On March 27, the White House released a Memorandum on Federal Housing Finance Reform, which directs the Secretary of the Treasury to develop a plan to end the conservatorships of Fannie Mae and Freddie Mac (GSEs). Specifically, the memo states that the U.S. housing finance system is “in urgent need of reform,” as taxpayers are “potentially exposed to future bailouts” and programs at HUD have outdated operations and are “potentially overexposed to risk.” The President directs the Treasury and HUD to create specific plans addressing a number of reforms “as soon as practical.” Among other things, the directives include:
- Treasury to reform GSEs. With the ultimate goal of ending the conservatorships, the memo directs Treasury to develop proposals to, among other things, (i) preserve access to 30 year fix-rate mortgages for qualified homebuyers; (ii) establish appropriate capital and liquidity requirements for the GSEs; (iii) increase private sector participation in the mortgage market; (iv) evaluate the “QM Patch” with the HUD Secretary and CFPB Director; and (v) set conditions necessary to end conservatorships.
- HUD to reform programs. In addition to outlining specific objectives, the memo directs HUD to achieve three goals: (i) ensure that the FHA and the Government National Mortgage Association (GNMA) assume the primary responsibility for providing housing finance support for low income or underserved families; (ii) improve risk management, program, and product design to reduce taxpayer exposure; and (iii) modernize the operations of the FHA and GNMA.
Similarly, on March 26 and 27, the Senate Banking Committee held a two-part hearing (here and here) on housing finance reform. The hearing reviewed the legislative plan released by Chairman Mike Crapo (R-ID) in February. As previously covered by InfoBytes, the plan would, among other things, end the GSEs conservatorships, make the GSEs private guarantors, and allow other nonbank private guarantors to enter the market. Additionally, the plan would (i) restructure FHFA as a bipartisan board of directors, which would charter, regulate, and supervise all private guarantors; (ii) place a percentage cap on all outstanding mortgages for guarantors; and (iii) replace current housing goals and duty-to-serve requirements with a fund intended to address housing needs of underserved communities. In his opening statement at the hearing, Crapo said that, “approximately 70 percent of all mortgages originated in this country are in some way touched by the federal government” and “the status quo is not a viable option” for the housing finance market. Ranking Member Sherrod Brown (D-Ohio) emphasized that “any changes we consider must strengthen, not weaken, our ability to address the housing challenges facing our nation and make the housing market work better for families.”
Over the two days, the Senators and witnesses discussed the positive objectives of Crapo’s plan while recognizing hurdles that exist in implementing housing finance reform. While many Senators and witnesses expressed support for a requirement that private guarantors serve a national market, others suggested that regionalized or specialized guarantors could have advantages, including reaching underserved markets. Many Democrats stressed the importance of keeping a catastrophic government guarantee in place, while Republicans emphasized the need for legislative reforms to be implemented as soon as possible. With respect to equal access for small lenders, Senators discussed the concern over credit unions being able to sell loans in a multiple guarantor market.