The head of the nation’s most prominent mortgage banking trade group is warning that proposals to rebuild the capital reserves of the government-sponsored enterprises (GSEs) and then terminating their federal conservatorship would result in unprecedented damage to the housing finance market.
In an op-ed column published by The Hill, David H. Stevens, president and CEO of the Mortgage Bankers Association (MBA) harshly criticized the so-called “recap and release” strategy being promoted by several prominent hedge funds, warning that it could create more problems than solutions.
“Unfortunately, recapitalizing the GSEs without first reforming the secondary mortgage market would threaten the very housing finance system that a lot of us have spent so much time trying to rebuild on a safe and sustainable foundation,” Stevens wrote. “Perhaps more importantly, were [Federal Housing Finance Agency] Director Mel Watt to act unilaterally, the political backlash from Capitol Hill could put housing at even greater risk.”
Stevens noted comments made by Freddie Mac CEO Don Layton that that the GSEs were not operating under the risk of undercapitalization risk, adding that recap and release proponents failed to acknowledge this situation.
“Instead, the outcry for recap and release threatens to create the very crisis it purports to avoid,” he continued. “The limited amount of capital the GSEs could build by retaining earnings would not be nearly enough to protect them in an economic downturn. By crying wolf, however, on the potential for a GSE failure, these groups are simply fueling fear in the key stakeholders they are trying to persuade to join their lobbying effort.”
Stevens also refuted an argument that recap and release would strengthen federal efforts expand affordable housing options.
“We share the concerns of the affordable housing community about the lack of funding for key investments in single and multi-family housing that is accessible for low- and moderate- income families,” he stated. “Stakeholders who care about a long- term, viable housing finance system that provides affordable access to credit for all qualified borrowers, need to be working together on solutions that provide for the continuous flow of capital to the U.S. housing system. The hedge funds promoting recap and release have initiated a cynical, expensive PR and lobbying campaign to divide and conquer us, trying to peel off certain vulnerable groups with distorted rhetoric and pie in the sky promises.”
