Despite some recent pushback from Senate Democrats, the Johnson-Crapo reform bill that plans to phase out Fannie Mae and Freddie Mac passed the Senate Banking Committee by a bipartisan vote of 13-9. The legislation is an agreement between Chairman Tim Johnson (D-South Dakota) and Ranking Member Mike Crapo (R-Idaho) "designed to stabilize the housing finance market and strengthen the American economy," the committee said in a press release.
"After the housing crisis we experienced, real reform is clearly necessary to stabilize the housing system and renew the faith in the American dream of homeownership for generations to come," Johnson said. "Even though the support was not unanimous, every member on the Committee was actively engaged in this collaborative process, and passing this legislation out of committee is only the first step."
The bill would get rid of both Fannie Mae and Freddie Mac in their current form, allowing private companies to enter the space vacated by the two companies. Currently under the conservatorship of the federal government, the companies can't be relinquished from federal control without an act of Congress or their regulator, the Federal Housing Finance Agency (FHFA).
The bill would create a reinsurance fund, known as the Mortgage Insurance Fund, to protect taxpayers. The new system would be regulated by the Federal Mortgage Insurance Corporation, which is similar to the FDIC.
"Today's vote marks an important milestone. For the first time in the nearly six-year conservatorship of Fannie Mae and Freddie Mac, both bodies of Congress have passed legislation to reform our broken housing finance system. I thank everyone for their continued work on this legislation and look forward to further discussions as the process continues," Crapo said.
The White House, through the Office of the Press Secretary, lauded the committee for its work, calling today's vote "an important step toward achieving a more sustainable housing finance system that helps protect the American dream of homeownership."
However, many viewed today's vote neither as a win nor a positive long-term outcome for the American people.
An outspoken critic of the bill, House Financial Services Committee Chairman Jeb Hensarling (R-Texas) believes the bill is nothing more than a wealth redistribution scheme.
"[T]he Senate bill features a controversial and irresponsible new politicization of mortgage credit insisted by Senate Democrats under the guise of affordable housing. This wealth redistribution scheme, far worse than that of the current system, would be a multi-billion dollar annual invitation to return to the lower credit standards, higher risks, and unsustainable lending that created the crisis in the first place."
Democrats also found problems with the bill, albeit for different reasons. "I remain concerned that this bill in its current form does not do enough to produce a housing market that works for middle class America," said Sen. Elizabeth Warren (D-Massachusetts), who voted against the bill.
The bill now heads to the Senate, where it is expected to have an uphill battle gaining support for a floor vote.