In June, Sandra Thompson became the acting head of the Federal Housing Finance Agency (FHFA) after a Supreme Court ruling that allowed President Biden to replace the previous director. This appointment will likely have significant impact on FHFA, which oversees Fannie and Freddie. And since 50% – 60% of home sales depend on these government-sponsored enterprises (GSEs) for funding, FHFA is critically important to REALTORS® and their businesses.
Fannie Mae and Freddie Mac are federally backed home mortgage companies, created by Congress to free up financial institutions’ balance sheets. Neither company originates or services mortgages. Instead, they buy loans from lenders, package them as mortgage-backed securities, and sell them to investors globally with a guarantee—resulting in a unique system without which millions of people would be locked out of homeownership. Together, these companies provide a liquid, stable and affordable housing market, even during a crisis, as happened in 2008 and 2020.
The Great Recession
Before the financial crisis of 2008, the GSEs got into trouble by buying an outsized number of private-label mortgage-backed securities (PLS) that were loaded with risky subprime mortgages. When the housing market slowed, these toxic loans sent default rates soaring and nearly destroyed the market. The government stepped in, bailed out Fannie and Freddie, and took controlling ownership. In response to the crisis, Congress created FHFA in 2008 to regulate the GSEs and operate them under conservatorship, a system that remains today.
The Pandemic
COVID-19 put Fannie and Freddie to an unprecedented test, and overall, they performed as designed. During this crisis, they provided the rescue for many mortgagees by taking immediate actions like issuing a foreclosure moratorium and offering forbearance before Congress required it. The GSEs leaned in when much of the private market left, causing their marketshare to surge from about 40% to well over half the market, valued at over $10 trillion. Rates fell to pre-crisis levels, home sales rebounded, and housing became and remains a bright spot in the economy.
Looking Ahead
As a Biden appointee, Thompson will likely focus on eliminating economic inequities. Thompson has expressed a commitment to ensuring the housing finance system operates “in a safe and sound manner,” but said she’s concerned about “widespread lack of affordable housing and access to credit, especially in communities of color.” She views FHFA’s duty as ensuring that “all Americans have equal access to safe, decent and affordable housing.”
On top of that, Thompson is likely to revisit recent changes made by her predecessor in anticipation of ending the conservatorship established in 2008. Those changes make the GSEs riskier and less apt to support their charter duties. For now, Thompson will likely shift the focus away from ending the conservatorship.
These goals align tightly with the National Association of REALTORS®’ (NAR) agenda. We believe that transitioning the GSEs to a utility model provides the most efficient and viable approach. Under NAR’s proposal, the GSEs would be re-chartered as privately held utilities, with Fannie and Freddie’s products, rates and operations remaining under government oversight to ensure compliance with their mission. This public-private collaboration is the most promising model to uphold three imperatives for the market and consumers under all economic conditions: maximizing credit access, minimizing taxpayer risk and keeping costs down.
During the pandemic, Fannie and Freddie have played a pivotal role in helping the market survive and thrive. Moving forward, they will remain central to the housing market and overall economy, and NAR will continue to serve in a key advisory role, offering expertise and immediate “boots-on-the-ground” feedback as we work in close partnership with senior government officials, academicians and economic leaders on these vital issues.
Rest assured that NAR is fighting every day on your behalf to preserve competition, maintain liquidity, support underserved markets and protect the 30-year fixed-rate mortgage for your clients.
Learn more and find out how to get involved at NAR.realtor/GSEvision.
Ken Fears is a senior policy representative, Banks, Lending & Housing Finance, for the National Association of REALTORS®.
