Scotsman Guide > News > January 2019 > News Story

 Enter your e-mail address and password below.

  •  
  •  

Forgot your password? New User? Register Now.

News Archives

 
Subscribe icon Subscribe to our weekly e-newsletter, Top News.

Milken: FHFA should pave way for housing reform


The influential Milken Institute has recommended that the Trump Administration clear a path for the government to end its 10-year control of Fannie Mae and Freddie Mac, but not release control over the government-sponsored enterprises (GSEs) until Congress addresses their “flawed charters.”

The think tank published a blueprint this week that calls on the GSEs' regulator, the Federal Housing Finance Agency (FHFA), to reduce Fannie's and Freddie’s footprint on the mortgage industry in several ways, while preparing the ground for multiple companies to enter the business of purchasing and securitizing loans.

gserefmilkenThe authors say Congress needs to pass legislation that creates a new system, which would include an explicit government guarantee on the securities issued by these entities. They oppose transitioning Fannie and Freddie back to shareholder-controlled companies, absent reforms that end the duopoly.

“Ending the conservatorship without further reforms would preserve flaws that allow the GSEs to privatize profits and socialize losses,” said co-author Eric Kaplan, director of housing finance policy at the Milken Institute Center for Financial Markets.

“We need to end the too-big-to-fail GSE duopoly,” Kaplan said. “Implementing our recommendations would help strengthen the housing finance system and pave the way for bipartisan legislation putting in place the last piece of the housing finance reform puzzle.”

The plan's other authors included Michael Stegman, a former senior policy advisor on housing for the National Economic Council; former Treasury official Phillip Swagel; and former Ginnie Mae President Ted Tozer.

FHFA is under new management this month. Joseph Otting, the Comptroller of the Currency, took over this week as acting director of the FHFA. Vice President Mike Pence’s chief economist, Mark Calabria, has been nominated for a five-year term, but his confirmation process could take several months.

Most analysts expect Calabria, and possibly Otting, to make moves that will shrink the size of the GSEs, which indirectly finance roughly half of the U.S. residential mortgage market and also bankroll a large chunk of the country's apartment market.  

The Milken authors recommended that the FHFA reduce the GSEs' footprint gradually, and do so via product restrictions rather than by reducing their loan limits. FHFA should prevent the GSEs from doing cash-out refinances or financing second-home purchases, and also shrink the GSEs' footprint in the multifamily space, the authors said.

Another key recommendation would suspend the GSEs’ dividends to the U.S. Treasury Department and allow the GSEs to begin building additional capital. Each GSE is allowed to retain $3 billion in capital reserves. The authors also say the FHFA needs to rethink its proposed capital rule for the GSEs, which was released this past summer. Fannie, Freddie and future entities need to hold enough capital to ensure they can withstand downturns without taxpayer bailouts, according to the authors.  

The report also recommends more transparency about how the GSEs price and subsidize loans to higher-risk borrowers.

Mortgage Bankers Association President Bob Broeksmit praised several of the recommendations, including those advocating transparent GSE pricing and data, as well as stronger capital-reserve requirements.

Broeksmit said MBA opposes “any proposal that would unnecessarily limit the ability for borrowers to use the equity in their homes, or finance a second home.” He also said MBA doesn’t favor allowing the GSEs to rebuild their capital reserves prior to Congress reforming the system, as that could hinder efforts to make legislative reforms.   


 

Questions? Contact at (425) 984-6017 or victorw@scotsmanguide.com.

Bubble 0 Comments

By submitting this comment, you agree to comply with our Terms of Use.



The text exceeds the maximum number of characters allowed.


Are you sure you want to permanently delete this blog comment? This action cannot be reversed.



You must enable your community profile to use this feature.

Cancel Enable profile

You have flagged this post for inappropriate content.

Please explain below. Thank you.

Cancel Submit

Get the latest news and articles from Scotsman Guide straight to your inbox.


Send me the following e-mails:





Learn more about Scotsman Guide e-mails

Thank you for signing up to receive e-mails from Scotsman Guide.

A confirmation e-mail has been sent to the address you provided.

For questions regarding your e-mail subscriptions please contact Circulation@ScotsmanGuide.com or call (800) 297-6061.


Fins A Lender Post a Loan
Residential Find a Lender Commercial Find a Lender
Follow Us:Visit Scotsman Guide Facebook pageVisit Scotsman Guide LinkedIn pageVisit Scotsman Guide Twitter page
 
 
 
 

 
 

© 2019 Scotsman Guide Media. All Rights Reserved.  Terms of Use  |  Privacy Policy