Selected Legislative Proposals to Reform the
Housing Finance System
Sean M. Hoskins
Analyst in Financial Economics
N. Eric Weiss
Specialist in Financial Economics
Katie Jones
Analyst in Housing Policy
April 7, 2014
Congressional Research Service
7-5700
www.crs.gov
R43219
Selected Legislative Proposals to Reform the Housing Finance System
Summary
The 113th Congress has seen several developments in the effort to reform the housing finance
system. In the House, the Protecting American Taxpayers and Homeowners Act of 2013 (PATH
Act; H.R. 2767) was ordered to be reported out of the House Financial Services Committee on
July 24, 2013. The PATH Act proposes to wind down Fannie Mae and Freddie Mac (the
government-sponsored enterprises, or GSEs) over several years. In this context, wind down refers
to dissolving Fannie Mae and Freddie Mac by removing their charters and placing certain assets
and liabilities into a receivership entity. It would replace them with a National Mortgage Market
Utility that would facilitate private market mortgage securitization but would not provide a
government guarantee. The PATH Act would retain in a modified form the existing government
guarantee programs, such as the Federal Housing Administration (FHA). The act would also
eliminate or delay the implementation of certain existing regulations that some believe are
inhibiting the recovery in the mortgage market. In addition, the PATH Act proposes to reform
FHA by, among other things, making it an independent agency and taking steps intended to
improve its finances, better target its role in the mortgage market, and increase the amount of
private capital in the market.
In the Senate, several proposals have been discussed. Republican and Democratic members of the
Senate Committee on Banking, Housing, and Urban Affairs have sponsored the Housing Finance
Reform and Taxpayer Protection Act of 2013 (S. 1217; commonly referred to as the Corker-
Warner bill), which proposes to wind down Fannie Mae and Freddie Mac and to replace them
with a new reinsurance plan. After a series of hearings, Senator Johnson, the chairman of the
committee, and Senator Crapo, the ranking Member, released legislative text of a reform proposal
that uses S. 1217 as the base text. They also announced plans to hold a committee markup on the
Johnson-Crapo GSE proposal.
The Johnson-Crapo GSE proposal would wind down Fannie Mae and Freddie Mac and would
replace the Federal Housing Finance Agency (FHFA) with a new Federal Mortgage Insurance
Corporation (FMIC). The FMIC would be an independent agency charged with supporting the
mortgage market and providing reinsurance on eligible mortgage-backed securities (MBS). These
MBS would have an explicit government guarantee. The FMIC would only pay out on its
guarantee after a significant amount of private capital absorbed the first losses. In addition, the
FMIC would regulate aspects of the mortgage market related to its guaranteed MBS and would
establish a new multifamily housing finance system as well.
Neither the Corker-Warner bill nor the Johnson-Crapo GSE proposal includes FHA -related
provisions. However, a stand-alone FHA reform bill has been introduced in the Senate. The FHA
Solvency Act of 2013 (S. 1376; commonly referred to as the Johnson-Crapo FHA bill), which
would reform FHA, was reported out of the Senate Committee on Banking, Housing, and Urban
Affairs on July 31, 2013. The Johnson-Crapo FHA bill proposes a number of changes to FHA
aimed at ensuring that FHA’s single-family programs are financially sound, including a number of
provisions that have been sought by FHA.
This report will briefly explain the different approaches to housing finance reform offered by
these legislative proposals, focusing on efforts to replace Fannie Mae and Freddie Mac and
reform FHA. The report does not describe every provision of the proposals but discusses major
concepts and themes.
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Selected Legislative Proposals to Reform the Housing Finance System
Contents
Introduction ...................................................................................................................................... 1
The Role of the GSEs and FHA in the Housing Finance System .................................................... 3
Reform Proposals ............................................................................................................................. 4
H.R. 2767, the Protecting American Taxpayers and Homeowners Act of 2013 ........................ 4
Phase Out of Fannie Mae and Freddie Mac ........................................................................ 5
Utility and Market Standards .............................................................................................. 6
FHA Reform ........................................................................................................................ 7
Other Provisions .................................................................................................................. 9
The Johnson-Crapo GSE Proposal ............................................................................................ 9
Phase Out of Fannie Mae and Freddie Mac ...................................................................... 10
Phase In of the FMIC and the New Housing Finance System .......................................... 10
Differences between the Johnson-Crapo GSE Proposal and S. 1217, the Corker-
Warner Bill ..................................................................................................................... 13
S. 1376, the FHA Solvency Act of 2013 .................................................................................. 14
Comparison of Major Provisions ............................................................................................. 15
Figures
Figure 1. Mortgage Categories ........................................................................................................ 2
Tables
Table 1. Comparison of Non-FHA Provisions in H.R. 2767 and the Johnson-Crapo GSE
Proposal ...................................................................................................................................... 15
Table 2. Comparison of FHA Provisions in H.R. 2767 and S. 1376 .............................................. 17
Contacts
Author Contact Information........................................................................................................... 19
Key Policy Staff ............................................................................................................................. 19
Congressional Research Service
Selected Legislative Proposals to Reform the Housing Finance System
Introduction
The bursting of the housing bubble in 2007 and the multi-year downturn in the housing and
mortgage markets have led some to question whether the pre-crisis structure of the housing
finance system is appropriate for the future. Many different housing finance reform plans have
since been proposed, and from the debate some broad principles appear to have emerged. Among
those principles are as follows:
• Prevent taxpayers from having to provide assistance again in the future.
Fannie Mae and Freddie Mac—two government-sponsored enterprises or
GSEs—experienced significant financial losses when house prices fell and
foreclosure rates increased. The GSEs were placed in conservatorship by their
regulator, the Federal Housing Finance Agency (FHFA), in September 2008.1
Over five years later, the GSEs remain in conservatorship and have received
approximately $187 billion in assistance in the form of senior preferred stock
purchased by the Department of the Treasury. Though the GSEs have made
significant dividend payments to the Treasury since entering conservatorship,
none of these payments count toward paying back the amount injected by
Treasury. The dividends compensate Treasury for its assistance and the risk it has
assumed.
Furthermore, concerns have been expressed after the Federal Housing
Administration (FHA), an agency within the Department of Housing and Urban
Development (HUD) that provides federal mortgage insurance, received $1.7
billion from Treasury at the end of FY2013 to ensure that it had enough funds on
hand to pay for all of the expected future costs associated with the mortgages that
it currently insures.2 These funds were provided under the permanent and
indefinite budget authority provided to all federal credit programs under the
Federal Credit Reform Act of 1990, and the transfer of funds from Treasury did
not require additional congressional action.3
• Return private capital to the mortgage market. The increased role of the
federal government in the mortgage market since 2008 is shown in Figure 1. In
addition to Fannie Mae and Freddie Mac, the government guarantees mortgage
loans through FHA, the Department of Veterans Affairs (VA), and the U.S.
Department of Agriculture (USDA). The government backs mortgage-backed
securities (MBS) composed of FHA, VA, and USDA mortgages through Ginnie
Mae, an agency within HUD. Since 2008, Ginnie Mae and the GSEs have
collectively provided funding for approximately 75% to 85% of annual mortgage
1 For more on the financial status of the GSEs, see CRS Report R42760, Fannie Mae’s and Freddie Mac’s Financial
Status: Frequently Asked Questions, by N. Eric Weiss.
