Republicans on Tuesday unveiled the first stage of a massive effort to overhaul the nation’s housing market, but it was clear that consensus on the best way forward would not be reached easily.
House Republicans rolled out a package of eight bills — with more expected in the coming weeks — that would begin remodeling government housing policy.
House Financial Services Committee Chairman Spencer BachusSpencer BachusSpencer Bachus: True leadership The FDA should approve the first disease-modifying treatment for Duchenne Muscular Dystrophy Study: Payday lenders fill GOP coffers MORE (R-Ala.) announced the legislative package, calling it a key part of “our promise to the American people” to reduce government’s role in the housing market and wind down government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
“I want to make clear that we’re committed to those goals,” Bachus said.
However, Sen. Richard Shelby (R-Ala.), the ranking member of the Senate Banking Committee, threw cold water on any hopes for rapid action, saying Congress had a long way to go before weighing legislative fixes.
Speaking at a hearing devoted to housing-reform proposals, Shelby called any legislative efforts “premature,” saying the committee should first conduct a series of hearings and undertake extensive research.
A failure to do so would yield “partisan legislation that is full of technical problems and that has serious adverse, unintended consequences,” Shelby said.
“Without that examination, I fear the committee will again yield to the temptation of picking a solution before it has accurately described the problem,” he said. “I understand that this process would be time-consuming and require a great deal of effort. However, I do not believe the committee has much choice.”
Rep. Scott GarrettScott GarrettHuizenga to chair influential subcommittee overseeing Wall Street Congress asserts itself The Hill's 12:30 Report MORE (R-N.J.), the chairman of the Capital Markets subcommittee that will consider and mark up the bills later this month, said he expected some of the new bills to gain traction in the Senate.
“I’m optimistic they will move along,” he said.
Garrett acknowledged, however, that the Senate will not be adopting the same pace as the House.
“I know that the Senate is always on a different timeframe than we are,” he said.
Rep. Judy Biggert (R-Ill.), who sponsored one of the new bills, noted that “this isn’t going to happen overnight, but over several years.”
The differing timeframes are the latest indication of how complicated and lengthy the effort to reform the housing finance market is likely to be. There is broad agreement across the political spectrum that the current state of the housing market, in which the ailing GSEs buy nine out of every 10 new mortgages, is unsustainable.
House Republicans repeatedly noted that both they and the White House have called for the winding-down of Fannie and Freddie, and a much larger role for the private sector.
“Given what the administration has signaled ... we may be able to make progress very soon under targeted pieces of legislation,” said Rep. Jeb Hensarling (R-Texas).
However, in its February report, the administration made clear the government must play some role in the remade housing market, while Republicans said Tuesday they would like to see the private market take over after the overhaul.
Further complicating matters is the fact that the housing market continues to struggle as home prices continue to fall nationwide. New numbers from the Standard & Poor’s/Case-Shiller index released Tuesday show that home prices fell again in January, and now are 3.1 percent lower than they were last year.
As a result, lawmakers have to balance pushing to remake the nation’s housing finance system after the sub-prime mortgage crisis with supporting the housing market as the economy continues to recover from the recession.
Mark Zandi, chief economist with Moody’s Analytics, told the Senate Banking Committee on Tuesday that a quick overhaul “would be disruptive to the housing market and the economy,” but added that the current arrangement is “not sustainable in the long run.”
“The federal government should significantly scale back its current role in the housing and mortgage markets,” he added, calling for the government to serve primarily as a regulator and catastrophic backstop for the housing market.
Michael Berman, chairman of the Mortgage Bankers Association, called for a “carefully crafted government role” that would support recovery in the housing market.
Another wrinkle to the housing reform debate is rules proposed by several federal regulators Tuesday. The proposal would implement a key provision of the Dodd-Frank financial reform law that would require financial firms to retain at least 5 percent of the risk from asset-backed securities. The goal of that provision was to ensure securitizers retain some risk for what they package, discouraging them from packaging all sorts of risky loans and then selling them off, which occurred leading up to the financial crisis.
But under the proposal rules, mortgages sold to Fannie and Freddie would be exempted from the risk retention requirement, as well as mortgages with at least a 20 percent down payment.
Given that the vast majority of new mortgages are sold to the two entities, and that lawmakers are pushing to significantly reduce their role in the housing market, private lenders might be required to assume more risk as government backing winds down and the private sector assumes a larger role in the housing market.
One of the bills, introduced by Garrett, would prohibit GSE securities from being exempted from those requirements, which he said would place them on a level playing field with the private sector.