The US House Financial Services Committee passed a GSE reform bill that includes covered bond legislation yesterday (Wednesday) after a 10 hour markup the day before, but approval in the full House, which could be sought soon, will be difficult, said an observer.

The Protecting American Taxpayers and Homeowners (PATH) Act was passed by 30-27 votes yesterday morning, without any Democrat support. Two Republicans voted against the bill.

The Act, a GSE reform bill aimed at phasing out Fannie Mae and Freddie Mac and increasing private sector mortgage finance, includes proposed covered bond legislation, the United States Covered Bond Act of 2013.

The GSE reform bill was voted on in the House Financial Services Committee (HFSC) after some 10 hours of animated discussion during a markup on Tuesday, with the future of affordable homeownership in general and of the 30 year fixed rate mortgage in particular featuring heavily in the discussion.

The amendments put forward by the Democrats, who see the PATH Act as “the path to nowhere”, were rejected by the committee, where the Republicans have the majority.

The committee approval of the PATH Act comes just under two weeks after it was first announced by House Republicans on 11 July, initially in the form of a discussion draft, with a hearing on the discussion draft held last Thursday (18 July). (See here and here for previous coverage.)

Representative Scott Garrett, lead sponsor of the PATH Act and the politician who has taken a lead on covered bond legislation in the US, welcomed the approval of the bill, H.R. 2767.

“The passage of this legislation today is a critical step in reforming our nation’s housing finance system and ensuring the American taxpayers no longer have to fund $200 billion bailouts,” he said. “Now that the Financial Services Committee has acted, I look forward to continuing to work with Chairman Hensarling and House Leadership to ensure that this bill passes both Houses and is quickly advanced to the President’s desk.”

Bert Ely, a financial institutions and monetary policy consultant, said that the Republicans may try to get the bill onto the floor of the House of Representatives next week, before the summer break.

He said that the covered bond legislation is an important element of the PATH Act, but not the driver of the legislation, and its fate is caught up – “subsidiary to” – the move to reform Fannie Mae and Freddie Mac and resolve the debate about the role of federal government as a supporter of housing finance in the US.

“And on that subject, the major elements of the bill, I think they will have a tough time getting through the House”, he said.

This is because many mortgage industry players, such as realtors and homebuilders, are still in favour of fairly substantial government support, according to Ely, which means that securing passage of the PATH Act in the House is “the first challenge”.

And even if this is successful, there would be substantial differences with Senate housing reform proposals, he added.

A bipartisan group of Senators on 25 June introduced parallel legislation aimed at replacing the GSEs with a private housing finance system, although the Senate version does not include covered bond legislation. The Housing Finance Reform & Taxpayer Protection Act, as the Senate GSE reform legislation is called, only includes a requirement that a new Federal Mortgage Insurance Corporation include an analysis of “the state of the global covered bond market” in a wider annual report it would prepare for the Senate Banking Committee and House Financial Services Committee.