Senate Banking Committee Chairman Mike Crapo has released a plan for housing-finance legislation that would end U.S. control of Fannie Mae and Freddie Mac, the latest sign that Congress will try again to complete the last outstanding business of the 2008 credit crisis.
Under the plan outlined in a statement Friday, Fannie and Freddie would survive as private mortgage guarantors, while facing new competitors and strict limits on capital and business lines. Crapo’s outline left blank many critical components that would be needed for actual legislation, including what level of capital the companies would be required to hold.
Still, it’s the an indication that lawmakers and other officials want to work on ending U.S. control of Fannie and Freddie, which are now in their 11th year of conservatorship under the Federal Housing Finance Agency.
“We must expeditiously fix our flawed housing finance system,” Crapo, an Idaho Republican, said in a statement. “My priorities are to establish stronger levels of taxpayer protection, preserve the 30-year fixed-rate mortgage, increase competition among mortgage guarantors and promote access to affordable housing.”
Last week, several news outlets reported that acting FHFA Director Joseph Otting told agency employees the Trump administration would consider releasing Fannie and Freddie without legislation. The news helped send common shares of the two companies soaring to their highest levels in more than a year. The White House followed this week with a statement walking back Otting’s comments and assuring that it would work with Congress on a plan.
Lawmakers have tried and failed for nearly a decade to pass legislation to end the conservatorships, nearly always running aground on the same issues. Many lawmakers want to limit taxpayer risk by requiring large amounts of capital and narrowing the scope of mortgages that Fannie and Freddie guarantee. Others believe going too far could limit mortgage access for less-wealthy borrowers.
Crapo’s plan would let Fannie, Freddie and other guarantors insure mortgage securities backed by Ginnie Mae, a government-owned corporation that provides a similar service for mortgages from other federal programs. The plan would set a limit on the market share that any one guarantor could have, a move ostensibly meant to limit the risk to the mortgage system if the guarantor failed. The three-page outline was silent on what would happen to current shareholders of Fannie and Freddie as well as most other elements of a transition to the new system.
The plan is likely to face close scrutiny from Democrats skeptical that a new system would provide as much support to lower-wealth borrowers as the current one does. Crapo would scrap Fannie’s and Freddie’s affordable-housing goals in favor of a new “market access fund” that would be funded through a fee on mortgages.
Cowen Group analyst Jaret Seiberg said in a research note that the outline was “a major step forward” but that a Crapo bill or any other legislation faced long odds in this Congress.
Senator Sherrod Brown of Ohio, the Banking Committee’s top Democrat, called for hearings on the housing market in a statement on Crapo’s plan.