Josh Rosner, who in Reckless Endangerment (2011) exposed the cronyism of Fannie Mae and warned of a meltdown of the government-sponsored enterprises (GSEs) as far back as 2001, recognizes that the Johnson–Crapo housing finance bill gives us Fannie–Freddie 2.0:

Rather than fix these problems, legislators seek to demolish the current mortgage market and build, from scratch, a new system that makes things worse. They put at its center a new regulator, the Federal Mortgage Insurance Corporation [FMIC], with a fundamentally conflicted mission—combining safety and soundness, affordable-housing goals and consumer protection. The bill will have the effect of increasing rather than reducing the concentration of lending in the hands of a few large banks. Under the legislation the government will also sponsor mortgage aggregators, insurance entities and a mutually owned securitization platform.

The fact that all of these different entities—mortgage aggregators, insurance entities, and the securitization platform—would be covered with FMIC insurance means that Johnson–Crapo is essentially creating multiple new GSEs instead of just two.

There are many other problems with both Senate bills, such as the expansion of housing trust funds and affordable-housing mandates, but the explicit taxpayer backing of investors during a crisis is the main problem. It’s the reason that the GSEs were bailed out in the first place, so it makes no sense to do it again. As Rosner notes:

The Johnson-Crapo bill reinstates a model in which private players profit from public government support. If it becomes law, we will have failed to create a sustainable system of building home equity, even among the most at-risk, lower-income borrowers. We will also have failed to fulfill the real American dream of homeownership.

Between these Senate bills and the Dodd–Frank Act, the federal government is close to completely taking over the housing finance market. And the notion that it is necessary is completely wrong. Fannie and Freddie were a tiny part of the mortgage market until the Clinton Administration expanded their operations.

From the creation of Fannie in the 1930s until it was transformed into a GSE in 1968, all government-backed mortgages were never more than 6 percent of the market in any given year. In 1990, Fannie and Freddie (combined) held only 5 percent of the nation’s mortgages in its portfolio, but that number climbed to 20 percent by 2003. The housing market can—and has—functioned just fine without being dominated by the federal government.

Taxpayers—and consumers—deserve much better than a Congress that merely creates Fannie–Freddie 2.0, but that’s exactly what the Senate is doing. The approach being offered by the House—through bills such as the PATH Act and the New Fair Deal Banking and Housing Stability Act—does a much better job of getting the federal government out of the U.S. housing finance market. But the window of opportunity is closing.