GOP bill would diminish federal role in housing market, amend Dodd-Frank

Rep. Scott Garrett (R-N.J.) is looking to entice the private sector back into a housing market now dominated by Fannie Mae and Freddie Mac with a new bill he introduced Thursday.

The legislation is aimed at making it easier for private investors to begin buying and selling mortgages bunched into securities, a bid to free the market from the "duopoly" enjoyed by the two government-sponsored enterprises.

The goal of the measure, he said, is to "try to create a more level playing field for the private market to be able to stand up again."

Garrett has played a leading role in the effort by some Republicans to dismantle Fannie and Freddie and create a housing finance system supported primarily by the private sector. As chairman of the House Financial Services subcommittee that oversees the two government-sponsored enterprises (GSEs), he has held multiple hearings and ushered through more than a dozen bills that chip away at their predominant presence in the nation's housing.

And now with this new bill, Garrett hopes to lay the groundwork for a housing market that exists after the GSEs have been dismantled and no longer provide broad guarantees to the vast majority of the nation's mortgages.

"It's time to turn the page," he said.

Under the bill, uniform underwriting standards would allow mortgages to be grouped into securities based on their credit quality, which then could be purchased and traded by private investors. The Federal Housing Finance Agency (FHFA), which regulates Fannie and Freddie, would be charged with setting those standards.

In addition, the FHFA would develop standardized securitization documents for mortgage-backed securities, which would further enable investors to understand the new market and perceive the risk in each type of security offered.

Garrett made clear, however, that the government would still have a "significant role" to play in the housing market — supporting lower income housing via the Federal Housing Administration, for example.

It also would prohibit the practice of mortgage "cram downs," in which regulators would require investors to reduce the principal on mortgages they hold — a practice that had been pushed by several Democrats.

Furthermore, his bill would eliminate a provision of the Dodd-Frank financial reform law that requires financial firms to retain "skin in the game" by holding some of the risk from mortgages they packaged into bonds.

Garrett said he hopes to move his bill through his subcommittee in short order, as the full committee begins to consider other GOP housing bills as they advance to the House floor.

It remains to be seen how far the measures will get. While both parties agree something needs to be done with the current state of housing finance, areas of agreement have been hard to come by. Garrett invited Democrats to offer their own approach.

Agreement will be hard to come by among House Republicans as well, as some of Garrett's fellow GOP committee members are skeptical the private sector can broadly support the housing market, and are pushing for a government guarantee of some form.

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