Obama Administration floats reform options for Fannie, Freddie
In a long-awaited report on the future of the two companies — key cogs in the nation’s housing-finance system — the Treasury Department on Feb. 11 included both short-term moves as well as three longer-term reform options, which would require enactment of legislation passed by Congress.
- One long-term approach, backed by some GOP lawmakers, would create a virtually privatized system significantly reducing the government’s role in the mortgage market by only allowing the Federal Housing Administration to guarantee a small group of mortgages for low- and moderate-income borrowers who meet creditworthiness criteria.
- The second long-term approach is more controversial: create a similar targeted guarantee program but also set up a catastrophic-risk insurance fund that would seek to make sure lenders have access to credit in the event of massive liquidity crises.
- The third would set up a similar guarantee approach, but the government would also offer reinsurance for securities of a targeted range of mortgages.
These long-term solutions would require major legislative changes — something that is likely to take years to realize — as lawmakers contemplate their impact on a housing market that, in the short run, is expected to yield another record year of foreclosures.
NAR’s position is that continued government participation in the secondary mortgage market at some meaningful level is essential to ensure the flow of affordable and available home mortgages to qualified consumers when private lenders withdraw from the market – as happened during the financial crisis. The current government-sponsored enterprises (GSEs) should be replaced with government chartered, non-shareholder owned entities that are subject to sufficient regulations on product, revenue and usage, and sound fiscal practices in a way that ensures they can accomplish their mission and protect the taxpayer. Go here to see NAR’s recommendations for restructuring the GSEs.
On Monday, Feb. 14, the federal budget will be released. NAR will be monitoring this very closely for references to GSEs, the mortgage interest deduction, tax matters and other real estate concerns.
The debate around GSE reform is just getting started and will continue throughout this year and into next, NAR lobbyists expect. Any of the proposals on GSE reform would require federal legislation to implement. The federal budget debate, which is kicked off by the release of the President’s budget on Monday, Feb. 14, is also expected to last through much of this year and any budget proposals must be approved by Congress.
Here are several key points for REALTORS® to know:
- NAR is actively engaged on behalf of REALTORS® and the nation’s home owners to protect the flow of affordable mortgages to home buyers.
- The REALTOR® mission is to ensure a strong, efficient financing environment for homeownership and rental housing, including access to mortgage financing for segments of the population that have demonstrated ability to sustain homeownership.
- Middle class consumers need a steady, affordable flow of mortgage funding that only government backing can provide.
- We cannot have a restoration of the old GSEs with private profits and a taxpayer loss system. The current GSEs should be replaced with government chartered, non-shareholder owned entities that are subject to sufficient regulations on their products, revenues and usage, and sound business practices that ensure they can accomplish their mission and protect the taxpayer during market downturns.
- The government must clearly, and explicitly, guarantee the loans issued by the new entities.
- Without government backing, consumers will pay much higher mortgage rates and mortgages may at times not be readily available at all (as happened in jumbo and commercial real estate loans).
- An efficient and adequately regulated secondary market is essential to providing affordable mortgages to consumers. An inadequate secondary market would impede both recovery in housing and the overall economic recovery.