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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