House Introduces Housing Finance Reform Proposal on 10th Anniversary of GSE Conservatorships

On September 6 – the tenth anniversary of Fannie Mae and Freddie Mac’s (collectively, the Government Sponsored Enterprises or GSEs) federal conservatorships – House Financial Services Committee Chairman Jeb Hensarling (R-TX) and Rep. John Delaney (D-MD) introduced new bipartisan housing finance legislation. Enterprise’s Vice President for Policy Development Andrew Jakabovics explains in a blog post that the bill calls for moving towards a system intended to reduce systemic and taxpayer risk by mandating private capital serve as a buffer in front of an explicit, paid-for government guarantee to investors in mortgage-backed securities (MBS). The bill would dramatically expand the role of Ginnie Mae in the secondary market. Ginnie Mae is currently authorized by statute to guarantee timely payment of principal and interest to investors in MBS backed by federally insured or guaranteed loans and Rural Development loans. The proposal would establish “Ginnie Mae Plus” and authorize it to guarantee MBS issued by private entities, with the critical stipulation that private capital “credit enhance” the loans – that is, serve as a buffer to absorb losses before Ginnie Mae’s reserves would be touched. The bill also acknowledges the importance of multifamily financing for providing affordable rental properties and promises to preserve what works today in the market, although the details for achieving this are limited. The draft language takes a similarly light touch with respect to promoting broad access to the system and ensuring affordability.

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