This effectively kills any possibility for Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform until after the 2016 election. Why? We have several different plans, coming for both parties that are wholly incompatible with each other. That means there is no chance of blending the disparate plans together to form a consensus within either party, much less building one to get the two parties to agree on something. This was all but telegraphed when Johnson/Crapo limped out of committee without the backing of the most powerful Democrats (Schumer, Warren and Menendez).
New bill to wind down Fannie Mae and Freddie Mac
From Housing Wire
Representatives John Delaney (D-MD), John Carney (D-DE), and Jim Himes (D-CT) today introduced housing finance reform legislation that would wind down Fannie Mae and Freddie Mac.
“The legislation preserves the 30-year fixed rate mortgage and protects American taxpayers by using private sector pricing to reduce the risk of future bailouts,” said the representatives in a statement.
“It shifts the housing finance market away from Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), and keeps home ownership attainable for working families by strengthening affordable housing programs,” they said.
HR 5055, is called the Partnership to Strengthen Homeownership Act.
Additionally, the bill would establish an insurance program through Ginnie Mae.
All government guaranteed single-family and multi-family mortgage-backed securities will be supported by a minimum of 5% private sector capital, standing in a first-loss position. The remaining 95% of the risk will be shared between Ginnie Mae and a private reinsurer on a pari passu basis, the statement explained.
The bill winds down Fannie Mae’s and Freddie Mac’s current activities and revokes their charter, but allows them to be sold and recapitalized as entities with different business plans without any of their current unique powers, it added.
This legislation becomes the latest in a stream of legislative measures designed to reform the housing finance system in the U.S.
Currently under consideration in the Senate is Johnson-Crapo. The other primary contenders are the House’s PATH Act, the House’s HOME Forward Act, and the Senate’s Corker-Warner bill. (The full report on the measures from the Structured Finance Industry Group can be read or downloaded here.)
The Johnson-Crapo bill would wind down Fannie Mae and Freddie Mac within five years and had received support from the Obama administration.
But housing industry analysts believe that Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) reform appears to be dead until after the mid-term elections and likely dead until after the 2016 presidential election.
Other analysts from around the housing industry believe that the debate over housing finance reform may stretch out as far as 2017.
Section from Fannie Mae’s bill
Here is the main section of the bill for Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) holders:
(1) GOALS.—In carrying out the receivership of each enterprise, Ginnie Mae shall strive to achieve both of the following goals:
(A) RETURN TO TAXPAYERS.—Obtaining an adequate return of taxpayer investment in the enterprise, taking into consideration the total cost to the taxpayers, the value provided to the enterprise, and the risk and exposure to the Federal Government involved, together with interest on such investment at a rate determined by the Director, in consultation with the Board of Governors of the Federal Reserve System and the Secretary of the Treasury.
(B) COMPETITIVE PRIVATE HOUSING FINANCE MARKET.—Removing barriers to private sector competition in the housing finance market by providing for the transfer of the assets of the enterprise into the private sector to compete in a functioning housing finance market.
(2) FULL PRIVATIZATION.—Any entities emerging from such receivership shall be fully private and any obligations and securities of such entities shall not constitute a debt or obligation of the United States nor or any agency or instrumentality thereof.
Here is the big one:
(5) RESTRUCTURING OF SPSPA.—The receivership shall provide for the restructuring of the Senior Preferred Stock Purchase Agreements entered into between the Department of the Treasury and the enterprise on September 26, 2008, as amended and restated thereafter, to—
(A) permit the redemption of senior preferred shares of the Department of the Treasury;
(B) provide for the cancellation of the warrants for the purchase of common stock of the enterprises issued to the Department of the Treasury; and
(C) provide for the appropriate level of compensation to the Federal Government for the financial support and commitment provided to the enterprise.
Fannie Mae Freddie Mac: New bill likely to succeed
However, of the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) bill i have seen, I think this one does have the best chance of succeeding.
Why does this have the best chance? It privatizes the entities and removes them from the gov’t which appeals to the GOP and since it was originated from a group of Democratic lawmakers, by nature it will garner plenty of Democratic backing. Further, the Ginnie Mae component will both guarantee the continuation of the 30yr mortgage that Johnson/Crapo and Corker/Warner put into peril and can allow for affordable housing goals to be reached which was I think the main reason Schumer, Warren and Menendez did not back Johnson/Crapo in committee.
It also is the only piece of legislation that deals with the issue of the SPSA in a way that won’t spawn years of litigation (at a significant cost to taxpayers), most likely a SCOTUS review and a potential humiliating rebuke from the courts.
Now what this legislation needs is the backing of a powerful legislator. I am doubtful this happens before the November elections as Congress folk tend to go fetal in the months leading up to them.
If nothing else this should give investors reassurance that Johnson/Crapo and Corker/Warner are in fact dead….
Full Bill: Partnership to Strengthen Homeownership