Washington, D.C.—Thursday, the Senate Committee on Banking, Housing, & Urban Affairs held a markup hearing on the Johnson-Crapo housing finance reform bill. The Johnson-Crapo plan uses the Corker-Warner proposal as its base architecture and winds down Fannie Mae and Freddie Mac.

Representatives John K. Delaney (MD-6), John Carney (DE- At Large), and Jim Himes (CT-4) have developed a housing finance reform proposal that uses private sector market forces to appropriately price risk while putting the scale and security of a government guarantee behind the program. Under the Delaney-Carney-Himes plan, the holders of mortgage-backed securities would absorb losses of up to 5% of their value, with the remaining 95% covered by insurance, which would be provided jointly by the government and the private sector

This legislation will create a housing finance system that is fair for borrowers, lenders, and taxpayers and will be introduced in the next month.

Delaney, Carney, and Himes issue the following statement:

“Today’s Senate Banking markup of the Johnson-Crapo housing finance reform bill is an important step forward towards greater stability in our housing market. Chairman Johnson and Ranking Member Crapo, along with Senator Warner and Senator Corker, should be commended for addressing GSE reform in a thoughtful and bipartisan way. Today’s markup shows progress on this issue and the commitment from the Senate Banking Committee to advance real GSE reform. The passage of Johnson-Crapo out of the Senate Banking Committee is to be applauded: this is precisely the kind of bipartisan reform-minded legislation we need more of.

“We believe that housing reform is essential to the long-term fiscal health of our country, because America needs a housing finance system that is fair for borrowers, lenders, and taxpayers. It is incumbent upon Congress to address GSE reform, however difficult it may be perceived to be.

“To that end, we are committed to building a bridge between the House and Senate on housing by leveraging the strengths of both the government and the private sector. By imposing market discipline on government pricing and providing government capacity where the private sector cannot meet the demand for the U.S. mortgage market, we aim to strike a balance and inject private sector pricing into the government’s role in the housing market.”   

A summary of the bill can also be found in Rep. Delaney’s April 21, op-ed in the Financial Times.


Key Components of Delaney, Carney, Himes Housing Reform Proposal


This bill establishes a system of government reinsurance for eligible mortgage backed securities, marrying the government’s ability to provide the necessary capacity to accommodate the size of the United States housing market and the private sector’s ability to better price risk. A government guarantee under this system will be explicit, but taxpayer money will be protected through adequate private sector capital and accurate pricing of government reinsurance.  The bill will require 5% “first loss” risk to be born entirely by private capital with the government, acting through Ginne Mae and in partnership with private capital, providing reinsurance for up to 95% of the remaining risk.  Both the government and the private reinsurance carriers will receive the exact same pricing and bear the exact same risk. 

Under the plan, Ginnie Mae will manage a newly created mortgage securities insurance program whereby it makes available the full faith and credit guaranty of the Federal Government on qualifying mortgage securities backed by eligible single-family mortgages.  Under the terms of the program, Ginnie will be required to quote forward prices (ranging from 3-12 months as determined by Ginnie) for a “Guarantee Fee” that issuers of mortgage securitizations will be charged for the guaranty of 100% of the mortgage securities issued under qualifying mortgage securities.  The Guarantee Fee will be based on the pricing Ginnie secures for certain risk sharing re-insurance contracts from the private market – Ginnie will be required to charge Guarantee Fees at least sufficient to recover fully these reinsurance costs, ensuring that the government is not inadvertently charging less than a market price for its guarantee.  These reforms will apply only to the flow of new mortgages, not to the existing stock of mortgages outstanding.  The proposal will ensure that small lenders have access to the market and that important affordable housing programs, such as the Housing Trust Fund, the Capital Magnet Fund and the Market Access Fund are well funded.