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.”
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.