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House Democrats Introduce New GSE Reform Bill

inside-sentateThe latest in a series of proposed GSE reforms was announced on Thursday. Congressional Representatives John K. Delaney (D-Maryland), John Carney (D-Delaware), and Jim Himes (D-Connecticut) introduced housing finance reform legislation aimed at winding down Fannie Mae and Freddie Mac and replacing them with a federally backed insurance program administered through Ginnie Mae.

The Partnership to Strengthen Homeownership Act (H.R. 5055) mandates that the GSEs be wound down over a five year period. Their government guarantee and charter would be removed and they would "repay the government with interest for the government's investment in the institutions."  While no figure for repayment is explicitly called for in the bill, the congressmen say that it must take into account both the injection of capital and the overall exposure to the government.

"America needs housing finance reform for the long-term health of the economy, the viability of the American Dream of homeownership, and the protection of the U.S. taxpayer. Congress has to act and we are committed to keeping housing finance reform on the agenda," Delaney said.

"We've seen what happens when the housing market becomes distorted and policy fails the public: hard-working Americans lose their homes, the economy slumps and the taxpayer is left responsible," Delaney continued. "By maintaining a government guarantee, introducing private sector pricing and increased taxpayer protections, our legislation can bring both sides of the aisle together."

The bill also removes Ginnie Mae from underneath the HUD umbrella and establishes it as its own independent entity. The powers, personnel, and property of the Federal Housing Finance Agency (FHFA) would also be transferred to Ginnie Mae.

The proposed legislation is a counterpart to a similar Senate proposal sponsored by Senators Tim Johnson (D-South Dakota) and Mike Crappo (R-Idaho).

The Obama Administration, including the newly confirmed HUD secretary Julian Castro, are on record supporting an overhaul of the current GSE conservatorship model.

Still, with the current political climate and the somewhat fragile state of the housing recovery, housing analysts are dubious of any such reform legislation reaching President Obama's desk before the midterm elections in November and perhaps not before the presidential elections of 2016.

About Author: Derek Templeton

Derek Templeton is an attorney based in Dallas, Texas. He practices in the areas of real estate, financial services, and general corporate transactional law. His experience includes time as an Attorney Adviser for the U.S. Small Business Administration and as General Counsel for a nonprofit organization in Dallas. A self-avowed "policy junkie," he has a keen interest in the effect that evolving federal policy has on the mortgage, default servicing, and greater housing industries.

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