U.S. Senate Banking Committee Ranking Member Pat Toomey, R-Pa., has released a set of “guiding principles” for housing finance reform that builds the framework for legislation to end Fannie Mae’s and Freddie Mac’s government conservatorship and promote liquidity in the secondary mortgage market.
“The housing finance system remains in urgent need of reform,” Toomey says. “The current system exposes taxpayers to risk of future bailouts, fosters excessive risk taking and crowds out private capital. I hope my colleagues, the administration and all interested stakeholders will join me in working to implement these responsible reforms to prevent yet another financial crisis.”
The principles call on Congress to enact housing finance reform legislation to:
- transition the government-sponsored enterprises’ “duopoly” toward a competitive secondary market;
- end the conservatorships of Fannie Mae and Freddie Mac;
- establish a level playing field for other sources of private capital that bear mortgage credit risk;
- foster a liquid secondary mortgage market that promotes the continued availability of affordable 30-year and other long-term fixed-rate mortgage loans across the U.S. and throughout the economic cycle;
- protect taxpayers by ensuring that significant first-loss private capital stands in front of any government support and that taxpayers are appropriately compensated for that support;
- promote equitable access to the secondary mortgage market by mortgage lenders of all sizes, business models, charter types and locations; and
- provide for a smooth transition to the reformed housing finance system by ensuring that reforms are incremental and realistic, leveraging the existing regulatory and market structure.
Toomey’s office says the principles are c”onsistent with many previous housing finance reform proposals,” such as the Treasury’s Housing Reform Plan from September 2019 and former Senate Banking Committee Chairman Mike Crapo’s outline released in February 2019.
“MBA welcomes the housing finance reform principles released by Senator Pat Toomey, as they demonstrate a commitment to protecting taxpayers, ensuring the ongoing affordability of the 30-year fixed-rate mortgage and promoting equitable access to the secondary market,” says Bob Broeksmit, president and CEO of the Mortgage Bankers Association.
“These principles include features common to several other proposals offered by lawmakers from both sides of the political aisle committed to meaningful reforms, highlighting growing consensus on the actions that are needed,” he adds.
The Senate Banking Committee will be holding a virtual hearing – “Home = Life: The State of Housing in America” – at 2:00 p.m. Eastern on Tuesday, March 16. Housing finance reform is expected to be a core topic of discussion.
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