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NHC Beyond 4 Walls Podcast

A window opens for housing finance reform

Imagine if leaders in both parties and both Houses of Congress decided to pursue a bipartisan solution for housing finance reform to fix the secondary mortgage market that broke in 2008 and has remained in conservatorship ever since. NHC brought housing stakeholders together several years ago to craft principles for just such a reform effort. Early signs point to possible action in Congress next year.

The Senate Banking Committee is circulating a draft proposal to reform the housing finance system, according to Politico Pro. At an event hosted by the National Association of REALTORS® (NAR) and the S&P Index on Dec. 6, Sen. Heidi Heitkamp (D-N.D.) suggested that the Senate Banking Committee would now turn to housing finance reform and consider whether to re-establish Fannie Mae and Freddie Mac or phase them out. House Financial Services Chairman Jeb Hensarling (R-Texas) also made an address, where he stated his willingness to move forward on bipartisan housing finance reform, acknowledging that it will need to include a government guarantee and an affordable housing program, despite his disagreement with the need for those components. Hensarling’s willingness to consider these pieces in housing finance reform is significant. As Sen. Corker (R-Tenn.) and Warner (D-Va.) circulate their proposal, and the House Financial Services Committee is holding numerous hearings and stakeholder meetings on the issue, progress on housing finance reform may be possible in 2018.

In his address at the NAR event, Chairman Hensarling reiterated his belief that Fannie Mae and Freddie Mac cannot be saved. He also emphasized the need to return the Federal Housing Administration to its traditional role. He expressed his ongoing support for the PATH Act, which would wind down the GSEs, repeal their charters and only allow prime mortgages to be securitized. Chairman Hensarling acknowledged that progress on such an approach was unlikely. He acknowledged that an affordable housing program would be part of a successful reform effort. Chairman Hensarling also acknowledged that government guarantees would be part of a successful reform event, though they should be limited to catastrophic losses. He endorsed the De Marco-Bright proposal to build on the Ginnie Mae infrastructure and processes and have Fannie Mae and Freddie Mac compete over the management of non-catastrophic credit risk; however, Hensarling also said he was open to exploring all options for housing finance reform.

This public shift by Chairman Hensarling to potentially accept a government guarantee signals that a bipartisan compromise is newly possible. Congress has tried to do comprehensive housing finance reform before but was unsuccessful. While we have no guarantees this time will be any different, given the administration’s pledge to pursue it in 2018, Hensarling’s shift on major tenets, and perhaps Senator Corker’s desire to address it before he leaves Congress, the forecast for housing finance reform in 2018 is one of movement and change. NHC encourages its members to stay engaged as housing finance reform discussions move forward. NHC has long been engaged on this issue, organizing a Housing Mortgage Working Group in 2014 to create a Case for Change and housing finance reform principles to help guide Congress and the president as they consider the future of the housing finance system and the federal government’s role in that system. The first principle for this working group was the need for a government guarantee, and NHC is pleased to see Chairman Hensarling’s new openness to that concept and the beginnings of bipartisan drafting in the Senate.

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