In a positive development in the current congressional debate over the future of Fannie Mae and Freddie Mac, Reps. Gary Miller (R-Calif.) and Carolyn McCarthy (D-N.Y.) on July 7 introduced legislation to stabilize housing and ensure liquidity in the mortgage market by maintaining a federal role in the U.S. housing finance system.

H.R. 2413, the Secondary Market Facility for Residential Mortgages Act of 2011, would replace Fannie Mae and Freddie Mac with a government-run entity that would purchase residential home loans and issue mortgage-backed securities.

The corporation would not have shareholders and any profits would go to the U.S. Treasury.

Presenting their bill at a Capitol Hill press event with NAHB Third Vice Chairman Kevin Kelly and Ronald Phipps, president of the National Association of Realtors®, the lawmakers said their legislation would create a system in which private capital will be the dominant source of mortgage credit.

“By retaining elements of the current system that work and eliminating those that don’t work, this proposal will appropriately reduce the role of the federal government in the housing finance system, limit taxpayer exposure and eliminate the current uncertainty permeating the housing market,” said Miller.

Declaring that stabilizing housing is vital to moving the U.S. economy forward, McCarthy said the bill represents a common-sense approach that offers safeguards to protect consumers and American taxpayers.

“We need to show that America is on its way back. I think this legislation will do it,” she said.

As the private mortgage market returns, NAHB’s position is that maintaining an appropriate level of government support is essential to preserve financial stability, promote investor confidence and ensure liquidity and stability for homeownership and rental housing.

“As Congress debates the future of Fannie Mae and Freddie Mac, NAHB is pleased that the legislation unveiled today by Reps. Miller and McCarthy would provide an appropriate federal role to maintain a healthy mortgage marketplace,” said Kelly.

Similar legislation (H.R. 1859) introduced this spring by Reps. John Campbell (R-Calif.) and Gary Peters (D-Mich.) would replace Fannie Mae and Freddie Mac with five private companies that would issue mortgage-backed securities and have government backing.

These two legislative approaches to reform the government sponsored enterprises diverge from efforts by the House Republican leadership to fully privatize them and gradually diminish federal support.

Absent a federal role to help absorb market risk, private lenders would increase interest rates and fees on all types of available financing options, including financing for affordable rental housing, Kelly said.

“The 30-year, fixed-rate mortgage — the major housing finance tool for most Americans — would become increasingly scarce and much more costly, pricing many creditworthy borrowers out of the marketplace,” he said.

NAHB has presented lawmakers with a detailed proposal on restructuring the housing finance system to provide a consistent supply of mortgage liquidity and retain a federal backstop while limiting taxpayer exposure.

Actively involved in this issue, the association continues to encourage all congressional efforts that seek an appropriate federal role to ensure a reliable and adequate flow of affordable housing credit.

To read legislation, click here and enter the bill number in the box at the upper center of the page.

For more information, email Scott Meyer at NAHB, or call him at 800-368-5242 x8144.