Waters Unveils Housing Finance Reform Legislation
Today, Congresswoman Maxine Waters, Ranking Member of the Financial Services Committee, released a comprehensive legislative proposal to reform the housing finance market. Known as the Housing Opportunities Move the Economy (HOME) Forward Act of 2014, the legislation ends Fannie Mae and Freddie Mac, and creates a new, cooperative-owned securities issuer.
For months, Waters has been working with her Committee colleagues, outside stakeholders, and consumer and affordable housing advocates to craft a measure that ends the incentives created by the ownership structure of the government-sponsored enterprises' (GSEs) while preserving the role of small financial institutions, providing a more flexible approach to placing credit risk in the markets, and ensuring access to affordable rental housing for low-income families.
"Reforming a 10 trillion dollar housing finance market is an immense undertaking that must be carefully considered," said Congresswoman Waters. "Fannie Mae and Freddie Mac's return to profitability and repayment of taxpayer dollars has led some to rightly speculate whether the enterprises need any reform at all. I believe that we have an opportunity to address some of the fundamental flaws of the current system, by ending the perverse incentives created by Fannie Mae and Freddie Mac's ownership structure and providing an explicit government guarantee that is paid for by industry."
The draft bill furthers a conversation started by legislation released by Senators Bob Corker (R-TN) and Mark Warner (D-VA) and, more recently, Senators Tim Johnson (D-SD) and Mike Crapo
The foundation of the HOME Forward Act is a number of principles for housing finance reform, released by Committee Democrats in 2013. They include maintaining the 30-year fixed rate mortgage, protecting taxpayers, ensuring transparency, stability and liquidity within a new market, and preventing disruptions to the U.S. housing market during a transition to a new finance system. In addition, the legislation will maintain access for all qualified borrowers that can sustain homeownership and ensure continued affordable rental housing.
The HOME Forward Act establishes a new, lender-owned Mortgage Securities Cooperative that will be the single issuer of government-guaranteed securities and will be governed on a one-member, one-vote basis. The Act creates an explicit government guarantee, paid for by industry and used to capitalize a catastrophic insurance fund. It improves upon bipartisan proposals in the Senate by, for example, providing for credit risk sharing on a more flexible basis. Small financial institutions will have direct access to a "cash window" in order to preserve their access to the secondary market. And the legislation recognizes the important role of the National Affordable Housing Trust and Capital Magnet Funds, and fulsomely addresses the multi-family market.
The HOME Forward Act would empower the government to provide for liquidity in the secondary mortgage market and ensure access to sustainable homeownership for creditworthy borrowers of all backgrounds and in all regions of the country. At the same time, it would appropriately price for risk, protect taxpayers and level the playing field for large and small banks.
Waters added, "I am hopeful that this legislation will continue to move the conversation on housing finance reform forward. While there are differences, this legislation and the two bipartisan proposals in the Senate embrace a number of common themes. These include preserving the 30-year, fixed rate mortgage, protecting taxpayers from the costs of a housing downturn by establishing a strong new regulator, and ensuring that small and community financial institutions can participate in the new system."
The legislative text can be found here.
A topline summary can be found here.
A detailed summary can be found here.
A section-by-section of the legislation can be found here.