GSE Tag Archives

Treasury, HUD Release Housing Finance Reform Plan

Last week the Department of the Treasury and HUD sent their Housing Finance Reform Plans to President Trump following his March Memorandum, which ordered the reports. The Senate Committee on Banking, Housing and Urban Affairs held a hearing on Housing Finance Reform: Next Steps with HUD Secretary Ben Carson, Treasury Secretary Steven Mnuchin and FHFA Director Mark Calabria as witnesses.

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Harvard JCHS Paper on GSE Reform

The Joint Center for Housing Studies (JCHS) of Harvard University released a new paper GSE Reform: None or Mostly Done? Author Don Layton argue that while Congress has yet to pass comprehensive reform of the government-sponsored enterprises (GSEs), almost all of the major flaws of the pre-conservatorship GSEs have been successfully addressed while the companies have been in conservatorship.

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House Financial Services Committee Schedules GSE Reform Hearing on Sept. 27

The Committee on Financial Services will hold a hearing entitled “Oversight of the Federal Housing Finance Agency’s role as conservator and regulator of the Government Sponsored Enterprises” on Thursday, September 27, 2018, at 10:30 a.m. in room 2128 of the Rayburn House Office Building. This will be a two-panel hearing with the following witnesses:

Panel One:

  • The Honorable Laura Wertheimer, Inspector General, Federal Housing Finance Agency

Panel Two:

  • The Honorable Melvin Watt, Director, Federal Housing Finance Agency
  • Mr. Timothy Mayopoulos, CEO, Federal National Mortgage Corporation (Fannie Mae)
  • Mr. Donald Layton, CEO, Federal Home Loan Mortgage Corporation (Freddie Mac)

The Housing and Economic Recovery Act (“HERA”) of 2008 created the Federal Finance Housing Agency (“FHFA”). FHFA is an independent agency charged with the supervision, regulation, and oversight of Fannie Mae, Freddie Mac and the Federal Home Loan Bank System, which includes the 11 Federal Home Loan Banks. On September 7, 2008, then-FHFA Director, James Lockhart, used the statutory authority provided by HERA to place both Fannie Mae and Freddie Mac into conservatorship.

This hearing will examine the FHFA’s performance as the regulator and conservator of the Government Sponsored Enterprises, which include Fannie Mae, Freddie Mac and the Federal Home Loan Banks. Specifically, the Committee will examine FHFA’s policies and procedures used to supervise Fannie Mae and Freddie Mac, the FHFA’s structure, and the need to reform the housing finance system in the United States.

House Members Introduce Bipartisan GSE Reform Measure

On September 6, the tenth anniversary of the federal government’s takeover of Fannie Mae and Freddie Mac, retiring House Financial Services Committee chair Jim Hensarling (R-TX) released a discussion draft for the Bipartisan Housing Finance Reform Act. The measure is co-sponsored by Reps. John Delaney (D-MD) and Jim Himes (D-NY) and would eliminate Fannie Mae and Freddie Mac, moving most of their functions into Ginnie Mae.  Billed as a “grand bargain” the measure would codify an explicit government Mortgage Backed Securities (MBS) guarantee into law, coupled with an affordability program in exchange for placing the taxpayer in a catastrophic loss position only diffusing the credit risk beyond two GSEs, and creating market competition.

While, in Hensarling’s estimation, comprehensive market-based reform which he prefers is not currently achievable, the new bill, proposes using a relationship between the private sector and Ginnie Mae in place of the current GSEs to guarantee qualified privately insured mortgage-backed securities. According to the press announcement, the new process would “allow qualified mortgages backed by an approved private credit enhancer with regulated, diversified capital resources to access the explicit, full government securitization guarantee provided by Ginnie Mae.”

Loan originators would have to acquire coverage from an approved “credit enhancer,” or private mortgage credit guarantor, to use the Ginnie Mae system. That would function as a private capital buffer on the loan, which could then be securitized by any of Ginnie Mae’s more than 400 approved issuers with an explicit, full government guarantee of mortgage-backed securities.

Hensarling warned that if the political will to enact reform stalls, the Trump Administration, which plans to announce a new Federal Finance Housing Agency director in January, can institute the reforms administratively.  “And I call on them to do so,” Hensarling concludes.

Given the short amount of time left in the current legislative session, it is unlikely that the measure will be enacted before 115th session of Congress concludes this winter.  However, additional hearings and debate is possible and the measure could serve as a starting point for GSE reform in the 116th Congress.  Click here for a section by section summary of the legislation.