2 In general, FHA is supposed to earn enough money in fees to cover the costs of mortgages that default. However, like
all federal credit programs, FHA has permanent and indefinite budget authority with Treasury to cover higher-than-
expected future costs of loan guarantees. For more on the financial status of FHA, see CRS Report R42875, The FHA
Single-Family Mortgage Insurance Program: Financial Status and Related Current Issues, by Katie Jones.
3 The Federal Credit Reform Act is Title V of the Omnibus Budget Reconciliation Act of 1990 (P.L. 101-508) and is
codified at 2 U.S.C. §661 et seq.
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originations, up from about 30% in 2006, as the share of non-agency MBS fell
precipitously.
Figure 1. Mortgage Categories
Source: Inside Mortgage Finance, Mortgage Market Statistical Annual: 2013, Volume II: The Secondary Market, p.
2 and 4, and CRS calculations.
Notes: The figure shows annual funding and origination sources. Note that not all mortgages that were
securitized in a given year were actually originated in that year.
• Ensure that mortgage credit is available and affordable to creditworthy
borrowers. During the housing downturn, underwriting criteria for mortgages
generally tightened, requiring higher credit scores and higher downpayments.4
Some borrowers had a more difficult time financing the purchase of a home.
Reform proposals would attempt to make mortgage credit and certain mortgage
products, such as the 30-year fixed-rate mortgage, both available and affordable
to creditworthy borrowers.
Although different plans have similar goals, their different diagnoses of problems facing the
market have led to divergent proposals. Some believe that private capital has been slow to return
to the mortgage market because the government (through Fannie Mae, Freddie Mac, and FHA) is
crowding out the private sector, and because there are insufficient standards for the private sector
to function appropriately. By shrinking the government’s footprint and by establishing “rules of
the road,” the argument goes, the private sector will step up to fill the government’s void. Others
argue that while the government may need to reduce its role, the main impediment to the private
sector returning is a lack of appetite for risk among private investors. They argue that the
4 For example, the average credit score of mortgages purchased by Freddie Mac has increased since 2006. See Freddie
Mac, Freddie Mac Update, August 2013, at http://www.freddiemac.com/investors/pdffiles/investor-presentation.pdf.
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government must continue to provide some type of guarantee to ensure that the mortgage market
will continue to provide credit at an affordable rate to creditworthy borrowers.
The 113th Congress has seen several developments in the effort to reform the housing finance
system. In the House, the Protecting American Taxpayers and Homeowners Act of 2013 (PATH
Act; H.R. 2767), which proposes to wind down the GSEs and would reform FHA, was ordered to
be reported out of the House Financial Services Committee on July 24, 2013. In the Senate,
several proposals have been discussed. Republican and Democratic members of the Senate
Committee on Banking, Housing, and Urban Affairs have sponsored the Housing Finance Reform
and Taxpayer Protection Act of 2013 (S. 1217; commonly referred to as the Corker-Warner bill),
which proposes to wind down Fannie Mae and Freddie Mac and to replace them with a new
reinsurance plan. After a series of hearings, Senator Johnson, the chairman of the committee, and
Senator Crapo, the ranking Member, released legislative text of a reform proposal that uses S.
1217 as the base text. They also announced plans to hold a committee markup on the Johnson-
Crapo GSE proposal. Unlike the PATH Act, the Johnson-Crapo GSE proposal does not address
FHA. However, the Banking Committee has also reported a separate FHA reform bill, the FHA
Solvency Act of 2013 (S. 1376; popularly known as the Johnson-Crapo FHA bill).5
This report briefly explains the different approaches to housing finance reform contained in the
legislative proposals, focusing on efforts to replace Fannie Mae and Freddie Mac and to reform
FHA. The report does not describe every provision of the proposals but discusses major concepts
and themes. The next section provides a brief overview of some of the major entities in the
housing finance system to lay the foundation for the ensuing discussion of legislative proposals.
The Role of the GSEs and FHA in the Housing
Finance System6
The housing finance system has two major components: a primary market and a secondary
market. Lenders make new loans in the primary market, and loans are bought and sold in the
secondary market. The federal government is involved in both markets. The government insures
certain mortgages originated by lenders in the primary market through different government
agencies, with FHA as the largest provider of government mortgage insurance. FHA is an agency
within HUD that provides mortgage insurance on loans that meet its requirements (including a
minimum down payment requirement and an initial principal balance below a certain threshold)
in exchange for fees, or premiums, paid by borrowers. If a borrower defaults on an FHA-insured
mortgage, FHA will repay the lender the entire remaining principal amount it is owed. In the
secondary market, Ginnie Mae—also a government agency in HUD—guarantees MBS7
5 This report will describe H.R. 2767, S. 1217, the Johnson-Crapo GSE proposal, and S. 1376. The analysis of the
Johnson-Crapo GSE proposal is based off of the text available at http://www.banking.senate.gov. Additional pieces of
legislation have been introduced in the 113th Congress to reform the housing finance system, but those proposals are
beyond the scope of this report. For information on reform proposals in the 112th Congress, see CRS Report R41822,
Proposals to Reform Fannie Mae and Freddie Mac in the 112th Congress, by N. Eric Weiss and CRS Report R42875,
The FHA Single-Family Mortgage Insurance Program: Financial Status and Related Current Issues, by Katie Jones.
6 For a more comprehensive overview of the housing finance system, see CRS Report R42995, An Overview of the
Housing Finance System in the United States, by Sean M. Hoskins, Katie Jones, and N. Eric Weiss.
7 An MBS is a bond that is collateralized by mortgages. The creation of an MBS typically involves a financial
institution acquiring and pooling together many different mortgages and then issuing an MBS. An MBS could be
(continued...)
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composed of mortgages guaranteed by FHA and other government agencies. The combination of
FHA and Ginnie Mae transfers the credit risk (the risk that some borrowers might default and not
repay their mortgages) from the lender and investor to the government.
Fannie Mae and Freddie Mac also operate in the secondary market. Until they were placed under
government conservatorship in September 2008, Fannie Mae and Freddie Mac were stockholder-
controlled companies with congressional charters that contain special privileges and certain
special responsibilities to support affordable housing for low- and moderate-income households.
The GSEs do not originate mortgages but instead have two main lines of business. First, through
the GSEs’ guarantee businesses, the GSEs purchase conforming mortgages—mortgages that meet
certain eligibility criteria based on size and creditworthiness—and pool the mortgages into MBS.
The MBS are sold to investors with the GSEs guaranteeing that investors will receive timely
payment of principal and interest on their MBS even if a borrower with a mortgage that is part of
the MBS becomes delinquent. The GSE guarantee transfers the credit risk from the investors to
the GSEs. To compensate the GSEs for their guarantee, the GSEs receive a guarantee fee. In the
second main line of business, the GSEs’ portfolios, the GSEs hold mortgages and MBS (including
GSE MBS, Ginnie Mae MBS, and MBS sold by other private entities) as investments.
