Housing Finance Reform: A Process Review

In reviewing SFIG’s side-by-side analysis, it is clear that there are many views within Congress for the future of the U.S. housing finance system. Over the past six months, the Senate Committee on Banking, Housing, and Urban Affairs (Committee) has put Johnson-Crapo firmly in its crosshairs as it considers how to re-create the role of government in housing, including an explicit guarantee.

Yesterday, the 22-member Committee – Chaired by Senator Johnson (D-SD) with Ranking Member Crapo (R-ID) managing the minority - delayed its markup (or vote) on the bill in order to attempt to build a larger coalition to support their bill.

The calculation is critical. Currently, the Chair and Ranking Member believe they have 12-13 votes, enough to pass the bill out of committee. However, this is an election year, and Members of Congress are loathe to vote on any controversial bill that could cause a reaction with their constituents. Considering current poll numbers, it is a toss-up as to whether the Senate agenda will be managed by Democrats or Republicans next year.

Therefore, it is believed that Johnson-Crapo needs to be voted favorably out of Committee with a strong bipartisan vote - 15-16 supporters – in order for Senate Majority Leader Harry Reid (D-NV) to put it to a vote on the Senate floor this year.

Considering yesterday’s delay, let’s discuss the markup process, why it matters, and how SFIG plays a role.

What is a Markup and How Does It Work? A markup is the process by which congressional committees and subcommittees debate, amend, and rewrite proposed legislation. At the beginning of a markup, committee members often make opening statements that last no more than five minutes. Next, the bill is read one section at a time, with committee members offering their amendments to each section. Committee members then typically debate amendments under a five-minute rule and conclude with a vote on each amendment.

Interestingly, committees do not actually change the texts of the bills they mark up. Instead, committees vote on amendments that members want to recommend that the Senate adopt when it considers the bill on the floor. The committee concludes a markup not by voting on the bill as a whole, but by voting on a motion to order the bill reported to the Senate with whatever amendments the committee has approved.

A committee may then report a bill to the Senate without amendment, with several amendments, or with an amendment in the nature of a substitute that proposes an entirely different text for the bill. Alternatively, a committee may report a new or clean bill on the same subject as the bill (or other text) that it has marked up.

How Does This Apply to Johnson-Crapo Markup? In the case of Johnson-Crapo, there are currently a “manager’s amendment” and over 100 other filed amendments for the Committee to consider during a future markup.

The manager’s amendment consists of changes to the draft bill that Senators have made between March, when the bill was originally released, and last Friday. The purpose of a manager’s amendment is to improve the bill either through technical or policy changes. The changes in the manager’s amendment are supported by the bill’s twelve original co-sponsors, and therefore have majority approval.

The other amendments have been drafted by Senators sitting on the committee who believe that a particular issue needs to change in order to make the bill work. It is in the purview of the Committee Chair, usually through agreement with the Ranking Member, to decide which amendments – and how many – the Committee will consider during the markup.

Since the markup was delayed in order to negotiate for more votes, Chairman Johnson and Ranking Member Crapo likely have not decided which amendments will be considered. They could also choose to make further changes to the manager’s amendment if they secure more votes. Changes to manager’s amendments are usually completed when the bill’s co-sponsors all agree to the negotiated changes.

What is SFIG’s Role in the Johnson-Crapo Markup Process? SFIG’s role, quite simply, is to educate and advocate positions supported by its membership with Members of Congress, the Administration and federal regulators.

For housing finance reform, SFIG staff analyzed each major bill, and produced side-by-side comparisons for easy SFIG member review. In the case of Johnson-Crapo, SFIG staff analyzed each section of the bill within 24 hours of its release. Once the markup was scheduled, the GSE Reform Task Force held near-daily calls to formulate policy positions on each section of Johnson-Crapo.

The end result was a comprehensive 41-page SFIG briefing book that responded to each section of the bill with the membership’s viewpoints. Some of the responses included technical changes, while others suggested policy changes. In each case, SFIG’s briefing book also contained model “legislative language” that the Committee can adopt in the bill if they support SFIG’s views.

SFIG’s briefing book was then submitted to Committee staff and all 22 Senatorial offices for consideration. Our positions were also shared with member companies’ government relations teams and other associations to align interests on shared policy goals.

SFIG staff also discussed its positions with Committee staff and key Senatorial offices. Positions significant to the membership include:

10 Percent Capital Calculation
Credit Risk Sharing Mechanisms
Guarantee Structure
Securitization Platform Use
FMIC Authority

When the manager’s amendment was released, SFIG quickly analyzed the updated changes and worked through the GSE Reform Task Force to create policy positions for all 32 changes, along with responses to over 20 significant amendments.

This process allowed SFIG to sign a letter with 13 other associations, including the American Bankers Association, American Council of Life Insurers, Securities Industry and Financial Markets Association and American Mortgage Investors, to support an amendment offered by Senators Toomey (R-PA) and Coburn (R-OK) to quell the use of Eminent Domain.

So What Comes Next, Considering the Markup has Been Delayed? Both Chairman Johnson and Ranking Member Crapo stated that there would be a brief delay because a few Senators had requested more time to see if they could create a path to support the bill. Senators Johnson and Crapo are likely hoping that such time will yield 15-16 total votes in support. The Senators also stated that, had the markup taken place today, the bill would have passed out of Committee with either 12 or 13 votes.

Remember that Congress has been out of session for the past two weeks. Therefore, Members of Congress flew back into town on Monday night, the night before the markup. They have had little time to talk amongst themselves. Now they are all in the same town and can have face-to-face conversations.

Senator Crapo also stated that the delay would be brief. SFIG assumes that a markup could come as early as this Thursday, or in the next few weeks.

Therefore, SFIG’s next steps will be to (1) continue advocacy for its priority positions, (2) stress the critical importance of both private capital and the private-label security marketplace to the future of housing finance, and (3) craft solutions that align with SFIG’s policy positions and issues important to the Committee’s efforts to improve Johnson-Crapo.

If you would like to learn more about SFIG’s advocacy efforts, contact Michael Flood. If you would like to get involved in SFIG’s mortgage policy efforts, contact Sonny Abbasi.

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