Bipartisian GSE Replacement Bill Takes Shape. Mirrors MBA Plan

HR 1859 authorizes the Director of the Federal Housing Finance Administration (FHFA) to issue charters for "Housing Finance Guaranty Associations" with the power to "deal in conventional mortgages only for the purpose of creating a secondary market for these mortgages, facilitating mortgage securitization, and supporting multifamily housing"... The associations would be supervised by FHFA which will conduct examinations at least once a year, set capital standards, and issue capital classifications... The "Catastrophic Federal Guarantee" deems failure of an association to make timely payments of interest or principal as grounds for placing an association in conservatorship or receivership. That is the only way to trigger the federal guarantee...

The bill's "Transition Section" terminates the GSE's housing goals and requires Freddie and Fannie to reduce their asset portfolios to a maximum of $250 billion within 5 years and increase their guarantee fee over a period of three years to reflect the risk posed by the guarantee. FHFA has six months to provide a transition plan to wind down the GSEs and must determine within one year after five associations have been chartered whether the GSEs can be safely placed into receivership, an event that must occur no later than three years after two associations have been chartered.