Nine years ago this week, in the midst of the financial meltdown, regulators were forced to put Fannie Mae and Freddie Mac (the GSEs) in government conservatorship, or face the very real probability that two pillars of the housing finance system would fail. Government control of these entities was supposed to be a temporary, stop-gap solution. It was never intended to last nearly a decade. Yet here we are.
In the subsequent years, as the housing market and the national economy began to recover, the Federal Housing Finance Agency (FHFA), acting in its role as conservator, made a number of positive, administrative reforms to the GSEs: leveling guarantee fees; preventing special deals for individual lenders; creating the CSP; and working to create the single security, supporting liquidity and competition in the multifamily market, to name a few.
These changes have been good for consumers, lenders and the market. But where regulators give, regulators can take away. A change in FHFA’s leadership, for example, could put this progress at risk. And with the FHFA Director’s five year term up next year, there is a very real risk that the next Director could have a very different view on how the GSEs should operate in support of the housing system. That is why Congress needs to act. Congress originally chartered the GSEs and they alone have the responsibility and authority to act.
Earlier this year, MBA released afor comprehensive GSE reform. Our proposal ensures equal access to the secondary mortgage market for all lenders, regardless of size or business model. It also replaces the implicit government guarantee of Fannie Mae and Freddie Mac with an explicit, paid for guarantee for the mortgage-backed securities, not the GSEs themselves. And, in our plan, private capital would assume more risk, which would lessen the exposure of taxpayers during any economic headwinds.
MBA’s approach also recognizes the critical importance of affordable housing to America’s families. Specifically, we believe a future secondary mortgage market must serve three missions: provide responsible, sustainable access to credit for prospective homeowners; provide liquidity for the development and preservation of affordable rental housing; and improve liquidity for underserved segments of the market.
To fulfill these missions, a dynamic, market-based approach is needed. This approach should combine quantitative and qualitative housing goals, and be complemented by an affordable-housing fee on new business purchases by the guarantors to help support efforts along the continuum. The key lies not in the mere sum of the parts, but in the way these various tools reinforce each other as part of an integrated affordable housing strategy. Only MBA’s plan is comprehensive enough to achieve these goals.
After nine years of this untenable status quo, GSE reform is of the utmost priority. Congress has an obligation now to act to stabilize the housing finance system for the future and make it more resilient in economic downturns. Moving forward, it’s important that the entire industry remain fully engaged and to support Congress as it considers its legislative options to resolve this stalemate called conservatorship.