it-making companies. A government loss in court could reduce or end GSE payments to the Treasury at a time when the deficit is soaring.
More than a decade has passed since the federal government assumed control of Fannie Mae and Freddie Mac. While the housing market today is in a significantly better state than it was before the financial crisis, NAR continues to urge policymakers to address challenges that could arise in future economic downturns.”
WHAT HAPPENS NEXT? More than a decade after the con- servancy was established it’s unclear what happens next. At this writing there is the Crapo plan, a just-an- nounced proposal by the National Association of Realtors (NAR), and potentially additional plans by other stakeholders. It has been report- ed that the Administration is also working on a proposal. All plans, regardless of their source, will need to address several basic issues. First, the secondary market must continue. A secondary-market interruption would be catastrophic, stopping sales, lowering values, re- ducing tax collections, and damaging housing markets across the country. USMI believes that transition risk is one of the most difficult compo- nents to get right within any housing finance reform plan,” said Lindsey Johnson, president of the association for private insurance providers. She explained that to USMI reform means a system that works for borrowers, lenders, and other stakeholders as well as enough time and flexibility to ensure a stable transition. She added that “many of the recent legislative proposals seem to under- stand this risk and allow for mea- surable benchmarks to occur before major transitions are made. We believe the plan should be flexible to allow it to move faster or slower de- pending on the benchmarks met and to ensure minimal disruption.” Second, GSE shareholder claims must be resolved otherwise a future court decision could re-open reform efforts. Third, the fate of Fannie Mae and Freddie Mac must be determined. “More than a decade has passed since the federal government as- sumed control of Fannie Mae and
Freddie Mac. While the housing market today is in a significantly better state than it was before the financial crisis, NAR continues to urge policymakers to address challenges that could arise in future economic downturns,” said NAR Se- nior Vice President of Government Affairs Shannon McGahn. Will Fannie Mae and Freddie Mac be woven into Ginnie Mae? Can they be privatized? Will they be replaced with new firms from the private sector? As The New York Times reported in 2015, “from their September 2008 bailout until the present day, these government-sponsored enterpris- es, or GSEs — which guarantee 80 percent of mortgages nationwide — have faced demands from their overseers that were far more dra- conian than anything asked of the big banks also rescued during the financial crisis. “These demands have helped open the door to an attempted Wall Street takeover of the companies’ assets and future profits.” Bigger profits, however, do not necessarily mean lower mortgage rates. William Frey, in his 2011 book, Too Big To Fail, estimated that privatizing the secondary market could result in a 1 percent mortgage rate jump. NAR, in its proposal, states, “under a fully private struc- ture, results would likely to be far worse, with no guarantee that the
mortgage market would continue to function, recalling the collapse of the subprime and Alt-A markets.” “We can’t say for sure,” said Pagliara with Investors Unite, “but if the home loan market was pri- vatized, new players would make decisions on a purely economic basis. Fannie and Freddie serve the broader societal goal of preserving liquidity, stability, and accessibil- ity of home ownership to average people. A secondary market dom- inated by private players would probably make it harder for average people to get a loan. This could exert upward pressure on rates and limit who could qualify for a loan. Again, remember the banks pulled back from securitizing mortgages at the first sign of trouble before the crisis in 2008. This might have been a sound business decision for an individual bank, but it was unsound as a national policy for maintaining stability and liquidity in the mort- gage market.” Fourth, the secondary market is de- signed both to reduce investor risk and assure the lowest possible mortgage rates. A new system must continue such goals. Federal regulation and
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Peter G. Miller is a nationally-syndicated newspaper columnist, the author of seven books published originally by Harper & Row (one with a co-author), and for many years aWashington-based journalist.
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