When individuals discuss “bringing private capital back into the mortgage market,” they often are
referring to having private capital absorb credit risk rather than the government doing so through
Fannie Mae and Freddie Mac or programs such as FHA. Private investors still bear other risks
when they purchase MBS guaranteed by the GSEs or the government, such as risks related to the
interest rate, but do not bear credit risk.
Reform Proposals
This section explains how the PATH Act and the Johnson-Crapo GSE proposal would wind
down8 the GSEs and would attempt to attract private capital back into the market. Differences
between the Johnson-Crapo GSE proposal and the Corker-Warner bill are also discussed. In
addition, this section describes how the PATH Act and the Johnson-Crapo FHA bill would reform
FHA.
H.R. 2767, the Protecting American Taxpayers and Homeowners Act
of 2013
The PATH Act (H.R. 2767)9 proposes to wind down Fannie Mae and Freddie Mac over several
years. It would replace them with a National Mortgage Market Utility that would facilitate
mortgage securitization but would not provide a government guarantee. The act would also
eliminate or delay the implementation of certain existing regulations that some believe are
inhibiting the recovery in the mortgage market. In addition, the PATH Act would reform FHA,
(...continued)
divided up into different pieces, or tranches, that are sold to investors. The investors do not own the underlying
mortgages but are buying the right to receive the future stream of payments that come from those mortgages.
8 In this context, wind down refers to dissolving Fannie Mae and Freddie Mac by removing their charters and placing
certain assets and liabilities into a holding company, trust, or receivership entity.
9 This section describes the PATH Act as it was ordered to be reported out of the Financial Services Committee.
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making it an independent agency and taking steps intended to improve its finances, more
narrowly target its market role, and increase the role of private capital.
Phase Out of Fannie Mae and Freddie Mac
The phase out of Fannie Mae and Freddie Mac involves two stages, actions taken during the first
five years before the GSEs’ charters are repealed and actions subsequently taken.
First five years after enactment. As mentioned previously, the GSEs each have two main lines of
business—their guarantee businesses and their portfolios—and the PATH Act takes steps to wind
down both businesses. For the guarantee businesses, the PATH Act proposes several steps to limit
the GSEs’ new business during the first five years after enactment. The GSEs would only be
allowed to purchase or guarantee mortgages that meet the Qualified Mortgage (QM) standard.10
Mortgages would also need to be below the conforming loan limit;11 the limit in high-cost areas
would decrease by $20,000 per year if the director of FHFA determines that market conditions
allow it.12 The GSEs would be prohibited from purchasing a mortgage for a home located in an
area that used eminent domain to acquire a mortgage in the previous 10 years.13
In addition, the GSEs would have to set their guarantee fees for the mortgages that they guarantee
at the level that the FHFA director determines is comparable to what a privately capitalized
financial institution would charge. The GSEs’ affordable housing goals and contributions to two
affordable house funds, the Housing Trust Fund and the Capital Magnet Fund, would be
repealed.14 Fannie Mae and Freddie Mac would also be required to have at least 10% of their
annual business involve risk-sharing transactions that transferred credit risk to private investors.
For the GSEs’ second line of business, each GSE’s mortgage portfolio would be required to
decrease by 15% annually down to $250 billion. As of the end of 2013, Freddie Mac had a
mortgage portfolio of $461 billion15 and Fannie Mae had a mortgage portfolio of $490.7 billion.16
10 Qualified mortgages are mortgages that meet certain underwriting standards and product feature requirements under
a regulation promulgated by the Consumer Financial Protection Bureau. See CRS Report R43081, The Ability-to-Repay
Rule: Possible Effects of the Qualified Mortgage Definition on Credit Availability and Other Selected Issues, by Sean
M. Hoskins.
11 The conforming loan limit establishes the maximum size mortgage that the GSEs can purchase. See CRS Report
RS22172, The Conforming Loan Limit, by N. Eric Weiss and Sean M. Hoskins.
12 To make the annual decision, the FHFA Director would determine whether the spread between comparable
conforming and non-conforming mortgages (a measure of private sector willingness to provide credit) exceeds 80 basis
points. If the spread exceeds 80 basis points, no annual increase would be made.
13 For information about proposals to acquire underwater mortgages through the use of eminent domain, see CRS
Product WSLG187, Legal Questions Abound Proposals to Use Eminent Domain to Acquire Underwater Mortgages, by
David H. Carpenter.
14 Fannie Mae and Freddie Mac are required to meet certain affordable housing goals that are set by FHFA (for
example, see FHFA, “2012-2014 Enterprise Housing Goals,” 77 Federal Register 67535, November 13, 2012). The
affordable housing goals target credit to low- and moderate-income households. For additional information on the
Housing Trust Fund, see CRS Report R40781, The Housing Trust Fund: Background and Issues, by Katie Jones.
15 Freddie Mac, Freddie Mac Update, at http://www.freddiemac.com/investors/pdffiles/investor-
presentation.pdfhttp://www.freddiemac.com/investors/pdffiles/investor-presentation.pdf.
16 Fannie Mae, Form 10-K, p. 96, at http://www.fanniemae.com/resources/file/ir/pdf/quarterly-annual-results/2013/
10k_2013.pdf.
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The PATH Act would codify provisions that are currently in support agreements between Fannie
Mae and Freddie Mac and the Treasury.17
Five years after enactment. Five years after enactment, the GSEs’ charters would be repealed,
unless the FHFA director determined that market conditions warranted a temporary extension.18
After their charters are repealed, Fannie and Freddie would no longer have authority to conduct
new business. FHFA, acting as receiver, would have the discretion to establish a receivership
entity to assume the assets and liabilities of the GSEs after their charters are repealed. The federal
government would explicitly guarantee the payment of certain outstanding liabilities.
Utility and Market Standards
The PATH Act would not create a new entity to guarantee MBS composed of conventional (non-
government insured) mortgages. MBS composed of mortgages insured and guaranteed by the
government, such as through FHA and the Department of Veterans Affairs (VA), would still be
eligible to be explicitly guaranteed by Ginnie Mae under the PATH Act.
Market Utility. The PATH Act would create a charter for a non-government, not-for-profit
National Mortgage Market Utility (Utility) that would facilitate mortgage securitization. After a
selection process, FHFA would assign the Utility charter to the chosen applicant. The Utility
would not provide a government guarantee on MBS or originate mortgages. The Utility would
establish market standards and guidelines for the other participants in the securitization process. It
would operate the common securitization platform currently being developed by the FHFA and
GSEs. The common securitization platform would be a voluntary securitization tool that could be
used by private-sector actors to facilitate the back-office functions of securitization, such as
providing disclosures to investors and tracking the assignment of mortgage notes.19 The platform
would potentially allow the mortgage market to benefit from economies of scale and from the
efficiency generated by the standards that would be set through the platform. FHFA would
regulate the Utility.
