Weekend Economists Toast the Apostle of Ireland March 14-16, 2014

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5. Senate Banking leaders reach housing finance deal (Fannie and Freddie)

http://www.politico.com/story/2014/03/senate-fannie-mae-freddie-mac-housing-finance-deal-104522.html

The leaders of the Senate Banking Committee have reached a bipartisan agreement on how to overhaul the housing finance market — now they face the challenge of building a broad base of support to establish their legislation as the leading proposal for getting rid of Fannie Mae and Freddie Mac. What to do with the two mortgage finance giants has bedeviled policymakers since the government took over the companies in September 2008 as the housing market cratered and the financial crisis neared its zenith.

The plan announced on Tuesday by Banking Committee Chairman Tim Johnson (D-S.D.) and the panel’s top Republican, Mike Crapo of Idaho, represents a centrist approach in which the government will still play a role in supporting the mortgage market but less of one than it does today...

Senators Draft Housing Finance Overhaul By SHAILA DEWAN

http://www.nytimes.com/2014/03/12/business/two-senators-draft-plan-to-phase-out-freddie-mac-and-fannie-mae.html?_r=0

The committee chairman, Tim Johnson, a Democrat from South Dakota, and Mike Crapo of Idaho, the ranking Republican, have come up with a compromise that provides an explicit government guarantee for mortgages, but only after private investors have taken the first losses. The plan would set up a new federal regulator, called the Federal Mortgage Insurance Corporation, to provide the guarantee and regulate the system.

“There is near unanimous agreement that our current housing finance system is not sustainable in the long term and reform is necessary to help strengthen and stabilize the economy,” Senator Johnson said in a news release. “This bipartisan effort will provide the market the certainty it needs, while preserving fair and affordable housing throughout the country.”

More than two dozen plans have been floated for changing the housing finance system, but this one carried bipartisan clout significant enough to move markets. The price of Fannie Mae stock fell 43 percent on Tuesday, and Freddie Mac was down 33 percent. Both of the stocks had been rising on investors’ hopes that the mortgage giants’ functions would be privatized.

The bill, to be released in the coming days, still faces an uphill battle. Although its creators were under pressure to release a plan in time for a vote this year, the chances of the legislation reaching the Senate floor are uncertain...

Love and hate on the Johnson-Crapo GSE reform effort Sarah Wheeler

http://www.housingwire.com/articles/29272-love-and-hate-on-the-johnson-crapo-gse-reform-effort

Industry leaders gave a generally loving welcome to the agreement on GSE reform reached by Senate Banking Committee Chairman Tim Johnson, D-S.D., and Ranking Member Mike Crapo, R-Idaho, today, with smaller lenders and one investor and taxpayer-minded politician making up a significant dissent faction.

The Senators are planning to introduce the legislation soon.

The long-anticipated agreement is the latest attempt to craft a bill that overhauls Fannie Mae and Freddie Mac's role in mortgage finance while opening up space for the private sector. The agreement builds on the earlier Corker-Warner bill as senators try to find middle ground. Of course any bill passed by the Senate will still have to get through the House of Representatives.

The Bipartisan Policy Center Housing Commission issued a statement that applauded the senators, and said that the agreement reflected many of the items on the BPC's own report last year, including "the gradual wind down of Fannie Mae and Freddie Mac; a greater role for private capital in assuming mortgage credit risk; a continued, but more limited, role for the federal government as the insurance backstop of last resort in the secondary market for mortgage-backed securities; and a commitment to ensuring access to safe and affordable mortgages for all borrowers in all geographic markets."

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