Bill Tackles Fannie, Freddie Regulation

H.R. 1427, otherwise known as the Federal Housing Finance Reform Act, was debated Thursday night in the House of Representatives. The bill was left as “unfinished business” when the committee rose after midnight, according to the Library of Congress.

The bill addresses oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, calling for a new, independent regulator with broad powers analogous to current banking regulators.

“The recent scandals at the Fannie Mae and Freddie Mac mortgage-funding enterprises are clear evidence of the need for a change in how business is done in Washington,” House Speaker Nancy Pelosi said in an announcement. “This legislation will restore accountability while addressing management and accounting problems that have undermined the mission of these government-sponsored enterprises — to expand access to housing for the American people.”

The White House Office of Management and Budget is in favor of the bill’s passage because the intended regulatory regime is an improvement over current law, according to a statement of administration policy. The office also supports granting the new regulator specific authority to regulate the retained mortgage portfolios of the GSEs and consider all potential risks posed by the portfolios.

“This provision helps to address the systemic risk that Fannie Mae and Freddie Mac pose to our financial system and ensures that they will better address their core affordable housing mission,” the office said. “Any efforts to weaken the existing portfolio language contained in H.R. 1427 will threaten the Administration’s support for this bill.”

OMB is also against provisions that would increase the conforming loan limit because it would dilute the GSEs’ commitment to low-income borrowers, according to the statement.

“The Administration strongly believes that the housing GSEs should be focused on their core housing mission, particularly with respect to low-income and first-time homebuyers,” the office explained.

The National Association of Mortgage Brokers supports the bill and favors an amendment that clarifies that the intent of strengthened regulatory oversight is not designed to manage the standards of the GSE portfolios through the lens of “systemic risk,” but rather is focused on protecting the safety and soundness of the GSEs themselves, the trade group announced.

“We believe this bill will advance the process of establishing a strong, even-handed regulatory framework for the GSEs,” NAMB President Harry Dinham reportedly said, “and will aid in preserving the GSEs’ ability to accomplish their secondary market housing mission within the parameters of safety and soundness, just as banks do today.”

NAMB additionally said it supports provisions that set regional conforming loan limits at levels that would allow middle-class families residing in “high-cost” areas to the same assistance and benefits the GSEs offer other borrowers. The group opposes any amendment that would eliminate the regional limit adjustment.

The National Association of Realtors delivered the message to Congress on Thursday that “Realtors strongly support reform legislation that would allow regional adjustments to conforming loan limits in high-cost housing markets,” according to an announcement.

Meanwhile, the National Alliance of Independent Mortgage Bankers issued a letter to Congress expressing support of a regulator that is independent and armed to properly monitor the financial stability of the GSEs, but worry over recent legislative proposals that could potentially lead to excessive government intervention into the mortgage industry and especially disadvantage small mortgage businesses.

The alliance cited recent formal and informal proposals that would give a regulator the authority to make wholesale changes in lenders’ business relationships with the GSEs, referred to as the “bright line;” regulate pricing of mortgages through guarantee fee regulation; establish open-ended government approval processes of new mortgages and programs; and “permit the regulator unlimited authority to shrink the amount of capital available to the mortgage market through the GSEs either through direct capital limits, through portfolio caps, or debt restrictions.”

“We believe that strong safety and soundness regulation should remain the focus of the legislative effort,” the alliance wrote. “The legislative process should not be side tracked by provisions that have little to with safety and soundness but which may have far reaching and unpredictable consequences on the small businesses that make up the heart of America’s mortgage lending industry.”

The bill also creates an off-budget, non-taxpayer financed affordable housing fund, of which 75 percent would in the first year be dedicated to hurricane-stricken areas of the Gulf Coast, and billions of dollars over the next five years for affordable housing nationwide, according to an announcement by the House Committee on Financial Services.

The Affordable Housing Fund would dedicate about $450 million per year over five years for housing to low-income homeowners and renters. Fannie and Freddie would provide the revenues for the fund, which would distribute grants throughout states and tribes for preserving and building affordable housing, Pelosi said.

But OMB expressed concern over the affordable housing fund.

The office noted it “could create an undue and counterproductive reliance on Fannie Mae and Freddie Mac by tying the potentially unlimited growth of their affordable housing funds to the annual amount of their mortgage business.”

Additionally, OMB was concerned housing funds could be “susceptible to political influences that could compromise the goals of assisting as many low income families” and opposed provisions that would divert the funds to a new, separate housing trust fund.