Hensarling gives GSE reform another try

WASHINGTON — House Financial Services Committee Chairman Jeb Hensarling, R-Texas, and Rep. John Delaney, D-Md., are unveiling a new housing finance reform plan that would repeal the charters of mortgage giants Fannie Mae and Freddie Mac.

The plan will allow qualified mortgages backed by a private credit enhancer with capital resources to access the explicit government securitization guarantee provided by Ginnie Mae, Hensarling said Thursday.

He discussed the bill at the start of a hearing on the 10-year-old conservatorships of the government-sponsored enterprises. The plan is among a still-growing list of proposed frameworks for the future of housing finance.

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“While by no means perfect, we offer this proposal as a grand bargain on how to move past an increasingly dangerous status quo,” he said.

The plan will preserve several elements of the current system, including liquidity and the 30-year, pre-payable fixed mortgage, said Hensarling, who is leaving Congress at the end of this year. He announced the new legislation late Wednesday in an op-ed in The Wall Street Journal.

"The compromise plan would permanently repeal the Fannie and Freddie charters, ending the monopoly model," Hensarling wrote in the article. "In its place it proposes using Ginnie Mae, the government corporation that explicitly backs the payment of principal and interest to investors in Federal Housing Administration and other government-insured loans. The proposal would direct the corporation to guarantee qualified privately insured mortgage-backed securities."

By proposing a more prominent role for Ginnie Mae, it borrows from previous plans that had also suggested transferring some of Fannie and Freddie's functions. In 2014, Delaney and other House Democrats introduced a bill creating an insurance program through Ginnie to support the mortgage market. (Delaney has announced a bid as Democratic candidate for president in 2020.)

Similarly, Ed DeMarco, former acting director of the Federal Housing Finance Agency, co-wrote a paper in 2016 proposing to put Fannie and Freddie in receivership and establish Ginnie Mae as a standalone entity to back mortgage-backed securities. DeMarco, whom some have suggested as a permanent FHFA director in the Trump administration, testified at the hearing Thursday. He co-wrote the paper with Michael Bright, who is the administration's nominee to run Ginnie.

Hensarling, who has also been mentioned as a potential FHFA director, told the committee he would also reintroduce the PATH Act this week, a bill he has pushed for years to reduce the government’s role in the mortgage market.

“I am reintroducing the PATH Act this week, if for no other reason than it is the right thing to do and it will let me sleep better at night,” he said. “Regrettably, its chances for passage remain slim.”