Lawmakers have been talking about reforming the secondary mortgage market since the housing bust, but the effort has remained largely in the planning stage. Now it’s moving forward.
In the House last week, the Financial Services Committee passed a bill, called the PATH Act, which would phase out the two secondary mortgage market companies, Fannie Mae and Freddie Mac. The bill would also make major changes to the way FHA conducts its business. “PATH” stands for “Protecting America’s Taxpayers and Homeowners.”
In the Senate, comprehensive legislation has been introduced that would also phase out Fannie and Freddie but, unlike in the House, the federal government would remain as an insurer of last resort, much like the FDIC is the insurer of last resort for troubled banks. In the House, there is no plan to keep the federal government involved in mortgage financing except through a much-modified FHA (not counting specialized markets like those served by the Rural Housing Service and the Department of Veterans Affairs).
NAR has long called for replacing Fannie and Freddie while ensuring continued mortgage market liquidity through the maintenance of an explicit federal presence in the market. On that basis, the Senate approach, called the Housing Finance Reform and Taxpayer Protection Act, is the better starting point of the two. But a lot more discussion is needed, both in the House and in the Senate. In both approaches, questions remain about how households would fare should ether become law in their current form.
It’s unclear how far Congress will get this year in taking the next step to pass either of these bills or to consider other bills that need to be factored in, including those that just focus on FHA reforms. But now that the process is getting started in earnest, anyone with an interest in the availability of mortgage financing will want to pay attention to what’s happening. Because even if the process takes a couple of years, there will be key points in which input from the real estate industry is needed to move the debate in the direction that best protects households who want to buy.
In the 6-minute video above, NAR analysts talk about the concerns NAR has with the approach that was passed last week by the House Financial Services Committee. They also talk about what’s moving through the Senate and why engagement by NAR members will be so important in the months ahead.