A MBS securitized through the platform and composed of mortgages that meet the underwriting
and disclosure requirements of the Utility would be deemed a qualified security. The Utility
would establish multiple categories of Qualified Securities based on the underlying credit risk of
the mortgages that compose the Qualified Security. The different categories of Qualified
Securities would allow investors to determine which MBS is commensurate with the level of risk
they wish to assume. Tailoring risk to the preferences of investors could facilitate demand for
Qualified Securities and potentially lead to lower rates for borrowers in the primary market.
Small Lender Access. The Utility would be open-access, not charging fees that vary by the size of
the participants. To facilitate the use of the platform by community banks and credit unions, the
17 For more information about the support agreements, see CRS Report R42760, Fannie Mae’s and Freddie Mac’s
Financial Status: Frequently Asked Questions, by N. Eric Weiss.
18 The FHFA director shall extend the conservatorship if the spread between comparable conforming and non-
conforming mortgages (a measure of private sector demand to provide credit) exceeds 80 basis points.
19 Federal Housing Finance Agency, “Building a New Infrastructure for the Secondary Mortgage Market,” October 4,
2012, at http://www.fhfa.gov/webfiles/24572/fhfasecuritizationwhitepaper100412final.pdf.
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Federal Home Loan Banks20 would be authorized to function as loan aggregators to pool loans
from small institutions that could then be securitized through the platform.
Standards and Guidelines. The Utility would establish “rules of the road” for the securitization
process. It would create standard securitization agreements to set the contractual terms between
most of the major market participants (such as issuers, servicers, and investors). The Utility
would also operate a National Mortgage Data Repository with publicly available mortgage data
and mortgage-related documents.
Covered Bonds.21 The PATH Act would direct financial regulators to implement regulations to
create an oversight framework for covered bonds. Covered bonds are one method for financial
institutions to raise funds from investors. They are rare in the United States, although variations
of covered bonds have been used in Europe for centuries. A covered bond is a recourse debt
obligation that is secured by a pool of assets, often mortgages. The holders of the bond are given
additional protection in the event of bankruptcy or insolvency of the issuing lender. Covered
bonds have some features, such as pooled mortgages, that resemble securitization, but the original
lenders maintain a continuing interest in the performance of the loans. Although covered bonds
are not a prohibited form of debt contract in the United States, some observers believe that
legislation and agency rulemaking is required to facilitate the growth of a larger domestic covered
bond market.22
FHA Reform
In recent years, increased default and foreclosure rates, as well as economic factors such as
falling house prices, have contributed to increases in both the actual losses that FHA has incurred
on insured loans and the anticipated losses that it expects to incur in the future. This increase in
actual and expected losses has put pressure on FHA’s insurance fund, and at the end of FY2013,
FHA received $1.7 billion from Treasury to ensure that it has enough funds to pay for all of its
expected future losses. 23
Title II of the PATH Act includes many provisions intended to address FHA’s financial condition
by limiting the amount of risk it assumes, increasing the amount of capital that it is required to
hold, and tightening certain mortgage standards. It also includes provisions to more narrowly
target FHA’s role in the mortgage market to certain types of homebuyers. In addition to making
20 The Federal Home Loan Bank System is a government-sponsored enterprise that provides support to the mortgage
market and to community development initiatives by lending to banks and other financial institutions that are members
of the System. For more, see CRS Report RL32815, Federal Home Loan Bank System: Policy Issues, by Edward V.
Murphy.
21 This section was prepared using material from CRS Report R41322, Covered Bonds: Background and Policy Issues,
by Edward V. Murphy.
22 For information on previous actions by regulators to facilitate a covered bond market, see “Agency Actions on
Covered Bonds” in CRS Report R41322, Covered Bonds: Background and Policy Issues, by Edward V. Murphy.
23 FHA’s single-family mortgage insurance program is supposed to bring in enough money through the fees, or
premiums, that it charges for insurance to pay for the costs of any mortgage defaults. However, like all federal credit
programs, FHA has permanent and indefinite budget authority to receive funds to pay for higher-than-expected future
losses. The insurance fund for FHA’s single-family programs is the Mutual Mortgage Insurance Fund (MMI Fund).
Other types of mortgages, such as multifamily mortgages, are insured under other insurance funds. For more detailed
information on the financial status of the MMI Fund, see CRS Report R42875, The FHA Single-Family Mortgage
Insurance Program: Financial Status and Related Current Issues, by Katie Jones.
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major changes to FHA’s single-family insurance program, the PATH Act would also make some
changes to other FHA insurance programs and, in some cases, mortgage programs for low-
income households in rural areas that are administered by the U.S. Department of Agriculture
(USDA).24
FHA Operations. FHA would become an independent agency outside of HUD, and FHFA would
become the regulator for FHA and for the USDA’s rural housing loan programs.
Eligible Borrowers. In general, FHA would only be allowed to insure mortgages for first-time
homebuyers and low- and moderate-income borrowers. The required downpayment would be
increased for all except first-time homebuyers to 5% from the current level of 3.5%. During
periods of market stress and in areas affected by disasters, FHA would be permitted to guarantee
more types of mortgages, potentially allowing FHA to step in to insure more mortgages when
mortgage credit is otherwise not easily available.
Maximum Mortgage Amounts and Insurance Coverage. Under the PATH Act, the dollar limit on
the original principal balance of a mortgage that FHA can insure would be decreased in certain
areas. Furthermore, the percentage of the mortgage that FHA could insure would decrease to 50%
of the original principal balance, from 100%, over five years.
Premiums. The PATH Act would establish a minimum annual premium of 0.55%, and FHA would
be required to set its premiums high enough to cover its administrative costs and salaries as well
as the cost of insurance and the capital that FHA has to hold in reserve. FHA would be allowed to
set premiums that vary based on the risk characteristics of the mortgage.
Capital Requirements. FHA’s financial reports would have to be prepared using private-sector
accounting standards. The capital ratio—the amount of additional capital that FHA must hold in
reserve to pay for any additional, unanticipated future losses, beyond what it holds to pay for
expected losses—would be increased to 4% of its outstanding insurance obligations for
mortgages insured after the end of a transition period. (Under current law, the required capital
ratio is 2%.) If the capital ratio fell below certain thresholds, FHA would have to take certain
steps, including submitting a capital restoration plan to FHFA and reducing the maximum loan-to-
value ratio for new mortgages that it would insure while its capital ratio remained below the
required level.
Lender Oversight. Lenders could be required to reimburse FHA for defaulted mortgages that did
not meet its standards in certain circumstances. Lenders would also need to agree to repurchase
mortgages that default soon after the mortgage was originated. FHA would be required to publish
a consolidated handbook, updated annually, with all of its requirements for lenders and servicers.
Other FHA Programs. The PATH Act would require FHA to set affordability requirements to
ensure that buildings with FHA-insured multifamily mortgages include units affordable to low- or
moderate-income households. 25 FHA would be required to set capital ratios for its other
24 In addition to insuring single-family mortgages, FHA also insures certain mortgages for multifamily buildings and
healthcare facilities, as well as insuring reverse mortgages for senior citizens. The USDA’s Rural Housing Services
makes or guarantees certain types of mortgages under programs established under Title V of the Housing Act of 1949.
