House Chairman Outlines Housing Reform Bill

Freddie Mac Fannie Mae FHA U.S. House Housing Finance Reform

On July 11, House Financial Services Committee Chairman Jeb Hensarling (R-TX) outlined legislation set to be unveiled next week that is designed to reform the housing finance market. The centerpiece of the comprehensive bill is a plan to end the government’s conservatorship of Fannie Mae and Freddie Mac over a five year period, move those entities into receivership, and liquidate them. The bill would aim to replace the government-backed mortgage finance companies with a secondary market funded only by private capital, supported by a non-government, not-for-profit mortgage market utility regulated by the FHFA. The legislation also will include numerous provisions designed to “break down barriers to private investment capital,” including by delaying implementation of Basel III capital rules for community financial institutions and incorporating portions of a bipartisan proposal to change the calculation of loan points and fees in determining qualified mortgage eligibility. Finally, the bill would separate the FHA from HUD, limit the FHA’s mission to only serving first-time homebuyers and borrowers below 115% of area median income (AMI) nationwide or 150% of AMI in high-cost areas, lower the minimum and maximum FHA loan limits, and increase FHA down payment requirements, among other changes to the FHA program.