The Senate Banking, Housing and Urban Affairs Committee approved housing finance reform legislation Thursday that would close down Fannie Mae and Freddie Mac and create a new housing finance structure.
The new system would create a mortgage-backed security with an explicit government backstop for 90% of mortgage-backed securities losses, but the first 10% of losses would be backed by a private secondary market. The new system would be regulated through the new Federal Mortgage Insurance Corp. and a mortgage reinsurance fund.
Despite the 13-9 bipartisan vote, further action is not expected. “I fear it may already be too late during this Congress with an already full agenda to get meaningful reform bills through both chambers,” said House Financial Services Committee Chairman Jeb Hensarling, R-Texas, in a statement. Mr. Hensarling criticized the bill co-sponsored by his Senate counterpart Tim Johnson, D-S.D., for bringing “a new politicization of mortgage credit” that could lower credit standards and create higher risks.
Kenneth Bentsen Jr., Securities Industry and Financial Markets Association president and CEO, praised housing finance reform efforts to create a more competitive mortgage market, but said in a statement that “additional work remains.”
