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bill Progress


  • Not enacted
    The President has not signed this bill
  • The senate has not voted
  • The house has not voted
      house Committees
      House Committee on Financial Services
      House Committee on Appropriations
      House Committee on Science, Space, and Technology
      Research and Technology
      House Committee on Transportation and Infrastructure
      Highways and Transit
      House Committee on the Judiciary
      Regulatory Reform, Commercial, and Antitrust Law
    IntroducedNovember 20th, 2013

What is it?

This bill would remove the government from the home financing business with a 5-year phase-out plan.

Who's on the hit list? The Federal Housing Administration (FHA), the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac). The Government National Mortgage Association (Ginnie Mae) would also have its monthly guarantees of mortgage-backed securities capped and reduced, before being phased out too.

For those of you non-home owners, Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs) that buy mortgages from banks and mortgage companies, and then bundle them into mortgage-backed securities (MBS). They guarantee the principal and interest payments of the MBS, which are sold to investors — typically investment banks. Doing this allows banks to have more liquid assets (cash money) and make more loans to consumers.

The percentage of each mortgage insured by the FHA would be reduced, and down payments would be increased while reducing maximum loan size. After 5 years, FHA program authorizations would be repealed and all FHA affordable housing goals would be eliminated.

H.R. 3550 would also repeal the ability of the Federal Deposit Insurance Corporation (FDIC) to bailout failing banks during a merger, and reduce FDIC insurance per account to $150,000. Property sales to developers that are below fair-market-value would also be ended. H.R. 3550 would repeal the power of the Federal Reserve to provide bailouts through unsecured loans. The Treasury’s Exchange Stabilization Fund would be limited so that it cannot be used for bailouts.

This bill would also recommend to Congress that appropriate congressional committees should put forward legislation to better deal with bankruptcies by large financial institution
.

Impact

Home buyers, primary mortgage banks, banking & judicial committees, government-sponsored enterprises (Fannie, Freddie, & Ginnie), FHA, and the FDIC.

Cost

A CBO cost estimate is currently unavailable.

More Information

In Depth:

H.R. 3550 would gradually increase down payment requirements and shrink the maximum loan size for mortgages that Fannie and Freddie can buy. They would also have all affordable housing goals eliminated. Both GSEs would be required to hold more capital while reducing the size of their portfolios before being liquidated.

If enacted, this bill would repeal the Community Reinvestment Act & Home Mortgage Disclosure Act and Federal Home Loan Bank's affordable housing goals.

For context, Fannie Mae and Freddie Mac were taken over by the government (i.e. put into conservatorship of the U.S. Treasury) in September 2008. It was one of the many financial events spawned by the ongoing mortgage crisis.

At the outset, GSEs were created to help fulfill a the noble goal of expanding home ownership. While the financial markets
accepted this premise, they also assumed that the GSEs would be bailed out by the taxpayer if turmoil hit the housing market because they were fulfilling a government mandate. They felt safe in this view because the FHA insured mortgages with down payments ranging from 3% to 20%, and the Community Reinvestment Act was loosening lending standards.


This arrangement had worked fine, until mortgages in the MBS started to go into default. When mortgage payments stopped being made, the MBS plummeted in value — leaving banks and GSEs in a dire financial situation. Fannie & Freddie had to be bailed out by taxpayers to the tune of $187 billion when this exact scenario unfolded during the 2008 financial crisis. The FDIC had to
close 465 banks between 2008-2012, and the Treasury doled out billions of dollars in bailouts to banks that were close to bankruptcy.


Fannie & Freddie have been able to
repay their bailout over the nearly 6 years since the government took them over, however, their future remains uncertain. The current affordable housing goals are set to expire at the end of the year and the political battle over the government’s role in the housing market is set to kick off again. The GSEs regulator requested plans in 2012 to put them into receivership and liquidate them as ordinary contingency planning. Incidentally this receivership process is exactly what this legislation calls for at the end of the 5-year phase out period.

Those opposed to this legislation’s main point of contention not only disagree with the bill’s sponsors about the cause of the financial crisis, but the way forward. They hold out hope that the GSEs chief regulator, Mel Watt, will maintain or expand the current affordable housing goals to give a more diverse part of the market access to home ownership. The Obama administration has directed an expansion of affordable housing goals in the form of multi-family apartment construction by state housing agencies that are financed by FHA loans and secured by Ginnie Mae. Ultimately, this program will continue until Congress makes a move.

Media:

Sponsoring Rep. Justin Amash (R-MI) Summary

HousingWire

Heritage Action (in Favor)

(Photo Credit: New Old Stock)

AKA

New Fair Deal Banking and Housing Stability Act of 2013

Official Title

To stabilize the housing and banking sectors by eliminating policies that distort markets and facilitate risky lending, and for other purposes.

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