On June 25, 2013, a group of bipartisan senators led by Senators Mark Warner (D-Va.) and Bob Corker (R-Tenn.) introduced legislation to address wholesale reform of housing mortgage giants Fannie Mae and Freddie Mac. The measure would wind down Fannie and Freddie over five years and replace them with a single housing finance system. It would create a system that protects taxpayers while relying more heavily on private capital.
Although the measure is just the first step in what is likely to be a long process toward actually enacting housing finance reform, it does represent the first meaningful reform proposal and is expected to kick-start the otherwise stalled issue.
More important, the bill, The Housing Finance Reform and Taxpayer Protection Act, largely reflects many of the key principles for multifamily finance reform outlined by NMHC/NAA. Specifically it includes a separate provision that preserves the multifamily lending programs that exist today. It also retains a federal guarantee that is critical to maintaining a high-level of liquidity for the sector.
The multifamily programs also issue mortgage-backed securities that have a limited government guarantee and make private investment capital subordinate to the government, such that private capital takes the first part of any mortgage loss.
The bill would create a Federal Mortgage Insurance Corporation (FMIC) to oversee the mortgage industry, provide limited guarantee and make private capital investment subordinate to the government, such that private capital takes the first part of any mortgage loss. The FMIC would regulate the lenders and issuers that participate in the FMIC mortgage insurance program. It would also oversee an insurance fund to further protect the taxpayer-similar to deposit insurance used to protect bank deposits before government funds are used.
The multifamily provisions are the result of a five-year campaign by NMHC/NAA to educate lawmakers about the unique needs of our sector and the need for a separate solution that addresses those needs.
In fact, the bill recognizes the success of the existing multifamily mortgage system by it as a model for their proposed reforms for the single-family system, which include risk sharing with private market capital providers and lenders.
NMHC/NAA will continue to work with lawmakers as this bill and others expected to be issued work their way through the legislative process.