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Summary of H.R. 1427, Federal Housing Finance Reform Act


WASHINGTON, May 17 -

Background

Fannie Mae and Freddie Mac were chartered by Congress to establish and maintain a secondary mortgage market for the U.S. housing finance system.  These Government Sponsored Enterprises (GSEs) have been embroiled in major accounting irregularities in recent years. This has prompted calls for stronger regulatory oversight.

H.R. 1427, the Federal Housing Finance Reform Act of 2007, passed the Committee on March 29, 2007 by a vote of 45 to 19.  The legislation would:

·       Create a new, independent regulator – the Federal Housing Finance Agency – to oversee the GSEs, and give the Agency’s director bank regulator-like power.

With regard to the proposed fund, CBO estimates the GSEs will contribute a total of $3 billion to the fund, which will be funded by a mechanism based on a percentage of all outstanding mortgages. Funds would be allocated to and distributed by the states, rather than the Enterprises, under a formula to be developed by HUD. First year contributions from the fund would be divided 75/25 between Louisiana and Mississippi to support affordable housing in areas affected by Hurricanes Katrina and Rita.  The housing fund would sunset after 5 years.

Talking Points

While there is bipartisan consensus on the regulatory provisions contained in the legislation, the Affordable Housing Fund provision in HR 1427 remains a significant point of contention. Republicans have raised four basic objections to the proposed fund:

The Bottom Line

Inclusion of an Affordable Housing Fund in this legislation unnecessarily clouds the main objective of the bill: to implement a world-class regulator to increase oversight of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. 

Strong bipartisan agreement exists around the issue of GSE reform. Congress should act swiftly on that issue, and then tackle the separate question of expanding our nation’s affordable housing supply in a manner beneficial to the taxpayer and consistent with free market principles.