WASHINGTON (11/14/11)--Sen. Bob Corker (R-Tenn.) became the latest member of Congress to take on the future of the U.S. mortgage market when he introduced the Residential Mortgage Market Privatization and Standardization Act late last week.
Corker in a release said the legislation would responsibly unwind government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and end dependence on the government for housing finance.
The bill would accomplish this by reducing the percentage of newly issued mortgage-backed securities' (MBS) principal that is guaranteed by the GSEs each year, with the goal of completely removing Fannie and Freddie from this practice within 10 years. It would also create an industry-financed, and publicly available, performance and origination database and would force the GSEs transfer technology and home price indices to be sold to private investors.
The bill would also impose 5% minimum down payment and full documentation requirements on new mortgages.
Corker said he introduced the bill "to lay down a marker and get a conversation going that Washington has put off for far too long," and called his legislation "sensible steps that can earn back private capital and ultimately get America's housing market back to fundamentals and away from undue government involvement."
Rep. Scott Garrett (R-N.J.) last month also introduced mortgage market-targeted legislation, known as the Private Mortgage Market Investment Act. Garrett's bill would require the Federal Housing Finance Agency (FHFA) to develop underwriting standards and securitization agreements and abolish the risk retention standards set forth by the Dodd-Frank Act, and would also provide new disclosures for mortgage investors and securities purchasers.
Garrett's bill was discussed at a Nov. 3 House Financial Services subcommittee on capital markets hearing. FHFA Acting Director Edward DeMarco testified during the hearing, saying while there is agreement that the GSE model of the past "did not work," there will likely "always be some portion of the housing or mortgage market that will be assisted by government programs, either through direct funding or through guarantees."
The Credit Union National Association (CUNA) has said that Garrett's bill, if enacted, could create a secondary mortgage market made up exclusively of the largest banks in the country, and could result in credit unions being excluded from that market.
The Obama administration is still considering a range of options for mortgage market reform, including almost completely privatizing the housing finance system, limiting the government's intervention in the mortgage market to times of financial distress, and using a system of reinsurance to backstop private mortgage guarantors to a targeted range of mortgages. Administration officials have said that each of these proposals would shrink the government's role in the mortgage market.
The Senate is not likely to take up comprehensive housing finance reform legislation before the end of the Congress, CUNA Senior Vice President of Legislative Affairs Ryan Donovan said.
For more on Corker's bill and prior coverage of the letter to the administration, use the resource links.