Reforming Fannie Mae and Freddie Mac has been a hot topic over the last few years. With the current state of our economy and housing market, these two government-sponsored enterprises (GSEs) are doing things much differently than they were in 2005 after the housing meltdown. In fact, Fannie and Freddie are making money again. With that being said, is reform really on the horizon?
On February 7, 2019, over 400 people attended the National Association of Realtors (NAR) Housing Finance Reform Policy Forum in Washington, DC. During the discussions, NAR revealed a new vision for reforming the GSEs. According to NAR President John Samby, “This vision is the result of years of research and collaboration between NAR, our members, our friends in the industry and countless policymakers who have been influential in this arena. Our hope is that this research will help provide Congressional leaders and administration officials with a credible, deliberate framework as they work to secure reforms that will benefit taxpayers, consumers and the American economy. Ultimately, ensuring the GSEs continue providing liquidity and stability in the mortgage market remains NAR’s priority during these discussions.”
According to Realtor Magazine, NAR wants to, “…reform Fannie Mae and Freddie Mac into a federally chartered private utility. The utility would have a mission-oriented board and enhanced regulator, use the two companies’ common securitization platform, and maintain the explicit federal guarantee for catastrophic risks while having private shareholders in the utility take the first-place risk.”
During the forum, both lawmakers and realtors acknowledged that a federal guarantee of financing for 30-year fixed-rate conventional mortgages must be part of any effort to reform or replace Fannie Mae and Freddie Mac. According to Rep. Sean Duffy (R-Wis) at Thursday’s forum, “We all want to keep the 30-year fixed-rate mortgage. We want a government backstop. We’re not getting rid of the federal backstop.”
NAR’s proposed reform keeps “preserving the federal guarantee” a top priority as lawmakers try to figure out what to do about Fannie and Freddie.
What is Fannie Mae and Freddie Mac like today?
According to NAR, today’s Fannie and Freddie have, “… a stronger regulator in the FHFA and are subject to additional Congressional oversight. They are restricted in the products they can purchase, the size of their retained portfolios and their ability to lobby. In addition, they increased and will continue to expand the volume of mortgage credit risk shared with the private sector. These changes have begun to decrease risks tied to the GSEs, injecting private capital and market disciplines to guarantee pricing and mortgage rates for consumers.”
So, what’s next?
President Donald Trump’s Special Assistant for the Office of Public Liaison, Timothy Pataki, said reform of the mortgage system is a priority for the administration, and… “the White House expects to announce a comprehensive reform proposal shortly.”
The NAR will continue to push forward with its plan for reform. According to one of NAR’s reform plan co-authors, Susan Wachter, “GSE reform is the critical, unfinished business of the Great Recession; we believe the shareholder-owned regulated utility we propose will protect taxpayers and ensure the fulfillment of the mission to serve the nation for the future.”
An executive summary and full copy of NAR’s vision on housing finance reform can be found on nar.realtor. Velocity Title will continue to monitor this topic, and report with any updates as they become available.
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