Financial Services Committee Explores Housing Finance Reform Plan
On December 21, the House Financial Services Committee held its last hearing of the 115th Congress to discuss draft legislation designed to reform the housing finance system. The bill, Bipartisan Housing Finance Reform Act of 2018, introduced by outgoing Committee Chair Jeb Hensarling (R-TX) and Committee members John Delaney (D-MD) and Jim Himes (D-CT), would privatize Fannie Mae and Freddie Mac and establish a system via which private guarantors would be able to purchase government insurance for their mortgage-backed securities from Ginnie Mae. It was also the last hearing for Hensarling and Delaney as both have retired from Congress.
The Committee invited a large contingent of witnesses from housing industry and advocacy organizations to weigh in on the bill. The panel included the following speakers: Edward DeMarco from the Housing Policy Council; Diane Yentel from the National Low Income Housing Coalition; Vince Malta of the National Association of Realtors; Robert Broeksmit from the Mortgage Bankers Association; Jerry Howard of the National Association of Home Builders; Don Calcaterra from the Community Home Lenders Association; Rick Stafford on behalf of the National Association of Federally-Insured Credit Unions; Lindsey Johnson from U.S. Mortgage Insurers; Alex Pollock from the R Street Institute; and Norbert Michel of the Heritage Foundation.
Hensarling used his opening statement to express his discontent that Congress has been unable to resolve the government’s conservatorship of Fannie Mae and Freddie Mac. He believes the status quo is becoming “increasingly dangerous” and the housing market may suffer from Congress’ failure to pass “meaningful, certain, and sustainable housing finance reform.” Hensarling said the bill being considered in the hearing was one way to address concerns over a relapse into the type of lending that precipitated the housing crisis, but it is not the only way to do so.
In previous hearings on housing finance reform, Hensarling expressed that he still believes the PATH Act, which passed the Committee in 2013, remains the best proposal to reform the housing finance system but has acknowledged the very small likelihood of the legislation becoming law. He introduced the bipartisan legislation with Delaney and Himes as a way to advance the discussion on housing finance reform into the new Congress. Hensarling also noted that, if the new Congress fails to act on housing finance reform, President Trump’s nominee to head the Federal Housing Finance Agency, Mark Calabria, if confirmed, will have the authority to “unilaterally shape the path of housing finance reform.”
Ranking Member Maxine Waters (D-CA), who will chair the Committee in the 116th Congress, asked Calcaterra about the transition risk to the housing market if the bill were to be enacted, as the bill would make “major structural changes” to the current housing finance system. Calcaterra said one of the reasons he supports the bill over other proposals is that the Ginnie Mae model is a proven vehicle for financing loans which would help to minimize transitional risk.
Waters also asked the panel about the bill’s ability to ensure underserved borrowers continue to have access to credit and the importance of continued funding for the Housing Trust Fund. Yentel expressed her opinion that expanded funding for the Housing Trust Fund should be an essential component to any housing finance reform proposal as the fund is an important vehicle to help house Americans with extremely low incomes, who are facing a shortage of 7.5 million homes available and affordable for them.
Representative Patrick McHenry (R-NC), the incoming ranking member, did not participate in the hearing. While Committee members and witnesses agreed on the need for housing finance reform legislation and supported some aspects of the Hensarling bill, they also raised significant concerns about it.
For more information on the hearing, please contact Glenn Gallo.