The National Association of Realtors recommended that the Federal Housing Finance Agency create what it called a “mortgage market liquidity fund” as a way to allow Fannie Mae and Freddie Mac to rebuild capital. In a letter that went out this week to Federal Housing Finance Agency Director Mel Watt and copied to the Treasury, the trade group expressed concerns about the dwindling capital buffer that’s scheduled to hit zero by Jan. 1, 2018.If Fannie and/or Freddie posts a loss, they will need to tap a line of credit with Treasury. And with no capital reserves, NAR said that the taxpayers will feel the impact while access to credit and homeownership will be stifled.
As many believe that housing reform has begun to transform from all talk to action, more industry groups are adding their two cents on what a changing housing finance reform landscape should look like. “Now, more than ever since the financial crisis, Washington D.C., is abuzz with talk of housing finance reform,” said the National Association of Federally-Insured Credit Unions. “Credit union loans provide the high quality necessary to improve the salability of the GSEs’ securities,” it added. The trade group said that in the future credit unions should be able to sell directly to the GSEs without having to aggregate their loans through large lenders.
Landon Parsons, senior advisor of Moelis & Company, a firm that proposes a recap and release blueprint for the GSEs, said the government is too involved in housing. Parsons spoke at a Financial Services Roundtable forum earlier this month focused on GSE reform. The senior advisor admitted to having clients with skin in the game, but said he advises “non-litigating GSE shareholders.” He acknowledged that Fannie Mae and Freddie Mac have a “social good” component to them, but Parsons said many of the policies were flawed. Parsons said most of the GSE reform plans to date have been written by advocacy or special interest groups and have introduced concepts that often require...
The U.S. Mortgage Insurers weighed in on how four think tank and trade group GSE reform proposals align with the group’s reform principles. Mortgage insurers have said that protecting taxpayers, promoting stability, ensuring accessibility and fostering transparency are important components of a successful reform plan. The Milken Institute plan recommends that Fannie Mae and Freddie Mac be taken out of conservatorship and their charters amended to turn them into mutual entities owned and operated by seller-servicers, with Ginnie acting as a stand-alone government corporation. The USMI said the proposal works to protect taxpayers by requiring more private capital and promotes stability by utilizing Ginnie’s existing infrastructure and systems.
Federal Reserve Vice Chair Stanley Fischer said that government involvement in securitization weakened the link between the mortgage loan and the lender. He also warned that another global housing crisis could be looming. During a speech at the FNB-Riksbank Macroprudential Conference in Amsterdam, he acknowledged that Fannie Mae and Freddie Mac MBS helped to expand mortgage credit availability, but added that the rapid rise in credit access coupled with rising house prices can threaten the financial system’s resilience. “One particularly problematic policy is government guarantees of mortgage-related assets,” said Fischer. He mentioned the period leading up to the financial crisis when investors viewed agency MBS as having an implicit government guarantee, “despite the GSEs’ representations to the contrary.”
Congress has GSE reform on the radar and even before this week’s hearing on GSE reform, Sen. Mark Warner, D-VA, said he was optimistic that housing finance reform might happen sooner than many expect. Warner, who co-authored a reform bill four years ago, recently said, “This may surprise some folks, but I think the stars may align where you could actually see housing-finance reform happen in front of some of the Dodd-Frank reform.” The Virginia senator made the comments at a Mortgage Bankers Association conference in Washington, DC, on June 20. He said there appears to be bipartisan consensus on housing finance reform.
To date, the focus of housing-finance reform has been on Fannie Mae and Freddie Mac, but they aren’t the only government-sponsored enterprises in the current system. The Federal Home Loan Banks wobbled through the crisis without needing a bailout and have been profitable ever since. There’s increasing chatter in Washington circles that the FHLBanks should be addressed in reform too. One key question is the matter of consolidation. There are 11 FHLBanks, each operating with its own management team, highly paid directors and staffs that could be combined. According to former Chicago FHLBank President Alex Pollock, “Discussions of merging the FHLBs are...
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