“The proposed Johnson-Crapo bill provides the best chance to overhaul the mortgage finance system this decade,” President Barack Obama’s top housing official said this week. “We must take action, “The U.S. Housing and Urban Development Secretary said at a conference hosted by the National Council of La Raza and other civil rights and housing groups.

Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) / and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) – Campaign against Johnson-Crapo bill

Last month, US Senators Tim Johnson and Mike Crapo made a new proposal for reforming the US mortgage industry that falls in line with last year’s proposal from Bob Corker and Mark Warner. The proposal would set up a system of private companies that release a common security, much like how Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) / and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) sell securitized mortgages under the current system.

Fannie Mae Addendum
Fannie Mae

Moreover, the supposed reform would require the issuers that get the new guarantees to raise a capital level of 10% against the value of their mortgage loans and would take that much in losses before taxpayers were on the hook. The legislation proposed by Johnson and Crapo is widely seen as President Obama’s favorite plan to reform the U.S. housing market.

However, recently PIMCO’s new CEO Douglas Hodge indicated that PIMCO has no “appetite for MBS that don’t have Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) / and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) guarantees, as the protections offered to investors in non-GSE backed MBS, known as ‘private label’ securities, proved to have no teeth.”

Moreover, it is felt if PIMCO and other investors won’t buy private label MBS and if the Johnson-Crapo bill winds down Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) / and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), the vast majority of the mortgage market would go away, thereby making it far more difficult for most Americans to buy homes.

Best chance in the decade

Shaun Donovan, however, said: “This is the single best chance that we will have… It may very well be the only chance we have this decade.” His speech gives hope of reassuring housing advocacy and civil rights groups, which oppose the proposed Senate plan over worries that it would create a system that will prevent less-affluent Americans from accessing credit even if a government role is retained.

The groups’ hesitance could sap support for the measure among Democrats in the Senate, where the Banking Committee is set to take an initial vote on it at the end of April.