Wednesday, July 6, 2011

GSE bill from Miller and McCarthy would create a government-owned mortgage credit facility

A new bill from Representatives Gary Miller (R-CA) and Carolyn McCarthy (D-NY) would create a government-owned credit facility to replace Fannie Mae and Freddie Mac. The first preview of the bill came on June 24th at NHC’s Policy Summit on Mortgage Finance, where Rep. Miller drew a sharp contrast between his proposal and other GOP-sponsored bills in the House that would quickly wind down the GSEs without any replacement.

The Market Facility for Residential Mortgages Act of 2011 would create a single entity, owned by the federal government, that would issue mortgage-backed securities (MBS). The MBS would have an explicit government guarantee paid for by a guarantee fee set by the Federal Housing Finance Agency (FHFA), which currently regulates Fannie and Freddie. FHFA would also be charged with making sure the facility’s market share did not exceed specified targets except during times of market disruption.

The Miller-McCarthy bill has several strengths based on principles articulated by NHC and others:
  • Explicit government guarantee paid for by guarantee fees
  • Strong regulation by FHFA
  • Ability to scale up government role in times of distress
  • Maintains existing securitization capacity to supply liquidity to mortgage markets
  • Provides access mortgage credit broadly, in all markets under all market conditions
  • Continues the successful multifamily mortgage business line (although it is unclear whether all existing products fit within the language in the draft version of the bill)
The bill is set to be introduced on July 7, with a briefing scheduled in the afternoon. As details are released and debated, we will see how the bill develops. As of this writing, early drafts did not include explicit requirements for affordable housing, although the bill would allow for low-downpayment loans with mortgage insurance.

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