St Casimirs Mortgage Minute

Bipartisan Policy Center Releases Housing Reform Plan

The Bipartisan Policy Center’s Housing Commission yesterday unveiled a plan to wind down Fannie Mae and Freddie Mac and significantly increase private lenders’ participation in mortgage-market financing. ABA President and CEO Frank Keating was a member of the commission and gave the opening remarks at the briefing -- carried live by C-SPAN -- where the plan was unveiled.

The commission’s report “proposes a new housing finance system that calls for a far greater role for the private sector, a continued but limited role for the federal government, the elimination of Fannie … and Freddie … , and reform of the Federal Housing Administration to improve efficiency and avoid crowd-out of private capital,” according to the BPC’s press release.

Under the commission’s plan -- intended to jump-start debate and help build a consensus for change -- banks and other private companies would take the lead in originating mortgages, and also in issuing mortgage-backed securities. Those firms and private insurers would bear the risks of default, except in extreme cases when they are unable to absorb further losses.

In that case, a “public guarantor” funded by premium payments would backstop financing for loans up to $275,000, which is lower than the current $625,500 loan limit Fannie and Freddie currently finance.

“The report is a strong one, which I believe charts a course for a much-needed return of the private market to housing finance. It also states where government involvement is needed it is explicit, paid for, and limited,” Keating said in a statement.

“In the coming months, the commission will continue its important work on housing policy by reaching out to policymakers and key stakeholders and holding forums across the country,” he explained.


---ABA Daily Newsbytes