Tester, Johanns Build Momentum for Housing Finance Reform

Senators hold hearing to highlight new legislation to protect taxpayers and 30-year mortgage, ensure access for community-based institutions

WASHINGTON – Senators Jon Tester (D-Mont.) and Mike Johanns (R-Neb.) continue to build momentum behind their bipartisan efforts to protect taxpayers by reforming America’s housing finance market.
Tester and Johanns discussed bipartisan legislation they are cosponsoring, The Housing Finance Reform and Taxpayer Protection Act, at a hearing today in their Banking Subcommittee. The hearing examined how their legislation would rebuild the housing finance system so to protect taxpayers and ensure that smaller mortgage originators, such as the community banks and credit unions, continue to play an important role in the lending process.
Tester said, “Community-based institutions play a critical role in our housing market by providing a lifeline for many American homeowners, particularly those in rural America. These institutions know and serve their customers with their unique brand of relationship-based lending, and we must make sure they continue to have equal access to our housing market.” 
Johanns said, “Since taxpayers were forced to bail out lending giants Fannie Mae and Freddie Mac in 2008, families across the country are increasingly turning to banks and credit unions in their communities for affordable, accessible, responsible financing options. It’s important that we reform our housing finance market to protect taxpayers, but also ensure that families are left with the option of receiving their mortgages from lenders on Main Street that they know and trust. Our bipartisan legislation does just that.”
Community financial institutions are now providing one-third more mortgages to homeowners – especially in rural markets – than before the financial crisis.  The senators’ hearing focused on the importance of preserving the role of small financial institutions in the housing finance market.
Tester and Johanns’ Banking panel, the Subcommittee on Securities, Insurance, and Investment, heard testimony from witnesses representing community banks, credit unions and the Federal Home Loan Banks, as well Sandra Thompson, a deputy director with the Federal Housing Finance Agency.
“As we move closer to reforming our nation’s housing finance system, it is important to ensure that community-based lenders are able to fully participate in the new system,” Thompson said.  “Ensuring their participation in the future system is in the public interest, and we stand ready to work with this Committee to see this goal reached.”
In 2008, the government put government-sponsored housing organizations Fannie Mae and Freddie Mac in conservatorship, providing a taxpayer-funded backstop to ensure the accessibility and affordability of 30-year fixed-rate mortgages for American families.
As a result, the private mortgage market is struggling and today nearly every loan made in America comes with a government guarantee, leaving taxpayers potentially liable for losses.  Despite this unsustainable situation, there has still been no real reform to the housing finance system since the financial crisis.
The bipartisan reform legislation Tester and Johanns are cosponsoring, which was recently introduced with Senators Mark Warner (D-Va.) and Bob Corker (R-Tenn.), would wind-down Fannie Mae and Freddie Mac, which are tasked with guaranteeing and purchasing home loans.  Replacing Fannie and Freddie would be a new system that strengthens the nation’s housing market by protecting taxpayers, preserving the 30-year fixed rate mortgage, and ensuring that small financial institutions can continue to serve rural communities.

The bill is also co-sponsored by Sens. Dean Heller (R-Nev.), Heidi Heitkamp (D-N.D.), Jerry Moran (R-Kan.), Kay Hagan (D-N.C.) and Mark Kirk (R-Ill.).  Full text of the bill is available HERE and a summary is available HERE.