By Peter Schroeder - 04/15/11 10:30 AM EDT
The New Democrat Coalition is stepping into the fight over the future of the nation's housing market with a reform proposal being offered Friday.
All 43 members of centrist group have signed off on the document, which advocates for a largely private housing market with a handful of key government backstops.
"If you could set aside the unrealistic but fervent cries of the more libertarian wing of the Republican Party for no [government] participation in the housing market, I think you could probably get pretty solid bipartisan support on something that looks like what we've proposed here," said Rep. Jim Himes (D-Conn.), who co-chairs the coalition's financial services task force.
The crux of the recommendations involves winding down the role of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, reducing the government's role to two main tasks: ensuring affordable access to a 30-year fixed rate mortgage and multifamily housing.
"Affordable 30-year fixed rate mortgages are kind of baseball, Mom and apple pie in the American firmament," Himes told The Hill. "And multifamily lending ... is a market that may not exist but for the guarantees provided by the GSEs."
While details are still being hammered out, the coalition's principles call for the housing market to return mostly to private hands. To ensure the 30-year fixed rate mortgage remains supported and a secondary housing market viable, the government would charge a fee to explicitly guarantee securities backed by those assets.
"In the absence of some sort of government involvement, it's likely you'd only see adjustable rate mortgages or balloon mortgages," said Rep. Gary Peters (D-Mich.), the other co-chairman on the task force.
The fee would help cover the risk the government is taking on by guaranteeing the mortgages, and the government would only guarantee the securities themselves, not the entities issuing them — an effort to prevent the type of bailout that occurred when Fannie and Freddie suffered major losses on their portfolios.
No legislative language has been drafted yet based on the New Dems' proposal, but Peters said legislation is in the works.
If the House Financial Services Committee moves then to mark up a broad housing reform bill sponsored by Rep. Jeb Hensarling (R-Texas) — as has been indicated by Committee Chairman Spencer Bachus (R-Ala.) — the New Dem proposal could serve as a competing substitute amendment.
Currently, Fannie Mae and Freddie Mac, which had to be rescued by the government, and the Federal Housing Administration purchase over nine of every 10 mortgages in this country. While parties on all sides of the political spectrum agree the current arrangement is unsustainable, disagreements have emerged as to how Congress should transition the housing market to a more viable state.
The White House launched the debate when it offered its housing report in February. In it, the administration called for the winding-down of the GSEs and return of the private sector, but then offered three options for the final state of the housing market after the transition.
Republicans have identified the first option, which calls for the "vast majority" of the nation's housing to fall under the private sector, as the most palatable. However, several conservatives are also pushing further, calling for a completely private housing market free of government influence.
Himes and Peters said the New Dem proposal squares most closely with the administration's third option. There, the government would insure some private mortgage securities from private companies that meet certain requirements. The administration noted in its report that the third option would likely provide the cheapest access to mortgage credit of the three options, but also carried the most risk to the government.
This post updated at 1:44 pm.