House Dems ready mortgage finance system overhaul bill

Three House Democrats are prepping legislation they hope will attract bipartisan support in overhauling the housing finance system.

Reps. John DelaneyJohn Kevin DelaneyDemocrats can campaign on technology for edge in 2020 2020 Dems boost down-ballot contenders in key states Supreme Court to weigh partisan gerrymandering Wednesday MORE (Md.), John CarneyJohn Charles CarneyDemocrats divided over Biden run Dem urges passage of voting rights legislation House passes expatriate O-Care patch MORE (Del.), and Jim HimesJames (Jim) Andres HimesDem lawmaker: People will 'rot in hell' for attacking Mueller and Comey Dem rep: To call Mueller probe a witch hunt is ‘to be completely unhinged’ Overnight Cybersecurity: House Intel votes to release Russia report | House lawmakers demand Zuckerberg testify | Senators unveil updated election cyber bill MORE (Conn.) have outlined a proposal they plan to unveil this spring that would aim to spur more private capital into the mortgage market while maintaining a level of government support to ensure liquidity.

Himes told The Hill the proposal aims to create a balanced public-private approach that satisfies Democrats' demands — preserving the 30-year fixed-rate mortgage — while letting the private sector price the risk, which provides mortgage market discipline, a necessary component for Republicans. 

He said that the underlying idea is to focus on the strength of the government — providing guarantees — and the private sector, pricing the risk. 

The lawmakers say the government's role would help expand the availability of capital in the insurance market, while ensuring the mortgage market is open and efficient.

"It keeps everyone in their lanes," Himes said. 

The framework would have private capital take up to the first 5 percent of loss on credit risk, compared with a Senate plan that calls on a 10 percent coverage.

“To ensure a stable housing finance system, we must move past the current state to a new system that engages more private sector capital." Delaney said. 

The government, acting through Ginnie Mae, in partnership with private capital will provide reinsurance of up to 95 percent of any mortgage securitization, according to the plan's details. 

Himes said the trio has been talking to House Financial Services Committee Chairman Jeb HensarlingThomas (Jeb) Jeb HensarlingOvernight Finance: Wells Fargo hit with B fine | Top lawmakers want execs punished | Banks cash in on tax law | GOP chair blasts FDIC over data security House plans May vote to repeal auto-lending guidance Hensarling, Waters say Wells Fargo execs should be punished after record fine MORE (R-Texas) and "he has not discouraged us" from developing another plan.

He also said they have gotten "good feedback" from officials at Ginnie Mae, and the Department of Housing and Urban Development, as they continue to craft their legislation. 

Under the bill, the private sector and the government would receive the same pricing and have the same risk. 

Himes said he would expect private capital to be lured back into the market by the fact that they can price risk and make a profit. 

The plan includes a gradual wind down and sell off of mortgage giants Fannie Mae and Freddie Mac without any government support or monopoly status.

The legislation also includes a provision that says in times of crisis and the private sector is not a willing participant, the government can take over again. 

Himes said the proposal also would provide better signals as to when mortgage pools are getting too risky or speculative. 

Hensarling's panel approved a GOP-crafted plan during the summer, but the measure, which has no Democratic support, has not reached the House floor for a vote. 

In the Senate, Sens. Mark WarnerMark Robert WarnerOvernight Finance: Stocks fall hard | Trump sending delegation to China for trade talks | SEC fines Yahoo M over breach | Dodd-Frank rollback dominates banking conference Trump’s CIA pick facing brutal confirmation fight Rand's reversal advances Pompeo MORE (D-Va.) and Bob CorkerRobert (Bob) Phillips CorkerGOP anxiety grows over Trump’s Iran decision Trump backs Renacci in Ohio Senate race The Hill's 12:30 Report MORE (R-Tenn.) have introduced a measure that has created a foundation from which leaders of the Senate Banking Committee have been working. 

Add to that an expected plan by Financial Services Committee ranking member Maxine WatersMaxine Moore WatersOvernight Finance: Wells Fargo hit with B fine | Top lawmakers want execs punished | Banks cash in on tax law | GOP chair blasts FDIC over data security Hensarling, Waters say Wells Fargo execs should be punished after record fine Maxine Waters asks Haley: Why suffer ‘endless humiliation’ with Trump? MORE (D-Calif.) and there could be, at least, five plans by the spring. 

That could set up an eventual compromise between the plans. 

After years of inactivity, steam is finally building behind the effort to overhaul the mortgage finance system more than five years since the financial crisis and housing crash. 

"We hope our legislation will complement these efforts," Delaney said. 

Mortgage industry experts are expecting lawmakers to speed up the pace of work on a mortgage finance plan this year. 

Fannie and Freddie were taken under government control and needed $188 billion to stay afloat during the 2008 financial crisis.