We reported last week that the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform bill is unlikely to become law this year. According to a research note by JPMorgan, the reform will stall out until after the mid-term elections that will be held on November 4, 2014. The research arm of the U.S. bank notes that the Johnson-Crapo bill is seen as favorable, but it will take at least 2-3 years before it is put into place. Even after the bill passes, it will take about five years to be fully implemented.

Fannie Mae Freddie Mac FHFA Federal National Mortgage Assctn Fnni Me (FNMA)

FHFA may adjust guarantee fees, LLPAs based on FICO, LTV

Compass Point Research analyst Isaac Botansky said last month that there is a less than 5% chance of the bill clearing both houses of Congress this year. Botansky sees the likelihood of the bipartisan bill moving ahead from the Senate banking committee to the floor. The three key elements of Johnson-Crapo bill are: 1) the resolution of the Freddie Mac and Fannie Mae; 2) Establishment of FMIC that will guarantee loans and have a catastrophic insurance fund; 3) It requires that private capital take 10% losses before the guarantee kicks in.

JPMorgan said in its research note that the Federal Housing Finance Agency (FHFA) could pursue certain potential policies without Congressional approval. There is a high likelihood of the FHFA adjusting guarantee fees and loan-level price adjustments (LLPAs) based on FICO score, loan-to-value ratio and geography. It may also take on new low FICO borrowers who have a good pay history. The Director of FHFA can also change HARP guidelines and streamline refinancing.

Fannie Mae, Freddie Mac could be combined in the long-term

However, the research firm sees little likelihood of the FHFA placing Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) into receivership. Over the long-term, it may combine Fannie Mae and Freddie Mac.

The Johnson-Crapo bill is quite similar to Corker-Warner. However, the former requires only 3.5% downpayment for the first time buyers to be a qualified mortgage (QM). In contrast, Corker-Warner requires 5% downpayment to be a qualified mortgage.

Billionaire hedge fund manager Bill Ackman has increased his stake in Fannie Mae and Freddie Mac from 9.8% to about 11.1%