Breaking down Hensarling’s GSE reform overture

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WASHINGTON — House Financial Services Committee Jeb Hensarling shifted tactics on housing finance reform Wednesday, acknowledging that a bill he’s pushed for years to virtually eliminate the government’s role in the mortgage market lacks the support to become law.

The Texas Republican also conceded that while he opposes any kind of government guarantee of the mortgage market, it would be impossible to pass a reform effort without one.

“I continue to believe that a government guarantee in the secondary mortgage market remains a bad idea, a risky idea, and an unneeded idea,” Hensarling told the National Association of Realtors. “I also believe the idea is not going away anytime soon and I fully expect it to be part of any successful reform effort in this Congress.”

While Hensarling still prefers his approach, a bill called the PATH Act, he is now actively pursuing other options. He explicitly endorsed a plan by a former top regulator of Fannie Mae and Freddie Mac while outlining a set of principles he said are essential to any reform effort.

He also acknowledged that any bipartisan deal would include some support for affordable housing, another area where Hensarling has been vigorously opposed in the past.

“While I personally have not changed … my mind that the best path forward remains the PATH Act, after carefully surveying today’s political landscape, I do not see the PATH Act’s passage likely,” he said.

Hensarling’s concessions are significant, and boost momentum for a bipartisan deal by the end of next year — the tenth anniversary of the government takeover of Fannie and Freddie.

The Texas Republican’s change of heart comes ahead of a renewed push by Senate lawmakers to agree on a deal on reform of the government-sponsored enterprises. Until Wednesday, Hensarling had appeared to favor an all-or-nothing approach, though privately many financial services lobbyists said the lawmaker would have been willing to compromise.

Embracing DeMarco’s approach

While remaining open to other ideas, Hensarling specifically endorsed a plan proposed by the onetime Federal Housing Finance Agency acting Director Ed DeMarco and Ginnie Mae's current acting president, Michael Bright.

The plan is one of three proposals that has garnered momentum in policy circles and would utilize the Ginnie Mae securitization platform to provide a government backstop for mortgages.

“I have been particularly encouraged by” the DeMarco-Bright proposal, Hensarling said. “Coupled with the basic tenets of the PATH Act, the DeMarco-Bright proposal creates another pathway under a better system to increase choice, help diversify risk and promote stability within the marketplace.”

The plan would separate Ginnie Mae from the Department of Housing and Urban Development and make it a standalone corporation similar to the Federal Deposit Insurance Corp.

Unlike with the current structure, however, Ginnie Mae would be able to issue securities with private mortgage insurance credit enhancements as well as loans guaranteed through the Federal Housing Administration and the Department of Veterans Affairs.

The plan is favored by some because the familiarity of the Ginnie Mae security could make a transition to a new housing finance system smoother.

Hensarling added that the government should be in the “last-loss position, with multiple layers of private capital, as diversified as possible, stacked up before it.”

“I believe the DeMarco-Bright proposal provides a credible, implementable, battle-tested way to create a new, limited government guarantee in a post-GSE housing finance system, and one that deserves to be fully explored by Congress as part of any comprehensive housing finance reform effort,” he said.

Senate plan

It is unclear if the Senate would adopt a similar approach. Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., are generally viewed as thought leaders in the Senate, and Banking Committee Chairman Mike Crapo, R-Idaho, helped lead discussions in 2013 and 2014.

“There have been a lot of discussions continually since the first of the year,” Crapo said in an interview last week. “I am aware there are a number of senators working together trying to find an agreement and I am hopeful that they will. I have also been working to put together what my own ideas are, but I want to see if we can get a broader consensus soon.”

However, Sen. Heidi Heitkamp, D-N.D., said earlier in the day that other political issues could be holding up housing finance reform talks.

“The problem is Warner is vice chair on the Intelligence Committee and Corker is chair of Foreign Affairs. And these are busy times for both of these committees. It has limited the bandwidth of their staff,” Heitkamp said.

She also said “new ideas are percolating up,” including “basically maintaining” Fannie and Freddie.

That is one area where Hensarling does not appear ready to compromise. He emphasized Wednesday that any bill should eliminate Fannie and Freddie.

“To be clear, Fannie and Freddie must be wound down and their charters repealed,” he said. “I fear any plan to recap and release may very well constitute deja vu all over again.”

Affordable housing

During his speech, Hensarling offered another concession on affordable housing. Though objecting in principle to more such measures, he said it was necessary to win the needed Democratic votes to enact a bill.

“I acknowledge there will likely be yet another government affordable housing program to be added to the other ones already in existence,” he said. “It at least needs to be on budget, results-based, and target actual homebuyers for the purpose of buying a home they can actually afford to keep. “

Brian Collins contributed to this article.

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