WASHINGTON–Analysts are applauding the Treasury Department for finally releasing a plan for reforming the housing finance system, but say many details remain to be proposed and it’s unlikely Congress will move on the issue anytime soon.
As CUToday.info reported here, the Trump Administration has released its plans for reforming the housing finance system, including a proposal to overhaul Fannie Mae and Freddie Mac, which have been operating under federal conservatorship for more than a decade.
The administration called addressing the issue “the last unfinished business of the financial crisis.”
The 53-page Treasury Housing Reform Plan seeks to end those conservatorships, and while Treasury said it prefers Congress act on legislation, it “ should need not wait on Congress” and instead will seek to recapitalize the government-sponsored enterprises (GSEs).
With time to digest the announcement, others have also been weighing in with their analyses, including:
Alex Pollock, R Street Institute Finance Senior Fellow and former CEO of the Federal Home Loan Bank of Chicago
“The important parts of the Treasury's new paper on Fannie and Freddie reform are not the legislative recommendations, since legislation is not going to happen. They are the administrative steps that can actually be taken now, with political will.”
The steps that can be taken now, said Pollock, include:
- Increased capital requirements for Fannie and Freddie, under which the same risks, whether taken by private institutions or by Fannie and Freddie, have the same capital protection
- Removing regulations which especially favor Fannie and Freddie over other competitors
- An ongoing fee from Fannie and Freddie to the Treasury to pay for the taxpayer credit support without which Fannie and Freddie could not exist
- Rewarding the taxpayers for their bailout of Fannie and Freddie by having Treasury exercise its warrants for 79.9% of Fannie and Freddie's common stock. Since the exercise price is one-thousandth of a cent per share, this will be a nice and well-deserved profit for the taxpayers
Robert Broeksmit, CEO of the Mortgage Bankers Association
“The reports recognize the need to better coordinate the roles of FHA and the GSEs. Such coordination must preserve affordable financing options for a wide range of borrowers and reflect the vital role FHA plays in the larger housing finance system. MBA looks forward to working with the Administration, Congress, and regulators as they address the large number of issues identified in the reports, including the appropriate role the GSEs play in the single-family and multifamily markets. Housing is a critical piece of the American economy, and reform efforts must ensure the uninterrupted flow of affordable mortgage credit for qualified borrowers through all economic cycles and in all parts of the country.”
Diane Tomb, CEO, American Land Title Association
“We are encouraged to see that the plan acknowledges the need to have sound underwriting standards to prevent any future taxpayer bailout and minimize risks to financial stability.”
Eric Kaplan, Milken Institute Housing Finance Program Director
“Housing finance stakeholders have spent the last decade deeply engaged in preparation for this moment. The ramifications of these plans, their agendas, and execution—and the pivotal question of how Congress responds—will dramatically impact how we finance homeownership for the next generation. The significance cannot be overstated.”
Yehudah Forster, Senior VP, Moody’s
“The Treasury proposals to level the playing field between the GSEs and private-label securitization would likely create a larger, more diverse PLS market. Existing and new PLS sponsors would step in to finance at least a portion of mortgages that the GSEs no longer compete as strongly for or stop targeting, such as cash-out refinancings or investor loans. The influx would likely introduce riskier pools or shelves into the issuance mix.”
Christopher Wolfe, Managing Director, Fitch Ratings
“Fitch believes the volume and breadth of administrative recommendations included in the GSE reform plan, coupled with the resources and interagency coordination required, shows that Treasury is still playing the long game on GSE reform. This means that Fitch’s credit ratings on Fannie Mae and Freddie Mac are unlikely to be affected in the near to mid-term. The plan involves a mix of administrative and legislative reforms, and given the current political environment, we do not expect to see action on the legislative front. Since the Treasury’s plan preserves a role, albeit reduced, for the federal government to support housing, Fitch still expects Fannie and Freddie to be tied to US sovereign ratings.”