25 For the purposes of FHA’s mortgage insurance programs, multifamily properties are generally considered to be
properties with five or more units, while single-family properties are properties with one to four units.
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insurance funds.26 FHA would be required to set certain limits and standards related to its Section
242 hospital insurance program, and FHA’s reverse mortgage insurance program (the Home
Equity Conversion Mortgage, or HECM) would be eliminated.
Other Provisions. After two years, 10% of new FHA single-family mortgage insurance, by dollar
volume, would be required to be insured under risk-sharing agreements, whereby FHA would
share the credit risk on the mortgage with other entities. FHA and USDA would be prohibited
from backing mortgages in which seller concessions exceeded 3% and in areas that used eminent
domain to obtain mortgages in the previous 10 years.
Other Provisions
The PATH Act would, among other things, modify recent financial reforms that some believe are
preventing private institutions from providing mortgage credit.27 For example, implementation of
certain Basel III28 bank regulation rules would be delayed so that regulators could study their
effects on smaller institutions. Mortgages securitized through the platform would be exempt from
certain Dodd-Frank Act provisions, such the Ability-to-Repay rule.29 In addition, the effective
dates for some of the Dodd-Frank mortgage market rulemakings would be delayed by at least a
year to allow institutions more time to comply, and Dodd-Frank’s credit risk retention
requirement30 would be repealed.
The Johnson-Crapo GSE Proposal
The Johnson-Crapo GSE proposal would wind down Fannie Mae and Freddie Mac and would
replace FHFA with a new entity to be called the Federal Mortgage Insurance Corporation
(FMIC). The FMIC would be an independent agency charged with supporting the mortgage
market and providing reinsurance on eligible MBS. These MBS would have an explicit
government guarantee, and the FMIC would regulate aspects of the mortgage market related to
these MBS. The proposal would also establish a new multifamily housing finance system and
method of funding affordable housing initiatives. The Johnson-Crapo GSE proposal is
conceptually similar to the Corker-Warner bill; several of the differences are listed in this section.
The Johnson-Crapo GSE proposal has multiple key dates that serve as benchmarks for many of
the actions that would be required. The date of enactment would be the date on which the act is
enacted. The agency transfer date would be six months after enactment. On that date the FMIC
would be established. The system certification date is the date on which the FMIC certifies that
26 FHA-insured single-family mortgages, including reverse mortgages, are insured under the MMI Fund, whereas other
types of FHA-insured mortgages, such as multifamily mortgages, are insured under other insurance funds. Under
current law, the MMI Fund is the only one of FHA’s insurance funds required to maintain a minimum capital ratio.
27 The PATH Act would modify existing regulation beyond what is described in this section. This section provides
several illustrative examples of regulations what would be modified or repealed.
28 For additional information about Basel III bank regulation, see CRS Report R42744, U.S. Implementation of the
Basel Capital Regulatory Framework, by Darryl E. Getter.
29 For more information on the ability-to-repay rule, see CRS Report R43081, The Ability-to-Repay Rule: Possible
Effects of the Qualified Mortgage Definition on Credit Availability and Other Selected Issues, by Sean M. Hoskins.
30 For additional information, see CRS Report R42056, Ability to Repay, Risk-Retention Standards, and Mortgage
Credit Access, by Darryl E. Getter.
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Selected Legislative Proposals to Reform the Housing Finance System
the FMIC and the newly developed housing finance system have met certain benchmarks. The
certification would not be later than five years after enactment, though there may be extensions.
Phase Out of Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac Wind Down. FHFA, in consultation with FMIC, would wind down
Fannie Mae and Freddie Mac. The GSEs would develop resolution plans that would assist in their
wind down. The Johnson-Crapo GSE proposal lays out the different steps that would be taken to
wind down the GSEs’ portfolios and their guarantee businesses. For their portfolio business, each
GSE would have to reduce its mortgage portfolio by 15% annually until a certain allowable
amount determined by FMIC is reached.31 A similar reduction is currently required by the support
agreements that Treasury entered into with Fannie Mae and Freddie Mac.32 The legislation would
take provisions that currently are in those contracts and make them law.
During the wind down period and while the new system is being established, Fannie Mae and
Freddie Mac would be allowed to continue their guarantee businesses. On the system certification
date, however, the GSEs would stop conducting new business. A holding corporation, trusts, and
subsidiaries may be established to facilitate the winding down of Fannie Mae’s and Freddie Mac’s
outstanding debt obligations and assets. The federal government would guarantee the repayment
of the GSEs’ obligations. FHFA would manage the wind down to maximize the return to
taxpayers while ensuring a well-functioning mortgage market. Once the GSEs’ guarantees are
extinguished, the charters of the GSEs would be revoked.
Affordable Housing. The existing mandatory housing goals would be repealed upon enactment.
As discussed below, affordable housing would be supported through contributions to the Housing
Trust Fund, Capital Magnet Fund, and a new Market Access Fund from the proceeds of a fee on
covered MBS.
FHFA Transition. On the agency transfer date, FHFA would operate as a distinct entity within
FMIC. FHFA would continue to exercise its regulatory and conservatorship powers over Fannie
Mae, Freddie Mac, and the Federal Home Loan Banks. On the system certification date, the
functions of FHFA would be transferred to the FMIC. FHFA staff and assets would also be
transferred to the FMIC.
Phase In of the FMIC and the New Housing Finance System
Organization. The FMIC would be an independent government agency with its management
vested in a board of directors with five members. The board would be headed by a chairperson,
appointed by the President with the advice and consent of the Senate, who shall serve a five-year
term. The four additional board members would also be appointed by the President, with the
advice and consent of the Senate, to serve five-year terms. The initial appointments would be for
shorter, staggered terms. No more than three members of the board may be of the same political
party.
31 As of the end of the second quarter of 2013, Freddie Mac had a mortgage portfolio of $521 billion and Fannie Mae
had a mortgage portfolio of $565.2 billion.
32 See CRS Report R42760, Fannie Mae’s and Freddie Mac’s Financial Status: Frequently Asked Questions, by N.
Eric Weiss.
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The FMIC would be structured with several offices, including an Office of Underwriting, Office
of Securitization, Office of Consumer and Market Access, Office of Multifamily Housing, Office
of Federal Home Loan Bank Supervision, and Office of the Inspector General. The FMIC may
establish other offices as necessary to perform its functions.
FMIC Certification. The system certification date is the date on which the FMIC certifies that the
FMIC and the newly developed housing finance system have met certain benchmarks. The
benchmarks include ensuring that the new system has a sufficient number of approved
participants, verifying that the Securitization Platform and the multifamily market are
functioning, and the Department of the Treasury confirming that agreements are in place for the
taxpayer to be compensated for assisting the GSEs and the housing finance system. The
certification would be not later than five years after enactment, though extensions would be
possible.
FMIC Guarantee. The FMIC would provide an explicit guarantee on MBS that meet its
standards. To be eligible for an FMIC guarantee (for an MBS to be a covered security), the MBS
must (1) be collateralized by mortgages that meet its underwriting criteria, (2) the mortgages must
be delivered to the Securitization Platform, and (3) private capital must be in a first-loss position.
