Hensarling released the proposal on 6 September to mark the ten-year anniversary of when Fannie Mae and Freddie Mac entered government conservatorship. Committee Member John Delaney (D-MD) is the lead Democrat on the proposal.
The Bipartisan Housing Finance Reform Act of 2018 would revoke the charters for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The two government sponsored enterprises (GSE) are responsible for purchasing mortgages on the secondary market and pooling the mortgages into securities for investors.
Ginnie Mae, another GSE which backs investments in Federal Housing Administration (FHA) and other loans, would replace Fannie Mae and Freddie Mac and guarantee privately-insured mortgage-backed securities. Loan originators, however, would first need to acquire coverage from a private mortgage credit guarantor before Ginnie Mae would back the security. Loans would need to include a minimum 5% down payment as opposed to the current 3% minimum. The proposal would make numerous other reforms to the system.
Related: U.S. Senate Passes Provisions on Crumbling House Foundations
The secondary mortgage market has a direct impact on the availability of lenders to provide mortgages to consumers. Since the relocation of an employee often involves the sale or purchase of a home with the transferee securing a mortgage, the stability of the secondary mortgage markets effects our industry.
Hensarling had previously pushed legislation to dismantle Fannie Mae and Freddie Mac which would have moved the market more toward privatization. However, the legislation, the PATH Act, met resistance from primarily Democrats and the new proposal will have a better chance of passage before Hensarling retires at the end of this Congress.
Efforts to restructure the current system primarily stem from the collapse of the housing finance system and the placement of Fannie Mae and Freddie Mac into conservatorship in September 2008. The federal government made an infusion of $187.5 billion into Fannie and Freddie Mac. However, with the improvement in the economy and housing market, Fannie Mae and Freddie Mac have repaid the funds as well as additional returns and thus decreased the pressure on Congress to act.
The proposal faces an uncertain future as several Senate Democrats are concerned about ending the current system and some Senate Republicans believe the federal government would still have too large of a role.