FEATURED ARTICLE: GSE REFORM: HOUSING FINANCE SAVIOR OR LOOMING DISASTER?
market today is in a significantly better state than it was before the fi- nancial crisis, NAR continues to urge policymakers to address challenges that could arise in future economic downturns,” said NAR Senior 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 pri- vatizing the secondary market could result in a 1 percent mortgage rate jump. NAR, in its proposal, states, “under a fully private structure, results would likely to be far worse, with no guarantee that the mortgage market would continue to function, recalling the collapse of the sub- prime 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 accessibility of home ownership to average people. A secondary market dominated by private players would probably make it harder for average people to get a
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.”
SHANNON MCGAHN
Some very large institutional investors are salivating at the chance to buy newly issued Fannie Mae/Freddie Mac common, should the Treasury Department decide to exercise its option and sell its 79.9 percent stake in the two (very profitable) mortgage giants to the public. Who are these institutional investors? Just go down the list of the nation’s largest institutional investors that like triple-A credits…” INSIDE MORTGAGE FINANCE profitable) mortgage giants to the public. Who are these institutional investors? Just go down the list of the nation’s largest institutional investors that like triple-A credits…” Sixth, until 2021 the GSEs are not covered by the general require- ment from the Consumer Financial Protection Bureau (CFPB) to offer
loan. This could exert upward pres- sure on rates and limit who could qualify for a loan. Again, remember the banks pulled back from securi- tizing 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 mortgage market.” Fourth, the secondary market is designed both to reduce investor risk and assure the lowest possi- ble mortgage rates. A new system must continue such goals. Federal regulation and oversight will be required, as will preservation of the 30-year mortgage – or at least 30- year payment schedules. Fifth, the disposition of federal financial interests must be settled. Is it entitled to further GSE profits? Can the federal government sell its war- rants in the open market, perhaps collecting several hundred billion dollars? Or, will it decide to defer any GSE changes and simply collect massive dividends each quarter? “Some very large institutional investors,” Inside Mortgage Finance reported in February, “are salivating at the chance to buy newly-issued Fannie Mae/Freddie Mac common, should the Treasury Department decide to exercise its option and sell its 79.9 percent stake in the two (very
can be accomplished while still respecting the rights of the share- holders Investors Unite represents. Winston Churchill once said, “you can count on Americans to do the right thing after they have tried ev- erything else.” After ten years it is time to do the right thing: respect shareholder rights and strengthen home ownership and the mortgage market that supports it for genera- tions to come.” 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 a Washington-based journalist.
ensure that the guarantors could continue operating and, crucially, to maintain confidence in the mort- gage debt markets.” The Crapo proposal would have Ginnie Mae “provide a catastrophic government guarantee at the security level to cover tail-end risk, backed by the full faith and credit of the United States.” In either case, government guarantees will remain. “A stable mortgage market is in everyone’s best interests,” Pagli- ara, with Investors Unite, told the Housing News Report. “GSE reform does not have to reinvent the wheel. Modernization, improving the secondary mortgage market, and more clearly defining the role of government in home finance
qualified mortgages with a debt-to- income (DTI) ratio of 43 percent or less. This exemption is known as the CFPB patch. According to the American Bank- er, “unless the patch is extended or the CFPB eases underwriting requirements for all loans, nearly a third of loans backed by the GSEs could face new legal liability. Other government-backed loans such as those insured by the Federal Hous- ing Administration have a similar exemption.” Seventh, the federal government — whether desired or not — must continue as the mortgage guaran- tor of last resort. As the NAR pro- posal explains, “the U.S. Treasury backstop would provide liquidity to
14 think realty housing news report
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