In unusual and exigent market conditions, MBS that do not meet the requirement for private
capital may receive a guarantee for a limited time.
Underwriting Criteria. To receive the FMIC guarantee, the covered security must be
collateralized by eligible single-family mortgage loans, which are loans that would be below the
conforming loan limits set by the bill and would satisfy the underwriting criteria established by
the Ability-to-Repay and Qualified Mortgage (QM) rule.33 An eligible mortgage would also need
to meet certain requirements related to downpayment (at least 3.5% for first-time homebuyers
and, after a transition period, 5% for others), private mortgage insurance, and other conditions as
determined by the FMIC.
Securitization Platform. Mortgage loans would be securitized through the Securitization Platform.
The Platform would be a utility owned and operated by its members with membership open to the
various participants in the housing finance system. The Platform would perform many of the
back-office functions of securitization, such as processing payments and distributing disclosures
to investors. The Platform may build off of FHFA’s and the GSEs’ current efforts to develop a
common securitization platform.34 The Platform would also develop standard securitization
agreements to establish the contractual terms between most of the major market participants (such
as aggregators, guarantors, servicers, and investors). The Platform may allow noncovered
securities (MBS without the FMIC guarantee) to be securitized by the Platform. The Platform
would be regulated by the FMIC.
Private Capital. To be eligible for the FMIC guarantee, an MBS would require a risk-sharing
mechanism in which private capital would be in a first-loss position. The FMIC could approve
different risk-sharing mechanisms which can be divided into two general categories—capital
markets execution and guarantor execution. Under the capital markets execution, investors would
33 For more information on the ability-to-repay rule, see CRS Report R43081, The Ability-to-Repay Rule: Possible
Effects of the Qualified Mortgage Definition on Credit Availability and Other Selected Issues, by Sean M. Hoskins.
34 Federal Housing Finance Agency, “Building a New Infrastructure for the Secondary Mortgage Market,” October 4,
2012, http://www.fhfa.gov/webfiles/24572/fhfasecuritizationwhitepaper100412final.pdf.
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agree to bear losses of at least 10% of the MBS’s value prior to the government guarantee being
triggered. Under the guarantor execution, guarantors that are approved by the FMIC would pay
investors any shortcoming in the amount that the investors are owed (such as due to delinquencies
of the mortgages in the MBS) until the guarantor is insolvent, at which point the government
guarantee would be triggered. The guarantor would have to hold 10% capital. The government
guarantee is triggered through the capital markets option based on the performance of a particular
security, but the guarantee for the guarantor option is triggered based on the performance of an
entity, the approved guarantor.
Mortgage Insurance Fund. The FMIC would cover the losses on guaranteed MBS that are in
excess of the losses required to be borne by private capital. The FMIC would make payments to
investors from the reserves held in a newly established Mortgage Insurance Fund (MIF). The MIF
would be maintained and administered by the FMIC, and it would be financed primarily by MBS
guarantee fees. The guarantee fees would be determined by the FMIC and set at levels necessary
for the MIF to maintain its reserve balance. The MIF would be required to reach a reserve balance
of 1.25% of the amount of securities insured within 5 years of the system certification and 2.50%
within 10 years.
Regulation. The FMIC would approve and regulate the major entities in the new system.35 Its
powers and authorities would be modeled off of those available to the FDIC in its regulation of
banks and its management of the Deposit Insurance Fund.36 Among the entities that would be
approved and regulated by the FMIC are guarantors, aggregators (entities that could purchase and
pool mortgages in order to deliver them to the Platform for securitization), servicers, and private
mortgage insurers.
Small Lender Mutual. The FMIC would establish a Small Lender Mutual that would help
mortgage originators gain access to the secondary market and the FMIC guarantee. The mutual
would be owned and operated by its members, with membership open to insured depository
institutions with less than $500 billion in total assets, non-depositories with a minimum net worth
of $2.5 million and annual originations of less than $100 billion, and other institutions, such as
Community Development Financial Institutions37 and certain non-profit lenders. FMIC could
establish more than one mutual.
Affordable Housing. The legislation would replace Fannie Mae’s and Freddie Mac’s affordable
housing goals with an annual fee on the covered MBS that would be directed to three different
funds.38 The fee, which would on average be 10 basis points39 of the total outstanding principal
balance of covered MBS, would be structured to provide participants with the incentive to focus
more of their business on underserved market segments (such as traditionally underserved areas,
including rural and urban areas, manufactured housing, and low- and moderate-income
35 If an entity is an insured depository or an affiliate of an insured depository, that entity would continue to be regulated
by its primary federal banking regulator, but the FMIC would have some regulatory authority.
36 For more on the FDIC and deposit insurance, see CRS Report R41718, Federal Deposit Insurance for Banks and
Credit Unions, by Darryl E. Getter.
37 For additional information on CDFIs, see CRS Report R42770, Community Development Financial Institutions
(CDFI) Fund: Programs and Policy Issues, by Sean Lowry.
38 Section 506. For more information about the affordable housing goals, see CRS Report R42760, Fannie Mae’s and
Freddie Mac’s Financial Status: Frequently Asked Questions, by N. Eric Weiss.
39 One basis point equals 0.01%.
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creditworthy borrowers). Participants that did relatively more of their business with underserved
market segments would be charged a lower fee than those participants who did less business with
underserved market segments.
FMIC would allocate 75% of the collected fees to HUD’s Housing Trust Fund, 15% to Treasury’s
Capital Magnet Fund, and 10% to a newly created Market Access Fund. Under the Housing Trust
Fund, HUD would provide formula grants to states to use primarily for rental housing activities
that benefit very low- and extremely low-income households.40 Under the Capital Magnet Fund,
Treasury would award competitive funding to community development financial institutions
(CDFIs) or non-profit housing organizations. 41 The funds would be used for rental or
homeownership housing or related economic development activities that benefit low- and
moderate-income households, with an emphasis on projects that will leverage other sources of
funds. The new Market Access Fund would provide funds to support research and development or
credit support for affordable homeownership and rental housing activities that benefit low- and
moderate-income households and underserved or hard-to-serve populations. The Johnson-Crapo
GSE proposal would also provide for a set-aside of funds to be awarded competitively to tribes
under the Housing Trust Fund.
Multifamily Housing. The GSEs would transfer their multifamily businesses into subsidiaries of
each company within one year of enactment and would continue to operate their primary
multifamily programs.42 FMIC would manage the disposition (e.g., the sale or spinning off) of the
multifamily businesses on or before the system certification date. FMIC would also approve and
supervise multifamily guarantors, requiring them to maintain a minimum capital buffer of 10%.
Guarantors could guarantee and issue multifamily MBS. Similar to the single-family program, the
FMIC guarantee would require private capital in a first-loss position. FMIC would approve risk-
sharing methods and would allow the GSEs’ current multifamily programs (which already use
risk sharing) to be grandfathered as approved risk-sharing mechanisms.
Differences between the Johnson-Crapo GSE Proposal and S. 1217, the Corker-
Warner Bill
The Johnson-Crapo GSE proposal and the Corker-Warner bill (which served as the base text for
the Johnson-Crapo GSE proposal) are conceptually similar but differ in several ways.
