Republicans Try to Woo Democrats on Fannie Freddie Reform Bill

A recently floated draft version of a proposed Senate Bill to reform Fannie Mae and Freddie Mac would devote billions of dollars to boosting home ownership for lower-income borrowers, according to a Bloomberg article. The proposal would levy a "market access fee" on new loans that would be used to help support affordable housing and make buying homes less expensive for low- and moderate-income borrowers. However, some Democrats are not persuaded, as the proposal would also do away with the affordable housing goals that mandate the GSEs to make credit available to lower-income borrowers. Some consumer advocates say that doing away with the goals in favor of a market access fee may actually lower the amount of loans available to lower-income borrowers. However, Mark Zandi, an economist with Moody's Analytics stated "The bottom line is that under most assumptions, low- and moderate-income borrowers do better in the future system than they do in the current system."

In a note from Compass Point, Isaac Boltansky writes that the Senate Bill envisions a new secondary mortgage market with at least five to six guarantors which issue a common security through the CSP currently being built by the GSEs, which will then receive a government guarantee through Ginnie Mae. The GSEs would be forced through a receivership process, and their remnants could participate as guarantors in the new system. However, Compass Point also notes a number of questions remain, including the role of the Federal Housing Finance Agency in regulating the guarantors and overseeing Ginnie Mae, how the market access fee and guaranty fees will be set, uncertainty around the preferred stock purchase agreements and existing GSE shareholders' litigation, and the multifamily business of the GSEs. Finally, Compass Point writes that in their opinion, the operational difficulties, political environment, and Congressional calendar all create strong headwinds that make the ultimate passage of GSE reform legislation in this Congress unlikely.

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