Tag: GSE Reform

Trump Administration Allows Fannie, Freddie to Retain Earnings in Move Toward Privatization

Posted on by Trey Jackson

Fanne Mae and Freddie Mac logos

The Trump Administration took a key step on Sept. 30 to release Fannie Mae and Freddie Mac from conservatorship by allowing them to retain a total of $45 billion in earnings annually. (Wall Street Journal, Sept. 30)

  • Fannie and Freddie received $191 billion in government support during the financial crisis, but since entering conservatorship Sept. 6, 2008, they have paid the Treasury $292 billion in dividends, according to research from Keefe, Bruyette & Woods. (Reuters, March 27)
  • Under their modified governing agreements, Fannie Mae will now be allowed to retain $25 billion and Freddie Mac $20 billion annually (Bloomberg, Sept. 30)
  • The Treasury Department and Federal Housing Finance Agency (FHFA) jointly announced the modifications to the Government-Sponsored Enterprises’ (GSEs) Preferred Stock Purchase Agreements (PSPAs) – designed in the wake of the financial crisis to ensure Fannie and Freddie maintain positive net worth, meet outstanding obligations and continue providing liquidity to the multi-trillion dollar mortgage market.  (Fannie Mae Capital Agreement and Freddie Mac Capital Agreement)
  • “These modifications are an important step toward implementing Treasury’s recommended reforms that will define a limited role for the Federal Government in the housing finance system and protect taxpayers against future bailouts,” said U.S. Treasury Secretary Steven T. Mnuchin. (Treasury news release, Sept. 30)
  • FHFA Director Mark Calabria – Fannie and Freddie’s chief regulator – stated, “FHFA commits to working with Treasury in the coming months to amend the share agreements and further advance broader housing finance reform. These reform goals include limiting the government’s role in housing finance, increasing marketplace competition, focusing on affordable housing, and sustainable homeownership. The status quo is not an option. Now is the time to act.”
  • The Washington Post reported on Oct. 2 that Fannie, Freddie, and the Federal Housing Administration guarantee 33 percent more debt than before the housing crisis,  more than at any other point in U.S. history.
  • In Congress, Senate Banking Committee Chairman Mike Crapo (R-ID) on Feb. 1 released an outline for reforming the nation’s housing finance system, including the GSEs (Crapo Statement and Housing Reform Outline, Feb. 1).  At the end of March, Crapo’s committee held two days of hearings on reforming the multi-trillion dollar housing finance markets.  (Roundtable Weekly, March 29)

The Real Estate Roundtable and 27 industry organizations on March 1 submitted principles for reforming the GSEs.  The letter emphasized that compelling evidence must show the private market is capable of an expanded role before efforts are made to reduce the GSEs’ current housing finance footprint. “Ultimately, we believe any reform, be it administrative or legislative, must seek to further two key objectives: 1) preserving what works in the current system, while 2) maintaining stability by avoiding unintended adverse consequences for borrowers, lenders, investors, or taxpayers.”  (Roundtable Weekly, March 1)

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Senate Banking Committee and Administration Weigh In On GSE Reform Plan; FHFA Announces New Multifamily Cap Structure

Posted on by Trey Jackson

Treasury's Housing Reform Proposal - Sept. 2019

The Senate Banking Committee’s September 10 hearing on “Housing Finance Reform: Next Steps” focused on the Trump Administration’s efforts to reform the U.S. housing finance system, including their proposal to overhaul the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.  

  • Treasury Secretary Steven Mnuchin testified before the committee about the Administration’s Housing Reform Plan released last week to revamp and recapitalize the GSEs before releasing them from conservatorship.  The Administration’s goal is to reduce the federal government’s footprint in housing finance, increase the role of the private sector and private capital in the market and, eventually, return Fannie Mae and Freddie Mac to private shareholder ownership.   Mnuchin testified that if Congress fails to act, the Administration will pursue an agreement with the GSEs’ regulator, the Federal Housing Finance Agency (FHFA) to change the terms of the government’s bailout agreements reached 11 years ago.
  • The FHFA announced today a revised cap structure on the multifamily businesses of Fannie Mae and Freddie Mac.  The new multifamily loan purchase caps will be $100 billion for each organization, a combined total of $200 billion in support to the multifamily market, for the five-quarter period Q4 2019 – Q4 2020.  The new caps are significantly higher than the existing ones and apply to all multifamily business – no exclusions. To ensure a strong focus on affordable housing and traditionally underserved markets, FHFA directs that at least 37.5 percent of the Enterprises’ multifamily business be mission-driven, affordable housing.
  • After Fannie and Freddie received $191 billion in government support during the financial crisis of 2008 and entered conservatorship, they have become profitable.  Under the Administration’s plan, Fannie and Freddie profits would no longer go to Treasury, but would be dedicated to building their capital bases.  (Wall Street Journal, Sept. 10)
  • Mnuchin also testified that Treasury’s plan “would preserve the longstanding government support of the 30-year, fixed-rate mortgage loan.”  The Treasury plan acknowledges the disincentives posed by regulatory barriers such as rent control and calls for enhancing private involvement in multifamily lending by refocusing the GSEs on affordable and workforce housing.
  • Democratic senators clashed with Republicans during Tuesday’s hearing, emphasizing the reform outlines would raise home borrowing costs and neglect lower-income homeowners.  Sen. John Kennedy (R-LA) called for a specific Administrative proposal, stating, “This whole thing is a car wreck. It’s a dumpster fire…We spent $190 billion of taxpayer money, and we’re in worse shape.”  (AP, Sept. 10)
  • The Roundtable submitted comments this week in advance of the hearing (Roundtable letter, Sept. 9).   The Roundtable and 27 industry organizations also submitted principles for reforming the GSEs in March. (Roundtable Weekly, March 1)

