Bipartisan Group Of Senators Propose Housing Finance Reform Bill

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On June 25, Senators Mark Warner (D-VA) and Bob Corker (R-TN) announced the introduction of a new bill to reform the secondary mortgage market. The bill, known as the Housing Finance Reform and Taxpayer Protection Act, has bipartisan support from several other members of the Senate Banking Committee. The bill is designed to draw private capital back into the secondary mortgage market by providing a limited government guarantee to qualifying mortgage-backed securities (MBS). It would replace over a period of time Fannie Mae and Freddie Mac and in their stead establish the Federal Mortgage Insurance Corporation (FMIC), which would oversee a variety of secondary market utility functions, many of which are similar to those under development by the FHFA. Under the new system, the FMIC would insure MBS securitized by FMIC-approved issuers, provided that the MBS place in the first loss position a private investor with at least 10 cents in equity capital for every dollar of risk. FMIC-insured MBS also would be required to be collateralized by “eligible mortgages” – mortgages that, among other things, meet the CFPB’s ability to pay requirements, have a down payment of at least five percent, and are below the conforming loan limit. The FMIC also would have responsibility for approving bond guarantors to provide credit enhancement, servicers eligible to service loans in MBS pools, and private mortgage insurance companies to insure mortgages with a loan-to-value ratio above 80 percent. The bill also would establish an affordable housing fund subsidized through fees on securitized loans and would grant the FMIC authority to back the entire MBS market for a limited period of time in emergencies.