Hensarling introduces bipartisan GSE reform bill in Congress

A proposed compromise preserves the government guarantee in the secondary mortgage market

Hensarling introduces bipartisan GSE reform bill in Congress

Republicans and Democrats in Congress have reached across the aisle to come up with a proposed compromise to reform Fannie Mae and Freddie Mac.

Rep. Jeb Hensarling (R-Texas), chairman of the financial services committee, announced the move in his opening statement during a full committee hearing on the 10th anniversary of the federal government’s takeover of the government-sponsored enterprises.

“Embarrassingly, ten years later, the GSEs remain in conservatorship, very much alive and very much unreformed as they quietly return to their pre-crisis market dominance,” Hensarling said.

Hensarling said he is reintroducing the PATH ACT to reform the GSEs. While the bill had been previously passed, the lawmaker admitted that its chances for passage remain slim.

As an alternative, Hensarling has partnered with Rep. John Delaney (D-Md.) to offer a bipartisan compromise to reform housing finance. “In the time I have remaining in Congress, this is the plan I will pursue,” Hensarling said.

According to Hensarling, their discussion draft includes a repeal of the GSEs’ charters and a transition to a system that allows qualified mortgages backed by an approved private credit enhancer with regulated, diversified capital resources to access the government-securitization guarantee provided by Ginnie Mae.

He also said that the plan will preserve the current system’ liquidity, the TBA market, and the 30-year pre-payable fixed mortgage.

“While by no means perfect, we offer this proposal as a grand bargain on how to move past an increasingly dangerous status quo: codify an explicit government MBS guarantee into law, coupled with an accountable and effective affordability program in exchange for placing the taxpayer in a catastrophic loss position only diffusing the credit risk beyond two GSEs, and creating market competition,” Hensarling said.

 

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