Good news. It is now clear that no plan is set to be passed by Congress any time soon. Meanwhile - FnF grow stronger by the day.
Time and tide are our friends.
July 11, 2013, 2:48 p.m. ET.House Republicans Plan to Wind Down Fannie, Freddie
Measure Faces Uphill Climb but Opens Door to Start Mortgage-Market Overhaul.
By NICK TIMIRAOSAnd ALAN ZIBELCONNECTCongressional Republicans said Thursday that they would introduce legislation to wind down Fannie Mae FNMA -4.58%and Freddie Mac FMCC -4.17%over five years and cede the companies' roles to the private mortgage market, which has remained mostly dormant since melting down six years ago.
The bill would create a new utility-like platform for investors to securitize mortgages without a government guarantee, while repealing new curbs on the mortgage-bond market in the Dodd-Frank financial-overhaul bill. It also proposes restricting access to loans backed by the Federal Housing Administration to first-time buyers and moderate-income borrowers.
The measure will face stiff opposition from Democrats and isn't likely to be considered by the Senate, even if it can pass the House of Representatives. But it nevertheless sets out a marker from which Republicans can begin negotiations on the overhaul of the nation's $10 trillion mortgage market.
Related
Read Draft Bill
.
The bill tees up a long-awaited fight over the future of the government's role in the mortgage market. Fannie and Freddie don't buy mortgages but instead package them into securities, providing guarantees to investors should the loans default. Their role helped create deep, liquid markets that attracted an array of investors to fund U.S. mortgages, particularly long-term, fixed-rate loans that banks don't like to hold on their books.
Fannie and Freddie were rescued by the government in 2008 as rising mortgage defaults threatened to wipe out thin capital reserves, though their loans have performed far better than those securitized by Wall Street banks. At the peak of the financial crisis, Fannie and Freddie cost taxpayers around $150 billion. Recently, they have begun to report large profits, and financial analysts say the government could recoup the money invested in the firms as early as next year.
Democrats and some moderate Republicans, along with mortgage investors and the real-estate industry, have argued that some federal guarantees of the mortgage-bond market will be needed to preserve the most popular aspects of the U.S. mortgage market—particularly access to the 30-year, fixed-rate mortgage, a product that isn't widely offered in most other countries, and the ability to lock in a mortgage rate.
Congressional Republicans have argued that those guarantees aren't necessary. The government's role in the mortgage market promoted a "system that did very, very little to help homeowners…and did much to damage taxpayers," said Jeb Hensarling, (R., Texas), who is chairman of the House Financial Services Committee.
The bill is likely to provoke intense opposition from the real-estate industry, a point that Mr. Hensarling obliquely referenced on Thursday. "As much as we all respect those who build our homes and sell our homes, we will not have a policy that is principally designed for the housing industry," he said.
Republicans said they planned to advance the bill through the financial-services committee before the August congressional recess. Political analysts predicted a close vote. "It's a thoughtful and responsible approach, but it is not yet clear that Hensarling has the votes to move his bill through committee, much less on the floor given the potential opposition from parts of the housing industry," said Jeb Mason, a Treasury Department policy adviser during the George W. Bush administration who now works at the Cypress Group, a financial-services consultancy.
Last month, a group of eight Senators—four Republicans and four Democrats—introduced a bill that would also wind down Fannie and Freddie over five years, replacing the companies with a new system that provides for guarantees of certain mortgage-backed securities.
While both Republicans and Democrats appear to agree that Fannie and Freddie should be replaced and that the private sector should play a greater role in the mortgage market, Democrats said the proposal advanced such radical changes to the housing-finance market that it could ultimately hinder any bipartisan effort.
"It is an irony that you could only find in Washington that the one group standing in the way of reducing the government's role in the housing market is doing so in the name of reducing the government's role in the housing market," said Jim Parrott, a former White House housing adviser.
Republicans promised to abolish Fannie and Freddie and drastically reduce the government's role in the mortgage market when they took control of the House in 2011, but so far they have little to show for those aims.
President Barack Obama also hasn't made any serious effort to advance an overhaul. His administration issued a "white paper" two years ago that called for a "wind down" of Fannie and Freddie, but it hasn't advanced any detailed transition steps.
In addition to Fannie and Freddie, the Republican bill proposes several changes to the Federal Housing Administration. The FHA, which has played a key role backstopping mortgages after the private-mortgage market collapsed in 2007, has faced rising defaults and is at heightened risk of exhausting its reserves for the first time in its 79-year history.
The proposal would limit FHA-backed loans to first-time borrowers and to moderate-income borrowers, defined as those who make less than 115% of the area median household income and 150% of the median income in high-cost markets.
The bill would increase down-payment requirements for the FHA, which currently allows a 3.5% minimum down payment, to 5% for non-first-time borrowers. The FHA, which doesn't make loans but instead backs those that meet its standards, would also be required to reduce the amount of its insurance coverage to 50% over five years.
Separately, the top Democrat and Republican on the Senate Banking Committee said they had reached agreement Thursday on a narrower bill focused on improving the financial condition of the FHA
AI
