The Committee on Banking, Housing, and Urban Development took some of the first steps in ensuring that reforming Fannie Mae and Freddie Mac will finally happen after nearly nine years in conservatorship.
Up until this point, leaders in the Trump administration stressed that reforming the government-sponsored enterprises is high on the list of things it wishes to tackle. This includes Treasury Secretary Steve Mnuchin, who has publicly stated that GSE reform is a priority of this administration.
In the hearing, “Principles of Housing Finance Reform,” on Thursday, the committee brought together David Stevens, president and CEO of the Mortgage Bankers Association, Edward DeMarco, president of the Housing Policy Council of the Financial Services Roundtable and Michael Calhoun, president of the Center for Responsible Lending, as witnesses to gain their unique perspectives on what reform should look like.
Chairman of the Committee on Banking, Housing and Urban Affairs, Sen. Mike Crapo, R-Idaho, stated in his opening remarks, “Today, the Committee will discuss and receive testimony on important principles of housing finance reform. Reforming the housing finance system is one of my key priorities this Congress. I have repeatedly stated that the status quo is not a viable option.”
Crapo touched on some key points in his opening remarks that the industry heavily emphasizes, including the need to preserve the to-be-announced bond market and the 30-year fixed rate mortgage.
“We need multiple levels of taxpayer protection standing in front of any government guarantee, including down payments, loan-level private insurance, and substantial, robust, loss-absorbing private capital at guarantors comparable to the amount of capital maintained by global systemically important banks,” said Crapo.
He also spotlighted the need to ensure that small lenders have a level playing field when accessing the secondary market, which is a topic small lenders are also publically pushing for. Earlier this week, small-lender and affordable-housing groups worked together to create a joint release of GSE reform principles in order to ensure the safety of their respective members.
“Reform is urgently needed, and the Committee is actively exploring a variety of options,” said Crapo. “There are a number of principles that I believe share bipartisan support that we will explore further today.”
And they have done it before. Crapo added that three years ago, a bipartisan group of Senators passed a housing finance reform bill in this Committee, the Johnson-Crapo Bill, written by Sen. Tim Johnson, D-S.D., and Crapo. However, the bill did not make it through the Senate. But still, three years later, GSE reform still does garner support from both sides of the aisle.
Sen. Elizabeth Warren, D-Mass., wrapped up the hearing as the last senator to question the panelists and echoed a theme a lot of her fellow democrats had, the importance of affordable housing in reform.
She kept her questions short and to the point, asking each of the panelists if it should be a primary goal of housing finance reform to increase access to affordable housing, including the rental market? The panelists responded with unanimous yes.
From here, Warren explained that they GSEs were established to create access to affordable housing. “I am all for ending government conservatorship, but I can’t be for reform if it doesn’t address the affordable housing crisis in the country,” she stated.
Over the years, Warren has made housing reform a key part of her public platforms. Four years ago, Warren reached across the aisle and sponsored the bill titled ‘Jumpstart GSE Reform Act,” The bill also pulled in Republican Sens. Bob Corker, R-Tenn., and David Vitter, R-La., as well as Sen. Mark Warner, D-Va., as sponsors. But similar to most other housing reform initiatives, it never made it out of Senate.
The hearing overall was a testament to how important GSE reform is to the current administration, with panelists and both poltical parties able to conduct a calm and open discussion around housing finance reform.
And while the three panelists don’t have the same views on reform, everyone agreed that reform is needed and welcomed the opportunity to discuss their thoughts on how to go about it.
“Conservatorship of the GSEs has already persisted far longer than was ever intended. And while the Federal Housing Finance Agency has taken important administrative steps during this period, an extended conservatorship is economically and politically unsustainable,” said Stevens in his opening remarks, found here. “In the absence of comprehensive reform, borrowers forego the benefits made possible by a more vibrant secondary market, taxpayers remain exposed to elevated levels of credit risk, development of the private-label securities market remains stagnated, and lenders face increased uncertainty about the future. In short, the status quo is an unacceptable long-term outcome.”
Stevens also highlighted the MBA’s white paper, “GSE Reform: Creating a Sustainable, More Vibrant Secondary Mortgage Market.” The MBA’s “Task Force for a Future Secondary Mortgage Market,” which is made up of some of the top lenders and insurers in the industry, developed the white paper to offer a specific vision of the end-state of the GSEs, as well as transition steps to a post-GSE system.
Meanwhile, Calhoun also addressed the needs of community banks and credit unions, saying in his testimony, "The goal must be to ensure that the full universe of creditworthy borrowers — regardless of where they live, including in rural areas, or who they are — have access to the credit they need to be able to secure a mortgage so that they can build their American dreams."
“The system must also continue to offer equal access for lenders of every size, taking special care to serve community banks and credit unions," he said.
As the final panelist, DeMarco recently joined the Financial Services Roundtable as Housing Policy Council president to address issues such as this one. DeMarco is also the former Federal Housing Finance Agency acting director, serving from 2009 to 2014.
DeMarco concluded in his testimony, “In the nine years since Fannie Mae and Freddie Mac were placed into government conservatorships, the market has evolved substantially away from the failed system of the past.”
“That process cannot be completed absent bipartisan legislation that deals with the status and charters of the GSEs and addresses related issues such as the role and health of FHA. The good news is that there are numerous common elements across the leading reform proposals,” he said. “HPC is supportive of this consensus, which forms a solid foundation for legislation. While differences remain to be worked out, we are encouraged that compromise solutions are within reach.”
