Sustainable Homeownership Act

Key Points

• The bill overhauls how Fannie Mae and Freddie Mac handle mortgages where the buyer puts down less than 20 percent. It sets detailed, tiered private mortgage insurance requirements based on the loan-to-value ratio, replacing the old flat 10 percent standard. Higher loan-to-value ratios require more insurance coverage, which could increase costs for some borrowers but better protects taxpayers from losses.
• Low-income borrowers and state housing programs get reduced insurance requirements. Borrowers earning 80 percent or less of the area median income who put down between 3 and 10 percent need only 25 percent coverage on the high-risk portion, compared to up to 35 percent for other borrowers. State agency loans also get lower coverage tiers.
• The bill creates a path to end the government conservatorship of Fannie Mae and Freddie Mac that has been in place since 2008. Treasury would convert its senior preferred stock to common equity, exercise its warrants, and sell the resulting stock within two years. FHFA must set capital standards for the companies to exit conservatorship within 90 days.
• Conforming loan limits would grow more slowly under this bill. Instead of tracking home price increases alone, the annual adjustment would be tied to whichever is lower: the increase in median household income or the housing price index. This could limit the size of mortgages the government backs in areas where home prices outpace incomes.
• The enterprises would be required to transfer the vast majority of their credit risk on single-family mortgages to private investors and insurers within two years, reducing the concentration of mortgage risk on the government's balance sheet.
• A new return-on-equity framework caps how profitable the companies can be. Profits within a 9 to 13 percent range are allowed. If profits exceed the cap, excess earnings go to the Treasury. If profits fall below the floor, the companies skip their commitment fee and focus on building capital reserves.