Senators Johnson and Crapo Release Housing Finance Reform Bill Text
Yesterday afternoon, Senate Banking Committee Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID) released the text of their comprehensive housing finance reform legislation, entitled the Housing Finance Reform and Taxpayer Protection Act of 2014. The Senators also released the section-by-section description of the bill and a detailed summary. In their announcement, the senators indicate that they hope the Committee will consider this legislation in the coming weeks.
As NCSHA previously reported, Johnson and Crapo’s bill builds off the Housing Finance Reform and Taxpayer Protection Act of 2013, S. 1217, introduced by Senators Bob Corker (R-TN) and Mark Warner (D-VA). The Johnson-Crapo bill includes several changes to the Corker-Warner bill that NCSHA advocated to provide HFAs access to the new secondary market system it would establish and to support affordable housing, as described below.
Johnson and Crapo’s discussion draft would gradually wind down Fannie Mae and Freddie Mac and replace them with the Federal Mortgage Insurance Corporation (FMIC), a government agency that would provide catastrophic reinsurance for mortgage-backed securities. Under this system, private entities would be expected to cover losses of at least 10 percent of the principal of a covered security before FMIC’s catastrophic coverage kicks in.
FMIC would be tasked with establishing standards that loans in each security would have to meet for that security to be eligible for the federal reinsurance. The discussion draft would require that FMIC establish standards that are substantially similar to the Consumer Financial Protection Bureau’s (CFPB) final Ability-to-Repay/Qualified Mortgage Rule. In addition, all loans in FMIC-backed securities must have a minimum down payment of 3.5 percent for first-time homebuyers and 5 percent (phased in over three years) for non-first-time home buyers. The discussion draft differs from the Corker-Warner bill by explicitly requiring that FMIC’s standards make state HFA loans eligible for the federal guarantee and allowing the lower 3.5 percent down payment for first-time home buyers. The Corker-Warner bill would establish a 5 percent down payment requirement for all loans.
The discussion draft would require that all FMIC-backed securities be traded on a common securitization platform, which would be owned and operated by its members. HFAs would be eligible to join the platform. The discussion draft differs from the Corker-Warner bill by allowing the platform’s governing board to consider charging HFAs and other mission-driven lenders reduced fees to help facilitate their membership.
To help small lenders take advantage of FMIC, the discussion draft would authorize FMIC to establish a mutually owned company that would allow its members to sell individual loans at the cash window and/or pool their loans together into mortgage-backed securities. The discussion draft differs from the Corker-Warner bill by including a provision stating that HFAs that meet the mutual’s membership requirements (which will be determined by the mutual’s board) will be allowed to join the mutual. The Corker-Warner bill appeared to limit membership in the mutual to small private lenders.
The discussion draft would eliminate Fannie Mae and Freddie Mac’s affordable housing goals. Instead of the goals, the discussion draft adds a new requirement not included in the Corker-Warner bill directing FMIC to support the primary mortgage market to help ensure that all eligible borrowers, including traditionally underserved consumers, have equitable access to mortgage loan credit. To fulfill this duty, FMIC would promulgate regulations that identify and define up to eight areas of the single-family market that are underserved. All FMIC-approved guarantors would be required to submit an annual report detailing their efforts to serve those underserved market segments identified by FMIC. However, FMIC would be not allowed to mandate that approved-guarantors serve any of these market segments.
In addition, the discussion draft would also establish a user fee of 10 basis points on all securities FMIC guarantees to capitalize the state-administered Housing Trust Fund, the Treasury-administered Capital Magnet Fund, and a newly established Market Access Fund, which FMIC would administer to support research and development of innovative new ways to support affordable home lending. The Corker-Warner bill would have amended the Housing Trust Fund to make Market Access Fund-type activities eligible under the Trust Fund, but the discussion draft makes the Market Access Fund a separate entity instead of including its activities in the Housing Trust Fund. The discussion draft also adds language not included in the Corker-Warner bill authorizing FMIC to reduce guarantors’ per-security user fees if they demonstrate a track record of supporting affordable lending to underserved borrowers and markets.
The discussion draft would require Fannie Mae and Freddie Mac to spin off their multifamily subsidiaries into separate entities. These entities would continue Fannie Mae’s and Freddie Mac’s multifamily businesses as they currently operate. Additional firms would be allowed to apply to be additional federally backed multifamily guarantors. Each approved multifamily guarantor would have to ensure that 60 percent of the rental housing units it finances are affordable to families with incomes at or below 80 percent of area median income. The Corker-Warner bill had language transferring Fannie Mae’s and Freddie Mac’s multifamily activities to FMIC and did not include an affordability requirement.
As the Committee prepares to consider the bill, NCSHA will continue to work with Committee members and their staff to consider changes to the bill that ensure that any housing finance reform bill advances HFA interests and supports affordable housing.