Affordable Housing. Both proposals eliminate the GSEs’ affordable housing goals and provide for
affordable housing funds to be financed through a fee on covered MBS, but the nature of the fee
charged and the allocation of funds would be somewhat different. Under Corker-Warner, the fee
would be between 5 and 10 basis points. The Johnson-Crapo proposal would charge incentive-
based fees (that on average are 10 basis points), rather than a flat fee, to encourage market
40 The Housing Trust Fund was established by the Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-
289) but has never been funded. For more information on the Housing Trust Fund, see CRS Report R40781, The
Housing Trust Fund: Background and Issues, by Katie Jones.
41 The Capital Magnet Fund was also established by HERA (P.L. 110-289). It received funding once, through a
discretionary appropriation in FY2010. For more information, see the Community Development Financial Institutions
Fund website at http://www.cdfifund.gov/what_we_do/programs_id.asp?programID=11.
42 The multifamily program used by Fannie Mae is the Delegated Underwriting and Servicing Lender Program (DUS)
and for Freddie Mac it is the Capital Market Execution Program Series K Structured 2Pass-Through Certificates (Series
K).
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participants to do more business in underserved areas or with underserved borrowers. Under
Corker-Warner, 80% of the contributions go to the Housing Trust Fund and 20% to the Capital
Magnet Fund. However, Corker-Warner would make significant changes to the Housing Trust
Fund, with the bulk of the Housing Trust Fund funding (60%) being used for activities similar to
those under the Market Access Fund in the Johnson-Crapo GSE proposal—namely, support for
rental and homeownership housing activities benefitting low- and moderate-income households.
(Under current law, the Housing Trust Fund must primarily support rental housing for very low-
and extremely low-income households.) Under the Johnson-Crapo proposal, 75% of contributions
would go to the Housing Trust Fund, 15% to the Capital Magnet Fund, and 10% to the new
Market Access Fund. The Johnson-Crapo proposal also includes a set-aside of funds to be
awarded competitively to tribes under the Housing Trust Fund.
Underwriting. Both proposals model their underwriting criteria off of the CFPB’s QM definition,
and both also have downpayment requirements. The Corker-Warner bill would require a 5%
downpayment minimum, but the Johnson-Crapo GSE proposal would allow a 3.5%
downpayment for first-time homebuyers and 5% for non-first-time homebuyers. The Corker-
Warner bill would reduce the conforming loan limit for high-cost areas whereas the Johnson-
Crapo GSE proposal would keep the existing formula.
Small Lender Mutual. Both proposals would establish a small lender mutual. The Corker-Warner
bill would limit membership for insured depositories to those with $15 billion or less in assets,
whereas the Johnson-Crapo GSE proposal would expand eligibility for insured depositories to
those with assets up to $500 billion.
System Certification. Both proposals would have a similar five-year transition period, but the
Johnson-Crapo GSE proposal would institute benchmarks that would need to be satisfied prior to
the certification of the system and would allow for extensions to the five-year timeline.
S. 1376, the FHA Solvency Act of 2013
The Johnson-Crapo bill (S. 1376) was reported out of the Senate Banking Committee on July 31,
2013. It proposes to make a number of changes to FHA aimed at strengthening its financial
position. Most of these changes are aimed at ensuring that FHA’s programs are financially sound,
but do not focus on limiting FHA’s market role or shifting risk to the private sector to the degree
that the PATH Act does. For example, S. 1376 would not restrict FHA insurance to only first-time
or low- and moderate-income homebuyers. It also would not make FHA an independent agency
or reduce the percentage of the mortgage that FHA can insure.
Eligible Borrowers. FHA would be required to evaluate and revise its underwriting standards for
mortgages using certain criteria, similar to the criteria for qualified mortgages.
Maximum Mortgage Amounts. GAO would be required to submit a study on the appropriate
dollar limit on the maximum mortgage amount that FHA can insure.
Premiums. FHA would require a minimum annual premium of 0.55% and increase the maximum
premiums that FHA can charge. FHA would be required to re-evaluate its premiums annually to
ensure that they are adequate to maintain the capital ratio.
Capital Requirements. The capital ratio would be raised to 3% within 10 years. (Under current
law, the required capital ratio is 2%.) If the capital ratio failed to meet certain thresholds, FHA
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would be required to take certain steps, including implementing premium surcharges for new
borrowers and reporting to Congress on steps it was taking to restore the capital ratio. FHA would
be required to undergo stress-testing based on the stress test model developed by the Federal
Reserve for banks and report the results in its annual actuarial review. Congress would have to be
notified within 48 hours if FHA used its authority for funding from Treasury for the single-family
insurance fund.
Lender Oversight. Lenders could be required to reimburse FHA for defaulted mortgages that did
not meet its standards in certain circumstances. FHA would be authorized to terminate lenders’
approval on a nationwide basis, as well as in specific areas. FHA would be required to publish a
consolidated guide with all of its requirements for lenders and servicers.
Other FHA Programs. The bill would require certain changes to FHA’s reverse mortgage
program, the Home Equity Conversion Mortgage (HECM) program, and would authorize FHA to
make certain changes to the HECM program through administrative guidance documents for a
period of time under certain conditions.
Other Provisions. FHA would be allowed to transfer mortgage servicing rights to specialty
servicers under certain circumstances. FHA would be required to finalize its rules on seller
concessions.43
Comparison of Major Provisions
Table 1 compares non-FHA related provisions in the PATH Act and the Johnson-Crapo GSE
proposal. Table 2 compares the FHA reforms in the PATH Act and the Johnson-Crapo FHA bill.
Table 1. Comparison of Non-FHA Provisions in H.R. 2767 and the Johnson-Crapo
GSE Proposal
Topic
PATH Act (H.R. 2767)
Johnson-Crapo GSE Proposal
Fannie and Freddie
The PATH Act would limit the GSEs’ new
The Johnson-Crapo GSE proposal would al ow
Wind Down
mortgage purchases to those that meet the
the GSEs to continue to purchase and
QM standard and would require the GSEs to
securitize mortgages until the system
share credit risk with the private sector. It
certification date. It would require the GSEs
would require the GSEs to continue to reduce
to continue to reduce their mortgage
their mortgage portfolio.
portfolio.
Within five to seven years of enactment, FHFA The GSEs’ charters would be revoked once
would place the GSEs into receivership and
the GSEs’ guarantee obligations were
repeal their charters. Certain outstanding GSE
extinguished. Certain outstanding GSE
obligations would be guaranteed by the
obligations would be guaranteed by the
government.
government.
43 In July 2010, FHA issued a proposed rule to limit seller concessions to 3% of the lesser of the home’s sale price or
appraised value. In February 2012, it issued a revised proposed rule and asked for comments on the revisions. See
Department of Housing and Urban Development, “Federal Housing Administration (FHA) Risk Management
Initiatives: Revised Seller Concessions,” 77 Federal Register 10695-10707, February 23, 2012.
