The Federal Housing Finance Agency (FHFA) has quietly offered its view of a future U.S. housing policy that envisions the government-sponsored enterprises (GSEs) as shareholder-owned utilities with regulated rates of return.
Bloomberg obtained the proposal, entitled “Federal Housing Finance Agency Perspectives on Housing Finance Reform,” that FHFA Director Mel Watt sent to Sens. Michael Crapo (R-ID) and Sherrod Brown (D-OH), the chairman and ranking member of the Senate Banking Committee; the proposal is not posted on the FHFA website. With the proposal, Watt wrote that the FHFA seeks “to provide our views independently and transparently to those who have requested them while continuing to provide technical assistance to the committee and its members on other proposals that may be introduced.”
Watt described the GSEs as “secondary market entities” that functioned like utilities. He voiced opposition to having too many mortgage guarantors, claiming that “could increase the potential for a race to the bottom” in loan standards. He added that mortgage-backed securities issued by the guarantors should have an explicit, paid-for guarantee by the federal government, and that these entities should be allowed to fail and not be bailed out.
News of Watt’s proposal was greeted positively by the leading financial trade groups.
“There are many similarities between this proposal and MBA’s own plan including the need for a government guarantee behind MBS to support single-family and multifamily finance, two or more competing guarantors, the use of a single security in the single-family market, and a level playing field for lenders of all sizes and business models,” said David H. Stevens, President and Chief Executive Officer of the Mortgage Bankers Association (MBA). “We look forward to continuing to work with Congressional leaders, the Administration, Director Watt, and other stakeholders to create a secondary mortgage market that provides a more stable system and broad, sustainable access to credit for all qualified borrowers.”
“The FHFA’s proposals to preserve the important role of Fannie Mae and Freddie Mac in the secondary mortgage market would help ensure continued access to the market for community bank lenders and the customers they serve,” said Independent Community Bankers of America President and CEO Camden R. Fine. “This plan provides a solid foundation and a clear roadmap of realistic reforms that can be implemented without disrupting the liquidity of the secondary market as Congress works to reform the government-sponsored enterprises.”
