WASHINGTON — Housing finance reform is still likely years away, but two major hurdles may already be cleared.
A key sticking point in earlier attempts to overhaul the system was whether it will still have government backing. A related question also creeping up at times: What agency will be the source of that backing?
The latest
Hensarling's plan, co-authored by House Democrats John Delaney and Jim Himes, completes a circle. In contrast to the Texas Republican's 2013 housing finance bill, which took the government out of the equation, now the plans on the table — including Hensarling's — all largely position an agency such as Ginnie as the government's guarantor of mortgage assets.
"At the end of the day ... there is going to be a lot of similarities between the existing Ginnie Mae infrastructure and what housing finance reform is going to look like," said Ed Mills, a policy analyst at Raymond James.
An explicit government insurance model to back private mortgage investors has been discussed since at least 2013 as a substitute for the government-sponsored enterprises Fannie Mae and Freddie Mac — private companies that buy and securitize mortgages directly with implicit public backing.
Such a model was discussed in 2013 paper by the Federal Reserve Bank of New York. Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., led a then-bipartisan Senate bill to create a new backstop agency resembling the Federal Deposit Insurance Corp. But their effort was contested by Hensarling's then-proposal to transfer housing finance entirely to the private market.
A proposal a year later by Delaney and Himes envisioned Ginnie as a reinsurer of private-market securitization, and a 2016 Milken Institute paper similarly proposed establishing Ginnie as a backstop. Earlier this year, Corker and Warner tried to revive Senate discussions around a plan to expand Ginnie's role, similar to Hensarling's latest bill.
"We’ve seen a transformation in the conversation over the last decade from this whiteboard approach to a more targeted and I think nuanced reassessment of what’s possible,” said Isaac Boltansky, the director of policy research at Compass Point Research & Trading. "Ten years ago, your average member of the House Financial Services Committee probably couldn’t detail the differences between Ginnie Mae and the GSEs. After a decade of hearings, white papers and reform proposals, the effectiveness of the Ginnie Mae public-private model has become clearer.”
That said, the Hensarling-Delaney-Himes bill is not expected to advance anytime soon. Many Democrats are skeptical that the proposal provides enough affordable housing resources, and the approaching midterm elections constrain the legislative calendar. Hensarling and Delaney, a Maryland Democrat, are both retiring from Congress — the latter in order to run for president.
It is also unclear, despite Hensarling's acceptance of a government backstop, whether other GOP conservatives will go along with it. Hensarling even signaled last week he still prefers a purely private-market plan. In addition to introducing the bipartisan Ginnie-focused bill, he also reintroduced the PATH Act. That bill, originally drafted in 2013, would phase out Fannie and Freddie without a public-backing alternative.
But he, Delaney and Himes likely proposed their Ginnie bill to “put a policy stake in the ground” for future discussions, said Anne Canfield, executive director of the Consumer Mortgage Coalition.
The appeal of Ginnie Mae to policymakers may have less to do with the agency itself than the function it serves.
“I’ve always referred to the most likely GSE reform or the most likely housing finance reform to take on what we would call the ‘Ginnie Mae model,’ ” said Mills. “You ask lawmakers, market participants and consumer groups what they want to see in housing finance reform and frequently, they end up describing what largely already exists at Ginnie Mae."
Some reform proposals push for the creation of a new regulator or a new system entirely, while in reality, it could be much simpler than that, said Boltansky.
“One of the chief goals of this whole adventure is shifting to an explicit, transparent, paid-for federal government guarantee,” he said. “We already know that Ginnie Mae has it, so you’re not reinventing the wheel.”
Ginnie has had a bigger profile of late under Ted Tozer, its former president, and Michael Bright, the agency's acting chief and the administration's pending nominee to run it. (Bright co-wrote the 2016 Milken Institute with Ed DeMarco, a former acting head of the Federal Housing Finance Agency.)
Ginnie Mae has grown dramatically since Fannie and Freddie were placed into conservatorship. In 2014, it oversaw guarantees on more than $1.5 trillion in mortgage-backed securities, and for several months in 2016 it was the No. 1 program for residential MBS, according to annual reports.
Ginnie also regularly returns its profits to the Treasury Department, which Fannie and Freddie have also done since 2012 as a result of the stock purchase agreement governing their conservatorships.
“That’s another thing that people don’t always appreciate, that Ginnie Mae is a government-owned corporation where it’s set up for any profits that get shared with the federal government, which is similar to what we see with the quarterly sweeps that are going on,” said Mills.
However, many of the details of this proposal were absent from the Hensarling-Delaney-Himes bill, raising questions about how quickly it could move.
“The entire affordability section is essentially nonexistent, so how do you really estimate the net impact on the market?” said Boltansky. “There are just massive gaps in the text of the bill.”
In her written testimony at a hearing last week about the bill, Nikitra Bailey, the executive vice president at the Center for Responsible Lending, said that the Ginnie Mae-centric proposals have failed to consider cost increases.
Ginnie Mae "has a full government wrap on the loans that it insures,” she said. “Extending this wrap is likely to drive up fees as the market will respond to the increased number of participants in the Ginnie program with anxiety.”
She added that Ginnie Mae has “operational complexities” that could dissuade small lenders from becoming issuers.
It is also unclear how ready the Trump administration is to accept a Ginnie Mae model. Some observers note that if there were a complete consensus among all relevant parties, a bill might have advanced by now.
“The [Ginnie Mae] model works, but the powers that be seem to be going down a different track at this time,” said Canfield.
Still, Hensarling’s willingness to put his name on a bipartisan bill that supports any semblance of government support in the mortgage market is notable. In December 2017, he had already conceded that any bipartisan deal would need to include some sort of government involvement.
“That was a monumental shift in position for him,” said Mills.
