Draft Housing Finance Reform Proposal Leaks
Earlier this week, a draft housing finance reform proposal being developed by Senators Bob Corker (R-TN) and Mark Warner (D-VA) began circulating in Washington. Corker’s and Warner’s offices confirmed the leaked draft’s authenticity but stressed that it does not reflect recent changes they have made to the legislation.
The Senators, both of whom are members of the Banking Committee, hope to introduce their legislation in the coming months. NCSHA is involved in ongoing conversations with both Senators’ staffs about the bill and how it will impact affordable housing and HFAs.
The proposal would wind down Fannie Mae and Freddie Mac and establish a system with multiple private entity guarantors that would apply to the Federal Housing Finance Agency (FHFA) for approval to purchase government insurance for qualified single-family and multifamily mortgage-backed securities (MBS) from Ginnie Mae. The Ginnie Mae insurance would be largely the same as the insurance it currently provides on MBS comprised of federal program loans.
The legislation requires FHFA to foster a competitive secondary mortgage financing market by approving enough guarantors so that no one company controls more than 20-25 percent of the market. FHFA would also be tasked with regulating the guarantors, including setting capital and liquidity standards. Guarantors would be required to provide equal access to all originators, regardless of their size or loan volume. Further, guarantors would also have to offset some of the risk associated with the loans they guarantee through credit risk transfers.
The draft also proposes to assess a market access fee for each loan that is contained in a federally insured MBS. Sixty-five percent of the proceeds from these fees, up to specified limit set FHFA, would go to the Housing Trust Fund. Thirty-five percent of the proceeds, again up to specific limit set by FHFA, would go to the Capital Magnet Fund.
Fees above the FHFA-established limit would support a proposed Market Access Fund. The FHFA would administer the new Fund, which would support initiatives designed to help underserved borrowers purchase a home, including down payment assistance, housing education and counseling, subsidizing reduced interest rates for borrowers, and making direct contributions to borrowers to help them make their mortgage payments. The legislation directs FHFA to endeavor to work with HFAs when developing its plans for the Fund.
The legislation appears to place no affirmative obligation on the guarantors to support affordable housing. Approved guarantors would be required to submit to FHFA each year their plans to improve access to credit for underserved borrower populations and to, if they choose, request funding from the Market Access Fund. However, FHFA is not allowed to influence the content of those plans.