WASHINGTON — Despite a legislative push by some senators and other stakeholders to jump-start housing finance reform, efforts to form consensus over a bill once again are stuck in neutral.
A draft of a housing finance reform bill being crafted by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., was leaked late last month, but neither lawmaker has put their formal stamp on the legislation and it’s not clear when an official bill will be brought forward.
Groups on both the left and right have been unwilling to support the draft plan, and even though the focus may be shifting quickly to what the Trump administration can do without a bill to reform Fannie Mae and Freddie Mac, clarity on what an administration plan might look like has also been lacking.
“It is a good-government kind of issue, not one that has a lot of huge political push,” Sen Bob Corker said of GSE reform. “It is moving slowly, but we had a good meeting with the administration” last week.
In a recent interview, Corker acknowledged the difficulty of getting momentum behind a bill.
“It is a good-government kind of issue, not one that has a lot of huge political push,” he said. “It is moving slowly, but we had a good meeting with the administration" last week.
The legislative window for reforming the government-sponsored enterprises this year is closing, with many observers viewing the run-up to the midterm elections as a deadline.
"You would have to get there before" the midterms, Corker said.
If no legislative progress emerges by then, the Federal Housing Finance Agency and the Treasury Department could proceed on reforms without legislative input. One idea is to put the GSEs through a receivership, which is somewhat similar to how the Federal Deposit Insurance Corp. resolves failed banks.
But when Corker pointedly asked Treasury Secretary Steven Mnuchin during a recent hearing what the administration could do if Congress isn’t able to pass legislation, Mnuchin declined to elaborate, although he acknowledged there have been discussions on steps forward.
Corker, who late last year announced he would not run for re-election but is reportedly now reconsidering retirement, insisted the message he hears from the administration is preference for legislative reform for the GSEs.
“It is interesting to understand what they could do in fact without any kind of legislation, but they would prefer a legislative solution and they are engaging with the [Senate Banking Committee] now to try to move to a place where we can get bipartisan support,” Corker said.
GSE reform "is a complex topic," he added, but Banking Committee Chairman Mike Crapo "is hoping to deal with it this spring."
However, when asked, Crapo said that even though a GSE bill is "a priority," he declined to give any timetable. "I am not going to make any projections on when we have a draft bill," he said.
But getting a bill out of the Senate may only be half the battle. In past GSE debates, key GOP House lawmakers, such as Financial Services Committee Chairman Jeb Hensarling, favored a more conservative approach without a government backstop. But Hensarling, who like Corker announced he is not running for re-election, has expressed more willingness to deal of late.
Corker sounded optimistic about the prospect of negotiations with the House.
“I know the House is very open to dealing with it also, and the question would be can we get to a place in time this year that we can pass legislation," he said.
Proponents of the draft bill, including segments of the mortgage industry, that has formed the basis for Senate discussions are hoping they can garner support from progressives to overcome opposition from any Republicans who might reject any plan that retains a government backstop.
The draft bill would put Fannie and Freddie through receivership but then recharter them along with new guarantors. The new companies — along with the recreated Fannie and Freddie — would issue mortgage-backed securities with an explicit government guarantee. The plan also looks to create a “market access fee” charged on new mortgages that would provide funding for affordable housing and reduce mortgage costs for low-income borrowers.
However, some consumer groups still have been unwilling to support the Senate plan. They fear that low- and moderate-income borrowers would lose from the removal of certain affordable housing requirements that are embedded within Fannie and Freddie’s charter.
"We are disappointed that Senators Corker and Warner are threatening to move to a new untested system removing the safeguards that ensure a more inclusive mortgage market and broad liquidity in rural communities and communities of color, and that ensure small bank lenders can compete on equal footing with larger banks," several groups, including the Center for Responsible Lending, said in a joint statement earlier this month.
But a paper released this week by the Urban Institute and written by supporters of the legislative housing finance reform efforts argued that the Senate plan would actually go further to help low- and moderate-income borrowers. The paper said the plan could lower mortgage interest rates by an average of 29 basis points.
“Bottom line is that the proposed system provides considerably more and better-targeted support to assist" low- and moderate-income households, the paper said.
But some conservative groups say the draft bill goes too far in retaining government support for the housing market. They already appear to favor administrative reforms, where a new Trump administration-appointed Federal Housing Finance Agency director, to succeed current Director Mel Watt, would have broad powers to unwind Fannie and Freddie.
“We think there is a bigger problem” than getting more Democrats to support the bill and “that is the history of affordable housing mandates is a bad one,” said Edward Pinto, co-director of the American Enterprise Institute’s center on housing market and finance. “The Corker draft is just more of the same.”
“This bill is already laden with distortionary financing and directions that would allow a regulator … run with it and before you know it, you will have another house price boom, which he have done today,” Pinto said.
But Brian Gardner, an analyst at KBW, said the administration will likely keep waiting to see if Congress can pass reforms before proceeding with its own vision.
“The administration will give Congress the year to try and pass legislation and if that fails then I think the administration may move on something,” Gardner said.
Watt, the current director of the FHFA, was appointed by the Obama administration. A Trump administration plan to reform the housing finance system independent of Congress could begin to greater shape once his term ends, in January 2019, and the White House nominates its own director.
The White House budget released earlier this week is used as a messaging document and signaled that the administration would take a more conservative approach, including getting rid of the Housing Trust Fund and the Capital Magnet Fund, two programs funded in part by Fannie and Freddie that consumer groups hope to protect.
The budget also called for doubling Fannie and Freddie’s guarantee fee surcharge to 20 basis points, which could shrink the GSEs’ footprint, a long-standing goal for many Republicans.
Jim Parrott, a consultant at Falling Creek Advisors and a former Obama adviser who co-wrote the Urban Institute paper advocating for the Senate reform plan, said the full plate of other issues in Congress not tied to GSE reform also poses an obstacle to moving a housing a finance bill.
“The window for getting anything done in this Congress is closing and already pretty full with big, time-consuming projects," Parrott said. "At some point soon you are going to have more projects than time within which to do them, leaving you with maybe a month or two before the window closes on this in the Senate."
Ian McKendry is the Congress reporter for American Banker.
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