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July 25, 2008 - The long-debated mortgage reform bill passed in the House on July 23 by a vote of 272 to 152. The Senate could vote on the legislation as soon as next week and send it to the President to be signed into law.
The legislation would modernize the Federal Housing Administration (FHA), reform the Government Sponsored Agencies (GSEs) and implement licensing and registration requirements for mortgage originators. Credit unions would be included in the nationwide online system to provide streamlined and consistent standards for applying, amending, updating or renewing a mortgage license.
The GSE reform would establish a new regulator for Fannie Mae and Freddie Mac and the legislation, as passed in the House, would provide the U.S. Treasury the authority to make available an unlimited line of credit and debt investments to Fannie Mae and Freddie Mac to help stabilize the companies. This authority would last through December 31, 2009.
Earlier this month, the White House indicated that it would veto the bill if it included nearly $4 billion in grants to neighborhoods devastated by foreclosures and the current mortgage market. The White House has since stressed the importance of the housing legislation and the President will likely not veto the bill.
The day after the House passed the housing legislation, the House Financial Services Committee held its second hearing in a series to discuss systemic risk and the financial markets. Chairman Christopher Cox of the Securities and Exchange Commission and Timothy Geithner, president of the Federal Reserve Bank in New York, testified.
Both men stressed the importance of looking at the regulatory structure as it exists today and building on what works. Investment banks and their access to the discount window was a topic of discussion. Each presented their ideas about which agency should take the lead regulatory role over investment banks. Geithner made the case that as the lender of last resort, the Federal Reserve should supervise institutions with access to the discount window. Cox, on the other hand, believed the SEC should play a role in the oversight of investment banks.
In March, the U.S. Treasury released a blueprint for a modernized regulatory structure, which suggested that the Federal Reserve would be the Market Stability Regulator, focusing on the overall financial system. Geithner maintains that the Federal Reserve should maintain direct oversight of financial companies.
Representative Judy Biggert (R, Ill.) asked if the regulatory restructuring being suggested was similar to what was proposed in the Treasury Blueprint. President Geithner said that sensible objectives should guide regulatory restructuring. Additionally, Chairman Cox referred to the Blueprint as “a big think exercise” and said it was useful to challenge orthodoxy.
Chairman Barney Frank (D, Mass.) did not indicate the direction Congress would take with regulatory reform.
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