Hensarling blasts Senate plan for Fannie, Freddie reform

by Ryan Smith15 May 2014
A top House Republican is slamming the Senate’s plan to wind down Fannie Mae and Freddie Mac – but the alternative he’s offering has already been opposed by practically every industry group.

House Financial Services Committee Jeb Hensarling (R-Texas) today criticized a Senate bill, written by Tim Johnson (D-S.D.) and Mike Crapo (R-Idaho), that would wind down Fannie and Freddie and replace them with a new government mortgage insurer while moving more of the risk onto the shoulders of private capital.

At issue is Title IV of the Senate bill, which would establish a fee of five to ten basis points for every dollar of principal for eligible mortgages. The proceeds would then go to affordable housing programs – a plan Hensarling called an “irresponsible new politicization of the mortgage credit industry.”

“This wealth redistribution scheme, far worse than that of the current system, would be a multi-billion dollar annual invitation to return to the lower credit standards, higher risks, and unsustainable lending that created the crisis in the first place,” Hensarling said.

Hensarling supports a House plan, the Protecting American Taxpayers and Homeowners (PATH) Act, which passed the Financial Services Committee in July without a single Democratic vote. That bill would dismantle Fannie and Freddie without providing a replacement, essentially privatizing the mortgage industry entirely.

However, that plan is, if possible, even less popular with the industry than the Senate bill. Industry groups including the National Association of Realtors and the Mortgage Bankers Association expressed concern that the bill would leave giant banks in charge of the industry and drive up costs for consumers, with NAR Chief Economist Lawrence Yun going so far as to call the bill “highly ideological rather than practical.” Of the NAR’s position on the PATH Act, Yun said in October that “we’re trying to make sure it never gets passed.”

Of course, neither industry groups nor investors seem too keen on any legislation that would wind down Fannie and Freddie, which are regularly posting historic profits. Several industry groups have expressed concerns over whether Johnson-Crapo is even workable.

Housing advocates, too, fell the legislation wouldn’t provide the same benefits borrowers see now under Fannie and Freddie.

“Significant changes are needed before it could provide the access to affordable credit guaranteed by Fannie Mae and Freddie Mac,” said John Taylor, president and CEO of the National Community Reinvestment Coalition. “If this bill became law in its current form, it would be a giant step backward for the working class, people of color, Millennials, and other traditionally underserved markets.”


  • by Kharon Palmer | 5/20/2014 7:58:56 PM

    The federal gov. Needs to get out of the way of mortgage lending

  • by William M. Jacobs | 9/26/2014 11:48:44 AM

    Both of the GSE's under review for their past practices, have been the backbone of the real estate finance industries for more than 40 years, and FNMA since the 1930's. To abandon all of their accomplishments and support of housing in this country because of their issues over the past several few years (2007-2010), which were caused primarily by the bursting of financial asset values, with its consequent breakdown of property values during that period of time, along with the unrealistic mortgage programs of the middle 2000's like "option arms". Most of which were good programs in the beginning of their use, but were offered to people that didn't understand the ramifications of their "minimum payment" issues by mortgage "professionals" who didn't either understand them, or were in the business for short term financial gains for themselves and are now back selling shoes. FNMA and Freddie Mac are too important to the people of this country trying to finance their owning a home or refinance their existing home mortgages, to have either of the bills offered by the House PATH program or the Senate bill authored by Senators Johnson and Crapo to pass into law.
    Should they co-exist as separate entities for the future, maybe not? But the Hensarling debacle approach is a disaster in the making, and the J&C proposal is not that much better in its approach to reform. Remove them both from Government control. reduce or remove the implicit guarantee of the Treasury backing their activities, and let them prove once again that they deserve to manage their activities as USA's housings financial support backbones. Those of us who have been in this industry long enough to remember the early 1980's when the major banks had more control over interest rates and available funds for housing, and each home mortgage was at 16% or higher, do not want a repeat of that experience without FNMA and Freddie Mac in our corner. From a Mortgage Banker since 1965.


Is TILA-RESPA a good or bad thing long term?