The path to reaching bipartisan consensus on housing finance reform remains unclear, especially before the 2020 presidential election.  Housing finance reform will be a focus of discussion with Housing and Urban Development (HUD) Secretary Ben Carson during The Roundtable’s Fall Meeting on October 30 in Washington.

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Senate Banking Committee and President Trump Launch Efforts to Address Housing Finance Reform, Including GSEs

Posted on by Trey Jackson

Senate Banking Committee Chairman Mike Crapo (R-ID) and President Trump this week launched separate efforts aimed at reforming the multi-trillion-dollar financial market for single-family and multifamily mortgages, including the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.

Senate Banking Committee Chairman Mike Crapo (R-ID) held hearing this week on reforming the multi-trillion-dollar  housing finance markets. 

  • Two days of hearings before the Senate Banking Committee concluded Wednesday, with twelve witnesses testifying about Chairman Crapo’s recent housing reform outline – a proposal that would return the GSEs to private control.  (Roundtable Weekly, Feb. 8)
  • Crapo stated during the hearing, “This outline sets out a blueprint for a permanent, sustainable new housing finance system that: protects taxpayers by reducing the systemic, too-big-to-fail risk posed by the current duopoly of mortgage guarantors; preserves existing infrastructure in the housing finance system that works well, while significantly increasing the role of private risk-bearing capital; establishes several new layers of protection between mortgage credit risk and taxpayers; ensures a level playing field for originators of all sizes and types, while also locking in uniform, responsible underwriting standards; and promotes broad accessibility to mortgage credit, including in under-served markets.” (Senate Banking Committee,  Day One Testimony and Day Two Testimony)

    The Real Estate Roundtable and 27 industry organizations on March 1 submitted principles for reforming the (GSEs).

  • Following the hearings, President Trump released a presidential memodirecting “the Secretary of the Treasury and the Secretary of Housing and Urban Development to craft administrative and legislative options for housing finance reform.”  (Wall Street Journal, March 27)
  • President Trump aims to end the GSEs’ conservatorship, “promote competition in the housing finance market … create a system that encourages sustainable homeownership and protects taxpayers against bailouts.”  The memo also calls for the preservation of the 30-year fixed-rate mortgage. (White House announcement, March 27)
  • The GSE’s received $191 billion in government support during the financial crisis, but since entering conservatorship, they have paid the Treasury $292 billion in dividends,  according to research from Keefe, Bruyette & Woods  (Reuters, March 27)

The Real Estate Roundtable and 27 industry organizations on March 1 submitted principles for reforming the (GSEs).  The coalition’s letter was sent to Acting Federal Housing Finance Agency (FHFA) Director Joseph Otting and Washington policymakers days after the Senate Banking Committee advanced the nomination of Mark Calabria as FHFA Director.  (Roundtable Weekly, March 1)

Calabria is awaiting full Senate confirmation, which is expected soon.

Industry Coalition Promotes GSE Reform Principles; Senate Banking Committee Advances New FHFA Director

Posted on by Trey Jackson

The Real Estate Roundtable and 27 other industry organizations today submitted principles for reforming the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, which underpin the multi-trillion-dollar financial market for single-family and multifamily mortgages. (GSE Reform Coalition letter, March 1)

The Real Estate Roundtable and 27 other industry organizations today submitted principles for reforming the Government-Sponsored Enterprises (GSEs). 
  • “We believe that comprehensive legislative reform, including an end of conservatorship, is ultimately necessary in order to codify structural changes that ensure safety and soundness and provide the certainty needed for private capital to establish a more reliable presence in housing finance,” according to the comments.
  • The letter emphasized that compelling evidence must show the private market is capable of an expanded role before efforts are made to reduce the GSEs’ current housing finance footprint. “Ultimately, we believe any reform, be it administrative or legislative, must seek to further two key objectives: 1) preserving what works in the current system, while 2) maintaining stability by avoiding unintended adverse consequences for borrowers, lenders, investors, or taxpayers.”    
  • Fannie and Freddie recently announced they will pay a combined $4.7 billion in dividends to the U.S. Treasury Department.  The government took control of the two GSEs in September 2008 during the financial crisis.  (Reuters, Feb. 14)
  • The GSE coalition reform principles were sent to Acting Federal Housing Finance Agency (FHFA) Director Joseph Otting and Washington policymakers days after the Senate Banking Committee advanced the nomination of Mark Calabria as FHFA Director.  Calabria, currently chief economist to Vice President Mike Pence, would lead the agency that oversees the GSEs.  A vote to approve Calabria now moves to the full Senate, where it is expected to pass. (Housing Wire, Feb. 26 and Senate Banking Committee nomination hearing, Feb. 14) 
  • The coalition states in today’s letter that FHFA should establish policies that ensure a continuation or expansion of: 

    The  coalition states that FHFA should establish certain policies to support the continuation or expansion of a robust housing market.

