Nearly a decade after the federal government took control of Fannie Mae and Freddie Mac through conservatorship, little progress has been made in finalizing housing finance policy that can take the secondary mortgage market beyond the status quo.
Leaders on the House Financial Services Subcommittee on Housing and Insurance took steps to change that last week with a hearing titled “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform.”
Industry leaders, including the National Association of REALTORS® (NAR), testified at the event. Kevin Brown, chair of NAR’s Conventional Financing Committee, told members of Congress during his testimony that REALTORS® have two key objectives in the housing finance reform discussion.
“First, REALTORS® want to ensure that in all markets affordable mortgage capital will always remain available for creditworthy Americans,” Brown said. “Second, REALTORS® believe that taxpayer dollars should be protected.”
Fannie Mae and Freddie Mac, both considered “government-sponsored enterprises” (GSEs), are responsible for providing liquidity to lending institutions through a secondary mortgage market, where loans are securitized and sold to investors. This activity affords banks and other lending institutions the liquidity to continue making loans, while incentivizing them to make mortgage products like the 30-year fixed-rate mortgage available to middle-class consumers.
NAR has argued that it is time to move Fannie Mae and Freddie Mac out of conservatorship, which Brown told members of Congress is unsustainable in its current form. Instead, Brown offered a clear vision for a “government-chartered, non-shareholder-owned” system that puts its service to homeowners and taxpayers ahead of profits.
“NAR believes this structure, with clearly defined roles and enhanced safeguards, is the best model for the new authorities, because it establishes a separate legal identity from the federal government while serving a public purpose,” Brown said. “Unlike a federal agency, government-chartered organizations are established to be politically independent and often are self-sustaining—not requiring appropriations from Congress. The ability of the authorities to focus on their mission without the need to chase risky profit-driven opportunities is an important criterion for REALTORS®.”
As part of the reformed system, Brown outlined some important criteria for success, including:
- An explicit government guarantee of the new authorities;
- Putting profits towards capital reserves to alleviate losses that occur during market fluctuations and economic downturns; and
- Converting Fannie Mae and Freddie Mac into the new authorities to utilize existing infrastructure and capabilities and minimize market disruption.
The government-chartered authorities are preferable to nationalized or fully privatized systems, Brown said, because they could respond to market downturns effectively, while also minimizing taxpayer exposure to losses. Brown also suggested that the new authorities should utilize a regulated, retained portfolio, which could be tapped during a downturn or to test innovative mortgage products.
In the past, NAR contributed to the conversation on how a new housing finance system works in part through a series of principles on housing finance reform. As talk of housing finance reform heats again on Capitol Hill, Brown made it clear that achieving success is more important than ever.
“The stakes have never been higher for the housing market and the broader economy,” Brown said. “Yet, there are sizeable challenges and risks associated with the ongoing conservatorships of the enterprises. Comprehensive housing finance reform enacted by Congress will help address many of these issues.”
For more information, please visit www.nar.realtor.
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