WASHINGTON A top Republican in the House of Representatives on Thursday proposed legislation to retool the mortgage market and pave the way for a larger private sector role in the housing finance system.
The legislation, sponsored by Representative Scott Garrett, a New Jersey Republican, aims to create clear underwriting standards and establish new market rules for the buying, selling, and securitization of mortgage loans as groundwork for an eventual winding down of Fannie Mae and Freddie Mac.
"We have not had a degree of certainty in this market place for some period of time prior to the collapse of 2008, but it is even more exacerbated by what happened after the collapse," said Garrett, who heads the House subcommittee that oversees Fannie Mae and Freddie Mac.
Fannie Mae and Freddie Mac, along with the Federal Housing Administration, finance almost 90 percent of U.S. home loans.
Fannie and Freddie, government-sponsored enterprises that were seized by the government at the height of the financial crisis in September 2008 as losses on subprime mortgage debt ballooned, have received about $141 billion in taxpayer aid.
The bill would expand the mandate of the Federal Housing Finance Agency, which regulates the two firms, to make it responsible for the quality of underwriting for mortgage-backed securities and for increasing pricing transparency in the secondary mortgage market.
FHFA would set standards for the issuance of all housing debt, including private-label mortgage-backed securities and not just Fannie Mae and Freddie Mac's securities.
The plan envisions FHFA would be able to establish different classes of mortgages in order to create a highly liquid market that appeals to private investors.
Garrett has led a House Republican effort to chip away at the role Fannie and Freddie play in the secondary mortgage market, which has already led to the introduction of 15 separate bills.
"So long as the GSEs exist in their present configuration, the bailouts continue," Garrett said, referring to his goal to end taxpayer support to keep the two firms afloat.
The two firms, which were taken over by the government at
FHFA said on Thursday that the two firms could cost taxpayers another $121 billion to $193 billion through 2014.
Both Democrats and Republicans agree that the U.S. system of mortgage finance, the epicenter of the financial crisis, needs to be overhauled.
Republicans aim to remove most government involvement in the mortgage market, while many Democrats favor some kind of continued government support of homeownership.
(Reporting by Margaret Chadbourn; Editing by Leslie Adler)