     

    • A liquid national market with broad and fairly-priced access to affordable credit and improved infrastructure for the single-family secondary market;
    • Support for strong and sustained liquidity in the multifamily rental market;
    • Equal secondary market access and pricing for all lenders, regardless of size or volume; and
    • The sustainable transfer of appropriate credit risk to the private sector. 
  • The letter also advocates that principles governing any potential administrative reforms to the GSEs should be guided by the potential impact on borrowers, taxpayers, and market structure dynamics.  Any reform that would meaningfully alter the GSEs’ market presence-single-family, multifamily, or both-should also seek to maintain and enhance the stability and liquidity of the housing finance system.  (GSE Reform Coalition letter, March 1) 
  • Roundtable President and CEO Jeffrey DeBoer added, “Housing finance reform should support the GSE’s overall mission-ensure Americans across a broad range of income levels have access to a diverse supply of housing.” 

Senate Banking Committee Chairman Mike Crapo (R-ID) on Feb. 1 released an outline for reforming the nation’s housing finance system, including the GSEs. (Crapo Statement and Housing Reform Outline, Feb. 1 / Roundtable Weekly, Feb. 8)

Senate Banking Committee Releases Housing Finance Reform Outline; Real Estate Coalition Working to Establish GSE Reform Principles

Posted on by Trey Jackson

Senate Banking Committee Chairman Mike Crapo (R-ID) on Feb. 1 released an outline for reforming the nation’s housing finance system, including the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac.  (Crapo Statement and Housing Reform Outline, Feb. 1)

Senate Banking Committee Chairman Mike Crapo (R-ID) on Feb. 1 released an outline for reforming the nation’s housing finance system, including the Government Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac. 
(Crapo Statement and Housing Reform Outline, Feb. 1)
  • Fannie and Freddie form the underpinnings of a $5.3 trillion financial market for single-family and multifamily mortgages.
  • Crapo’s outline states, “The multifamily businesses of Fannie Mae and Freddie Mac will be sold and operated as independent guarantors.”  The proposal outlines a new housing finance system that aims to: 
    • Reduce the systemic, too-big-to-fail risk posed by the current duopoly of mortgage guarantors
    • Preserve existing infrastructure in the housing finance system that works well, while significantly increasing the role of private risk-bearing capital
    • Establish several new layers of protection between mortgage credit risk and taxpayers
    • Ensure a level playing field for originators of all sizes and types, while also locking in uniform, responsible underwriting standards
    • Promote broad accessibility to mortgage credit, including in underserved markets  
  • The Committee has also tentatively scheduled a Feb. 14 nomination hearing on Mark Calabria as director of the Federal Housing Finance Agency (FHFA). Calabria is currently chief economist to Vice President Mike Pence.  The FHFA oversees Fannie Mae and Freddie Mac, which have been held in conservatorship since September 6, 2008.  ( Wall Street Journal, Feb. 5)  

    “Housing finance reform must appropriately balance taxpayer protections with the need to establish an efficient marketplace that can provide strong and sustained mortgage liquidity in single family and multifamily markets – as well as affordable housing,” said Roundtable President and CEO Jeffrey DeBoer. 

     

  • White House Spokeswoman Lindsay Walters stated on Tuesday, “Housing finance reform is a priority for the administration. The White House expects to announce a framework for the development of a policy for comprehensive housing finance reform shortly.”  She added the administration intends to work with Congress to formulate a reform plan that will address taxpayer risks and housing affordability. (Bloomberg, Jan. 29) 

House Financial Services Committee Chairwoman Maxine Waters (D-CA) is expected to oppose measures that seek to limit the government’s role in the mortgage market. 

Industry Developing Principles for Reform  

The Real Estate Roundtable continues to work as part of an industry coalition to develop certain principles that would form the foundation of GSE reform legislation 

  • “Housing finance reform must appropriately balance taxpayer protections with the need to establish an efficient marketplace that can provide strong and sustained mortgage liquidity in single family and multifamily markets – as well as affordable housing,” said Roundtable President and CEO Jeffrey DeBoer.  

“Reform should encourage the transfer of appropriate credit risk to the private sector, while building on the highly effective risk sharing mechanisms utilized in Fannie Mae’s existing Delegated Underwriter Servicing (DUS) program and Freddie Mac’s K Deals,” DeBoer added.