Warren, Warner urge action on housing finance reform

Two Senate Democrats are urging one of the nation’s top housing regulators to move toward eliminating mortgage giants Fannie Mae and Freddie Mac and setting up a new housing finance framework.

Sens. Elizabeth WarrenElizabeth WarrenJuan Williams: Verdict on big debate will be instantaneous WATCH LIVE: Warren campaigns for Clinton in NH Fifteen years since pivotal executive order, STORM Act could help fight terror finance MORE (Mass.) and Mark WarnerMark WarnerDem senator urges SEC to investigate Yahoo Lawmakers play catch-up as smartphone banking surges 5 questions about the Yahoo hack MORE (Va.) said Tuesday that while Congress must pass comprehensive housing finance reform, the Federal Housing Finance Agency (FHFA) can take steps now to overhaul the system. 

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"Millions of creditworthy families are struggling to get mortgages and buy a home," Warren said. 

"We believe FHFA can use its existing authority to extend credit to responsible families and, at the same time, prepare the housing finance system for the end of government conservatorship," she said. 

In a letter to FHFA Director Mel Watt, the senators outlined six areas where the agency can move "to build a housing finance infrastructure for the future, enhance the role of private capital in the agency mortgage-backed security (MBS) market, and responsibly increase access to mortgage credit."

Watt is scheduled to testify before the Senate Banking Committee on Wednesday.

"While we work in Congress to pass comprehensive housing finance reform, we are asking FHFA to move responsibly and transparently as they lay the foundation for a system that better protects taxpayers and improves access to credit for homeowners," Warner said.

Warner has been heavily involved in bipartisan efforts to craft a measure. He teamed up with Republican Sen. Bob Corker (Tenn.) and that partnership eventually led to the Senate Banking Committee approving legislation with their input. 

That bill — led by Senate Banking Committee Chairman Tim Johnson (D-S.D.) and panel ranking member Mike Crapo (R-Idaho) got through the committee in May but has been stalled since then. 

The senators highlighted six areas for FHFA to take action.

First, they called on the FHFA to develop a single security for Fannie and Freddie mortgage-backed securities, arguing that they say will create more liquidity in the market, unify representations and warranties and standardize due diligence processes.

Next, they said FHFA can finish creating the Common Securitization Platform (CSP) and ensure that it can be used for encouraging private-label MBS activity, as well as a system for Fannie and Freddie. They also called on Watt to provide a timeline for completing the CSP with a cost estimate. 

The lawmakers also suggested Watt continue experimenting in risk-sharing pilot programs that would encourage the private sector to take on a growing amount of credit risk.

Finally, they also called on Watt to create specific regulations for private mortgage insurers to insure loans guaranteed by Fannie and Freddie; expand and improve the First Look program, which ensures that owner-occupants have an opportunity to bid on the repossessed homes before the process is opened up to investors; and update the credit scoring models that Fannie and Freddie use.