Brown, Vitter introduce amendments to housing finance reform

This story appeared in Bank Digest.

In advance of the markup of legislation to reform the housing finance system, Sens. Sherrod Brown (D-Ohio) and David Vitter (R-La) introduced nine amendments aimed at ending "Too Big to Fail" and preventing future bailouts. Under the Johnson-Crapo federal housing finance reform bill, a newly-created Federal Mortgage Insurance Corporation would allow private companies to serve as bond guarantors and insure losses on mortgage-backed securities. Under the current bill, these guarantors could be standalone insurance companies or could be affiliates of larger entities, but not insured depository institutions or contained within a bank holding company structure. Under the current bill, while the guarantors could not offer support to any affiliates, their affiliates could offer support to them--triggering the potential for an ultimate bailout from the Federal Reserve Board.

 

The Brown-Vitter amendments are intended to limit integration among originators, bank holding companies, insured depository institutions, and aggregators with the private entities that would be authorized to guarantee mortgage-banks securities under the bill. "If we're going to rely on private companies to insure mortgage-backed securities, we should create a wall to ensure that the same institutions are not also originating, aggregating, or servicing the mortgages," Brown said. "We know that excessive integration triggered the need for previous bailouts. Housing finance reform should help prevent future bailouts, not expose our financial system to more risk."

Brown also filed amendments on his own intended to help protect homeowners and improve local neighborhoods. Among other things, Brown's amendments would increase access to housing counseling for struggling homeowners, prevent servicers from having a financial interest in increasing borrowers' costs, and ensure that servicers are qualified.