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Topic
PATH Act (H.R. 2767)
Johnson-Crapo GSE Proposal
Newly Established
The PATH Act would establish the National
The Johnson-Crapo GSE proposal would
Entity
Mortgage Market Utility, a non-government,
establish the Federal Mortgage Insurance
non-profit entity that is privately managed. The Corporation (FMIC) as an independent
Utility would operate the common
government agency. The FMIC would provide
securitization platform and would set
insurance for certain MBS and would oversee
standards and guidelines for the securitization
the Securitization Platform and new market
process.
participants. The Securitization Platform would
set standards and guidelines for the
securitization process.
Government
The PATH Act would not create a new
The FMIC would provide a government
Guarantee
government guarantee on mortgages or MBS.
guarantee on MBS that meet its requirements.
It would keep in a narrowed form the existing
The FMIC would only pay out on its guarantee
government guarantee programs, i.e., FHA,
after private capital absorbed the first losses.
VA, USDA Rural Housing, and Ginnie Mae.
FHFA
The PATH Act would have FHFA operate as
FHFA would initially be transferred as an
the regulator of the Utility.
independent entity within the FMIC. On the
system certification date, the functions of
FHFA would be transferred to the FMIC.
Market Standards
The PATH Act would require the Utility to
Under the Johnson-Crapo GSE proposal, the
develop standard securitization agreements
Securitization Platform would develop
that would establish the contractual terms
standard securitization agreements that would
between most of the major market
establish the contractual terms between most
participants.
of the major market participants.
Affordable Housing
The PATH Act would repeal the GSEs’
The Johnson-Crapo GSE proposal would
affordable housing goals and the Housing Trust replace Fannie’s and Freddie’s affordable
Fund.
housing goals with an additional fee on
covered securities that would be allocated to
the Housing Trust Fund, Capital Magnet Fund,
and Market Access Fund.
Mortgage-Related
The PATH Act would modify or repeal certain Not addressed.
Financial Reform
recent mortgage-related financial reforms.
Regulations
Source: Created by the Congressional Research Service (CRS) using information obtained from the Legislative
Information System (LIS) available at http://www.congress.gov and the website of the Senate Banking Committee
http://www.banking.senate.gov.
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Table 2. Comparison of FHA Provisions in H.R. 2767 and S. 1376
Topic
PATH Act (H.R. 2767)
FHA Solvency Act (S. 1376)
FHA Structure
FHA would become an independent
No similar provisions; FHA would remain
agency. FHFA would regulate FHA and the
part of HUD.
USDA rural housing programs. FHA’s
financial reports would have to use
accounting methods used in the private
sector.
Eligibility and
FHA insurance would be limited to first-
FHA would be required to evaluate and
Underwriting
time or low- and moderate-income
revise its underwriting standards for
Standards
homebuyers, and the downpayment would
mortgages using certain criteria.
be increased to 5% for al but first-time
homebuyers. FHA would be permitted to
guarantee more types of mortgages during
periods of market stress and in areas
affected by disasters.
Maximum Mortgage
The maximum dollar amount of a mortgage GAO would be required to submit a study
Amount
that FHA can insure would be decreased in
on the appropriate dollar level for the
some areas.
maximum mortgage amounts.
Insurance Coverage
The share of a mortgage that FHA can
No similar provision; the share of a
insure would be reduced to 50% over five
mortgage that FHA can insure would remain
years.
at 100%.
Premiums
The PATH Act would set a minimum
The FHA Solvency Act would set a minimum
annual premium of 0.55% and al ow FHA to annual premium of 0.55% and increase the
set premiums that vary based on the credit
maximum annual premiums that FHA can
risk of the mortgage. FHA would have to
charge. FHA would have to re-evaluate its
ensure that its premiums are high enough
premiums annual y to ensure that they are
to cover administrative and personnel
adequate to cover the costs of insurance and
costs as well as the costs of insurance and
maintain the capital ratio.
maintaining the capital ratio.
Capital Requirements
The capital ratio would be increased to 4%
The capital ratio would be increased to 3%
of outstanding insurance-in-force. If the
of outstanding insurance-in-force within ten
ratio fell below certain thresholds, FHA
years. If the ratio fell below certain
would be subject to certain restrictions on
thresholds, FHA would have to take certain
the mortgages it could insure.
actions, such as premium surcharges for new
borrowers. FHA would be subject to stress
FHA would also be required to set capital
tests based on the Federal Reserve’s stress
ratios for its other insurance funds.
test model. Congress would have to be
notified within 48 hours if FHA used its
authority to draw funds from Treasury.
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Topic
PATH Act (H.R. 2767)
FHA Solvency Act (S. 1376)
Lender Oversight
Under certain circumstances, lenders could Under certain circumstances, lenders could
be required to reimburse FHA for
be required to reimburse FHA for defaulted
defaulted mortgages that did not meet its
mortgages that did not meet its standards.
standards.
Lenders would have to agree to
FHA could terminate lenders’ approval on a
repurchase certain mortgages that
nationwide basis, as well as in specific areas.
experience early defaults.
FHA would be required to annual y publish
FHA would be required to publish a single
a manual, handbook, or guide that
resource guide that consolidates all of its
consolidates all of its origination and
policies, processes, and procedures for
underwriting requirements for lenders and
lenders and servicers.
servicers.
Other FHA Programs
Repeals the HECM program that provides
Requires certain changes to the HECM
FHA insurance on reverse mortgages.
program, and allows FHA to implement
some changes administratively for a period
FHA would have to set requirements for
of time.
buildings with FHA-insured multifamily
mortgages to ensure that they include units
affordable to low- or moderate income
households.
FHA would be required to set certain
limits and standards related to its mortgage
insurance program for hospitals.
Other
Sel er concessions would be limited to 3%
FHA would be required to finalize its rules
for FHA and USDA mortgages.
on seller concessions (proposed rules limit
seller concessions to 3%).
After two years, 10% of FHA’s new
FHA would be allowed to transfer mortgage
business would have to be insured
servicing rights to specialty servicers under
pursuant to risk-sharing agreements with
certain circumstances.
other entities.
FHA and USDA would be prohibited from
backing mortgages in areas that used
eminent domain to obtain mortgages in the
past 10 years.
Source: Created by CRS using information obtained from the Legislative Information System (LIS) available at
http://www.congress.gov.
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Author Contact Information
Sean M. Hoskins
Katie Jones
Analyst in Financial Economics
Analyst in Housing Policy
shoskins@crs.loc.gov, 7-8958
kmjones@crs.loc.gov, 7-4162
N. Eric Weiss
Specialist in Financial Economics
eweiss@crs.loc.gov, 7-6209
Key Policy Staff
Area of Expertise
Name
Phone
Email
Dodd-Frank mortgage-market
N. Eric Weiss
7-6209
eweiss@crs.loc.gov
rulemakings, Fannie Mae, Freddie Mac,
FHFA, and the secondary mortgage
market
Dodd-Frank mortgage-market
Sean Hoskins
7-8958
shoskins@crs.loc.gov
rulemakings, Fannie Mae, Freddie Mac,
and the secondary mortgage market
FHA, Ginnie Mae, and mortgage-market
Katie Jones
7-4162
kmjones@crs.loc.gov
government-guarantee programs
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