The voices of Urban Institute's researchers and staff
July 15, 2014

Senate GSE reform: What we learned from Johnson-Crapo

July 15, 2014

On May 15, 2014, the Senate Banking Committee passed S.1217, the Housing Finance Reform Act of 2013, more commonly known as Johnson-Crapo. While the bill passed out of committee with relatively broad bipartisan support, barring a late summer surprise it does not have the support needed for a vote on the Senate floor. The many months long effort was nonetheless an important step in the effort to reform the housing finance system, revealing a growing consensus on a number of critical issues and shedding light on the difficulties that remain.

We are among the many who have worked hard over the past several years to move housing finance reform forward, though from different positions and with different perspectives.  The current pause gave us an opportunity to reflect on what happened in the Senate, why it happened and what the next steps look like.  Work on Johnson-Crapo (as well as its predecessor Corker-Warner) was time well spent, providing lessons from which future reform efforts will undoubtedly benefit.

In our commentary , we focus on a range of issues critical both to the negotiations and to how the future system will function, with particular attention to credit access for historically underserved borrowers and communities—the issue that proved most challenging in the negotiations.

Although Johnson-Crapo contained a market-based incentive intended to ensure that the future system would serve these borrowers and communities well, some of the more progressive members of the Senate Banking Committee were skeptical that it would succeed. They were also uneasy with the impact that increased risk-based pricing and higher capital requirements likely under the bill would have on the cost of borrowing. At the end of the day, it became impossible to both meet progressive concerns and retain the bill’s bipartisan support.

Yet the Committee reached consensus on many other significant issues that we discuss at length in our dialogue. Indeed, with this increase in consensus there is  hope that the next legislative run will face better odds, as the parties will be able to focus on the small number, though thorny, set of questions that remain.  Meanwhile, there are many opportunities for administrative action to improve on the current system, a process the FHFA has already begun.

For an in-depth discussion of all of these issues and more, see here.

Photo from Shutterstock.

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