The deja vu’ right now is the big news of the week that Senators Tim Johnson and Mike Carpo, two key leaders (one Republican and one Democrat) in the Senate Banking Committee, announced new legislation aimed at winding down Fannie Mae and Freddie Mac.
I feel like it is deja vu’ all over again. This legislation is quite similar to the Corker-Warner bill from the summer.
I want to believe in this but I’m just not sure if this is any different than what’s been going on over the past five years.
The good news….
- It preserves the 30 year fixed rate mortgage.
- It allows for 5% down payments.
- It provides a platform for smaller issuers to sell and securitize loans.
- It provides catastrophic loss coverage from the federal government – think FDIC insurance. This would kick in once private capital suffered a 10% loss.
The bad news….
- It doesn’t address FHA.
- It doesn’t address what will happen with Federal Housing Finance Agency, the regulator for Fannie, Freddie and FHLBs.
They haven’t released the full bill yet, but should sometime soon. Now everything I’ve read indicates the passage of this in unlikely this year. First, it needs to get out of Committee and two key, powerful Senators (Sherrod Brown and Elizabeth Warren) do not appear to be supportive. If it does get out of Committee, it needs to pass the Senate. Then the House needs to make its own bill, go through Committee, then the full house needs to approve their bill. And if all that happens, then the Senate and the House have to work out any differences between their two bills. And then it can be sent to the President to sign it.
And so as Yogi also said…”you can observe a lot by watching” and we’ve been watching Congress go through this effort with Fannie and Freddie over the past five years. This bill does have promise and has the right leadership supporting it, but don’t hold your breath. To become law, there is a lot that needs to happen in the course of a year, especially an important mid-term election year. But this is a positive step and it’s the most impressive, meaningful step to date. So maybe I’m just being pessimistic about our Washington DC leaders and instead I should be feeling memberlicious that perhaps we can all make this work out. Only time will tell if it is different this time or if it’s deja vu’ all over again.