* Lawmakers plan to move bill through committee by August
* Measure transfers gov't role in housing to private market
* Toughens Federal Housing Administration loan requirements
By Margaret Chadbourn
WASHINGTON, July 11 U.S. House Republicans on
Thursday unveiled draft legislation that would wind down housing
finance companies Fannie Mae and Freddie Mac
over a five-year period and sharply reduce the government's role
in the mortgage market.
The sweeping proposal aims to establish a new framework for
the housing finance system, a group of Republicans on the House
of Representatives Financial Services Committee told reporters.
The bill would also revamp the Federal Housing Administration,
partly by increasing the down payments on FHA-backed loans and
limiting the pool of eligible buyers.
"We have to take a holistic approach," the panel's chairman,
Texas Republican Jeb Hensarling, told reporters. He said his
goal is to limit taxpayer risk and replace the current system,
where "the federal government has almost a virtual monopoly."
Fannie Mae and Freddie Mac, which own or guarantee about
half of all new U.S. home loans, were seized by the government
in 2008 as souring loans pushed them to the brink of collapse.
The companies buy mortgages from lenders and repackage them
into securities for investors, which they issue with a
guarantee. They were propped up with $187.5 billion in taxpayer
funds, but have since returned to profitability and have paid
taxpayers about $132 billion in dividends.
The new proposal would replace the companies with a
non-profit, utility-like platform that investors would use to
securitize mortgages without a government guarantee, essentially
replacing the business model that has been a staple of the
30-year fixed rate mortgage.
The draft bill is an opening gambit in a fight with
Democrats over the future of the nation's $10 trillion mortgage
market that will likely be waged for years.
Republicans, who control the House, blame Fannie Mae and
Freddie for helping to inflate the housing bubble, and they are
eager to reduce the government's involvement and make sure
taxpayers are never again on the hook for losses.
Democrats, who lead the Senate, agree Fannie Mae and Freddie
Mac should be shuttered, but they want to maintain some sort of
government backstop for the mortgage market.
Representative Maxine Waters, the top Democrat on the House
committee, said the proposed bill was "little more than an
attempt to reinvent America's housing finance system using the
same kind of right-wing ideology that has eroded America's
middle class for decades."
Jaret Seiberg, a senior policy analyst at Guggenheim
Securities, said removing the government guarantee would drive
mortgage costs higher and lock some potential buyers out of the
"The odds are very much against this bill becoming law. Not
only is the housing lobby influential, but voters care about
their ability to get mortgages and purchase homes," he said.
Last month, a bipartisan group of lawmakers in the Senate
introduced a bill that would abolish Fannie and Freddie within
five years and replace them with a new "public guarantor." The
bill would still maintain a federal role in the market.
Waters said the approach of House Republicans "made it
clear" that bipartisan housing reform was not their priority.
FHA DOWN PAYMENTS WOULD RISE
In addition to the new securitization platform, the
Republican measure would create a legislative framework and
regulatory structure for so-called covered bonds, which would be
backed by mortgages but would remain on the issuer's balance
sheet, unlike the mortgage-backed securities issued by Fannie
Mae and Freddie Mac.
The lawmakers also included language to repeal a requirement
under the Dodd-Frank Wall Street reform law, known as the
"qualified residential mortgage" rule, that will require loan
originators to retain some of the risk of their lending.
The proposal would also delay the implementation of the
so-called qualified mortgage rule, which requires lenders to
verify borrowers' ability to repay their loans and offers legal
shields for lenders who follow certain guidelines.
It would also take several steps to reform the Federal
Housing Administration. The FHA, which insures about a third of
all U.S. mortgages, has faced mounting losses from defaults on
mortgages it guaranteed from 2007-09 as the housing bubble
deflated. It may soon exhaust its cash reserves.
The bill, which the lawmakers plan to move through their
committee before an August recess, would increase down payment
requirements for FHA loans from the current 3.5 percent minimum
up to 5 percent for certain borrowers.
The FHA does not make loans itself, but offers private
lenders guarantees against homeowner default.
Only first-time buyers and moderate-income borrowers would
be eligible for FHA-backed loans under the bill.
Hensarling is shepherding the bill, which is cosponsored by
Representatives Scott Garrett of New Jersey, Randy Neugebauer of
Texas and Shelley Moore Capito of West Virginia.