During a recent National Housing Conference Annual Policy Symposium in Washington, D.C., Treasury Undersecretary Mary Miller discussed the uncertain future of the government-sponsored entities (GSEs). She also covered the basics of the post-economic disaster and its meager, slow-moving recovery.
“The uncertain future of the GSEs contributed to lenders’ reluctance to serve all credit-worthy borrowers, and this has effectively shut many Americans out of the purchase market,” said Miller in her remarks. “The crisis also made it significantly harder to find affordable rental units as the demand for rentals has increased, while at the same time new affordable multifamily rental properties have become more difficult to finance.”
Throughout her remarks, Miller highlighted the difficulties of potential recapitalization. One of the major points of contention, as Miller referenced, is that the process would take 20 years of adequate funding, which would also leave taxpayers on the hook.
"Critics of reform would suggest that we can simply recapitalize the GSEs and avoid difficult decisions around creating a new system," Miller said. "Even if truly rehabilitating the GSEs were possible, recapitalizing them adequately would take at least 20 years."
Miller also referenced the drop in home prices in the years immediately following the financial collapse. The disparity led to many individuals defaulting, leading to multiple foreclosures across the nation. Many parts of the country are still suffering from waves of defaults on their mortgages, as well as a number of blighted neighborhoods riddled with foreclosures and real estate-owned (REO) properties.
"The GSEs will not be able to replicate the levels of revenue they achieved over the past two years," Miller said.
As recent as last month, the Web site VOX published a street-level look at Fannie and Freddie and the potential hedge fund money that could be generated by allowing the GSEs to go into recapitalization. The basic argument was that the hedge fund(s) in question would assume the responsibility for the money that is being used to stimulate the GSEs, with no risk to the U.S. Department of the Treasury. At the same time, the Treasury would no longer retain any potential positive equity from the GSEs themselves.
Miller also put an emphasis on a renewed effort to ensure financing be available for affordable rental housing and repeated the call of the administration to allow Ginnie Mae to securitize loans made under an FHA program.
“Our ongoing efforts within the Administration, and those of FHFA, are critical to continuing the recovery of the housing market and access for borrowers and renters. However, these measures do not eliminate the need for comprehensive housing finance reform,” said Miller. “Everything we are doing administratively is directed towards ensuring better outcomes for renters and homeowners, but these efforts attack only the symptoms of an unhealthy housing finance system.”
The Johnson-Crapo Bill also popped up in Miller’s testimony. One of the primary tenets of the Bill is the formation of the Federal Mortgage Insurance Corporation (FMIC), a new government entity that will serve a number of purposes. Six moths after enactment of the Johnson-Crapo Bill, the FMIC will become the new federal regulator of the mortgage industry, monitoring the safety and soundness of various financial institutions. In turn, the Federal Housing Finance Agency (FHFA) would become an independent agency within the FMIC.
“The Johnson-Crapo Bill offers important measures to help make sure that the new housing finance system is fairer and more open than the one we have today. The Bill includes a market-based incentive fee assessed on all guaranteed securities to support affordable housing by funding new and existing housing programs and making it economical for market participants to pursue underserved borrowers. The Bill also requires that multifamily guarantors ensure that 60 percent of the rental units they finance are affordable to low-income families at origination,” Miller said in her testimony. “An often overlooked element of the Bill extends the benefit of a government guarantee to a host of loan originators who have not been part of the GSE-centric system. If this Bill were to become law, state HFAs and community development financial institutions, among others, would be able to originate eligible mortgages thereby granting them access to the secondary market. This, in and of itself, would make it significantly easier for mission-oriented entities to provide affordable mortgages to historically underserved borrowers.”
Robert Ottone is executive editor with National Mortgage Professional Magazine. He may be reached by phone at (516) 409-5555, ext. 314 or by e-mail at
[email protected].
