GSE Reform Bill ‘Gaining Momentum’

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Does doing away with two organizations that are returning billions of dollars to the government coffers sound like a great idea. Would not keeping Freddie and Fannie and changing the rules a little make more sense? Please read the article below.

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Sen. Mark R. Warner is seeing “tremendous momentum” toward GSE reform in Congress, he said during a discussion with Zillow chief economist Stan Humphries this week.

He also expressed his optimism that the Housing Reform and Taxpayer Protection Act of 2013—a bill he helped co-sponsor—“actually has a chance” of passing. Fellow co-sponsor Sen. Bob Corker (R-Tennessee), who was also part of the discussion with Humphries, expressed similar sentiment, saying the bill is “gaining momentum.”

The major components of the bill include winding down Fannie Mae and Freddie Mac over a period of five years; placing private capital in a first-loss position in which they would absorb 10 percent of losses before a government bailout ensued; and creating a Federal Mortgage Insurance Corporation (FMIC) to ensure securitized loans.

Corker and Warner said 10 percent risk retention by the private market is double what would have been necessary to prevent the bailout that took place in the recent housing crisis.

Not only does the 10 percent provision likely preclude the need for a government bailout in the future, but also the private market “does a much better job than the government ever would pricing that risk,” Warner said.

Warner said the combination of the roles the GSEs have played in the housing market—securitizing loans, insuring those loans, and supporting low-income housing and first-time home buyers—“makes no long-term sense.”

To read the complete article please use the link below.

GSE Reform Bill

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