On May 22, 2007, the House passed the Federal Housing Finance Reform Act of 2007, H.R. 1427, which will overhaul the regulatory oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Banks, and create a new, independent regulator with broad powers analogous to current banking regulators. Fannie Mae and Freddie Mac are government-sponsored enterprises (GSEs), meaning they are both created and chartered by Congress in addition to being private, profit-seeking businesses. While these enterprises have grown rapidly in recent years, there has been question as to the effectiveness of the current methods of regulation. This legislation will improve the effectiveness of regulatory oversight of the government-sponsored enterprises.
In addition, the bill creates an off budget and non-taxpayer financed affordable housing fund, which will dedicate hundreds of millions of dollars for the construction, maintenance and preservation of affordable housing, with the first year of the fund to be dedicated to the hurricane stricken areas of the Gulf Coast, and billions of dollars over the next five years for affordable housing nationwide.
Specifically, this legislation will:
- Change the regulation of Fannie Mae, Freddie Mac and the Federal Home Loan Banks
- Consolidate oversight
- Create the Federal Housing Finance Agency (FHFA) as an independent regulator with authority like that of bank regulators
- Give authority for the Federal Housing Finance Agency to adjust these enterprises' risk-based capital, and at times the authority to limit the size of their portfolios for limited periods
The Federal Housing Finance Reform Act also creates an affordable housing fund, funded by contributions by Fannie Mae and Freddie Mac. This would increase housing opportunities for low-income homeowners and renters, and could be used to build rental or homeownership housing. This fund would be initially allocated to hurricane affected areas of the Gulf Coast, in order to build much-needed affordable housing in the region.