A Johnson-Crapo Dialogue, a commentary issued by the Urban Institute Housing Finance Policy Center, summarizes the major policy disagreements associated with the “Johnson-Crapo” housing finance reform bill (see Memo, 3/14), and the future prospects for this bill and housing finance reform as a whole. The paper is based on interviews with three Urban Institute affiliated housing experts, Laurie Goodman, Jim Parrot, and Ellen Seidman. The paper is a “must read” for anyone who wants to better understand the intricacies of the current housing finance reform debate.
The Johnson-Crapo bill provides a dedicated source of revenue for the National Housing Trust Fund estimated to be $3.75 billion a year. It winds down Fannie Mae and Freddie Mac, and establishes the Federal Mortgage Insurance Corporation. The bill was voted out of the Senate Committee on Banking, Housing, and Urban Affairs on May 15, with a bipartisan vote of 13-9. Notably six Democrats voted against the bill in committee (see Memo, 5/16). Prospects are dim that the full Senate will take up the bill before the end of this Congress.
The commentators agree that there is broad consensus on how the Johnson-Crapo bill addresses housing finance reform, but identified two key policy areas that ultimately stymied progress on the bill. One concerned the requirement that the private sector take on risk and losses before the federal guarantee would take effect. The other pertained to the design and reach of affordable homeownership features, and the mechanisms to ensure that underserved communities would still have access to affordable mortgage credit.
A central theme of their comments was lack of agreement on the primary purpose of government involvement in the home mortgage market. Ms. Seidman said there was a fundamental tension between two goals: “Was the point of government involvement to serve Americans’ housing needs or to protect the participants in the financing system, and how would you resolve any tension between those goals?”
In the absence of legislation, the administrative steps that the Federal Housing Finance Agency (FHFA) could take to achieve some of the goals of housing finance reform were explored, including lifting the suspension of Fannie Mae and Freddie Mac contributions to the National Housing Trust Fund (NHTF). Ms. Goodman said, “With the GSEs now generating profits, a case can be made that the fee be imposed, and there is pressure from many, primarily progressive groups, to do so.” Mr. Parrott cautioned that the lawsuit from Fannie Mae and Freddie Mac shareholders will make starting the contributions and directing them to the NHTF more complex.
There is skepticism that GSE reform legislation would be enacted. “I am the least optimistic of the three of us that we will get GSE reform through legislation, at least in my professional life,” Ms. Goodman said. “Every time I think it all the way through, I come to the conclusion that the positions are irreconcilable, as we are unable to agree on how much cross subsidization the system is willing or required to permit.” Mr. Parrot added, “I fear that we are stuck in this dysfunctional limbo until something dramatic happens – a bump in the market that forces the undercapitalized enterprises to begin to draw on Treasury again, say, or a lower court decision or two in favor of shareholders that call the current arrangement into question. Then we’ll dust off Johnson-Crapo and all go scrambling back to the table.”
The paper is at: http://urbn.is/1lm5Gww