included a larger role for Ginnie, as did the Corker-Warner framework.

Warner noted common characteristics between the House and Senate plans, but sounded skeptical that the Hensarling-Delaney-Himes plan would sufficiently maintain access to housing finance options.

“There are ideas in the draft that are similar to those Sen. Corker and I discussed in the Senate,” he said in a statement emailed through a spokesman. “But the draft contains limited specifics on how mortgage access and affordability would be protected in the proposed system, which is one of the more challenging issues involved in housing finance reform.”

Hensarling announced the plan during a hearing on the 10-year-old conservatorships of Fannie and Freddie Mac. The proposal would repeal the GSEs’ charters and transfer some of their responsibilities to Ginnie Mae.

The bill, titled the Bipartisan Housing Finance Reform Act, would still seek to preserve key components of the current system, such as liquidity and the 30-year, pre-payable fixed mortgage.

“This bipartisan proposal is a bold reform to the current model,” Delaney, a Maryland Democrat who has declared himself a candidate for president in 2020, told reporters. “In my judgment, it will make the housing finance system in this country much safer and much more stable.”

According to a summary of the draft, their approach would “harness the benefits of the existing framework of Ginnie Mae and the government guarantee it provides, while providing options for how to finance mortgage lending so that we maximize choice for borrowers, loan originators, and investors.”

Such an idea has surfaced before. In 2014, Delaney and Himes, of Connecticut, along with other House Democrats unveiled the Partnership to Strengthen Homeownership Act, which proposed winding down Fannie and Freddie and establishing an insurance program through Ginnie Mae.

Ed DeMarco, former acting director of the Federal Housing Finance Agency, also co-wrote a paper on a plan that emphasized utilizing Ginnie Mae. The paper was written with Michael Bright, who has been nominated to run Ginnie.

At the hearing, DeMarco noted there is increasing support for increasing the backing of private mortgage market participants but still keeping a role for the taxpayer.

“Now with the chairman’s announcement today, there certainly seems to be broad consensus about establishing a single mortgage-backed security that has a catastrophic guarantee from the taxpayer but is backed by substantial private capital in a first loss position,” said DeMarco.

However, Hensarling is set to retire at the end of the year and the legislative session is quickly coming to a close, leaving almost no time for the new proposal to move forward. The House Financial Services Committee hasn’t held hearings on the bill, and the approach in the proposal lacks broader support, wrote Jaret Seiberg, an analyst at Cowen Washington Research Group, in a note.

“With just a handful of legislative days left in the year, the clock has expired,” he wrote.

Still, Hensarling told reporters he does anticipate a legislative hearing on the bill.

“I think that my colleagues and I want to see how far we can take it in this particular Congress,” he said.

The bipartisan approach for reform was lauded by policymakers on both sides of the aisle as well as key industry groups. For many, the willingness to tackle the issue at all this year is notable progress, even if passage of a reform plan may still be years away. Hensarling’s planting the seed of a plan now might result in the proposal coming back. It is also notable that both he and DeMarco have been mentioned as candidates to run the FHFA, the GSEs’ regulator, in the future.

“I certainly welcome this sterling example of leadership on the chairman’s part here to work in a bipartisan way in these final three months,” said Rep. Bobby Scott, D-Va., at the committee hearing.

Rep. Dennis Ross, R-Fla., agreed, calling the resolution “refreshing.”

“Ultimately, the chairman’s proposal moves this discussion forward, marking a notable, important shift to a Ginnie Mae model that operates on a smaller, more nuanced scale,” said Elizabeth Mendenhall, the head of the National Association of Realtors, in a statement.

But some Democrats were skeptical, saying such a plan would increase borrowing costs for consumers.

Rep. Carolyn Maloney, D-N.Y., said she was unconvinced that Ginnie Mae has the capacity to handle such a role, adding that it has a “very, very different business model” that doesn’t focus on credit risk.

“I am really questioning and rather skeptical that Ginnie Mae is equipped to handle this type of responsibility or that the Ginnie Mae model would work for a deeper, larger mortgage market,” she said.

Nikitra Bailey, the executive vice president at the Center for Responsible Lending, testified at the hearing that the bill would put small lenders on “unequal footing with their larger bank competitors.”

“Ginnie is really complex and it has a lot of complexity around it that would be difficult for small lenders to manage, so we would have to take that into consideration,” she said at the hearing.



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