This week, housing finance reform is once again taking center stage as several industry stakeholders have sounded off on the topic, stressing the importance of protecting taxpayers and the mortgage industry in general.
Several housing advocacy groups and civil rights groups wrote a letter to FHFA Director Mel Watt [1] urging him to cease making dividend payments to Treasury from the GSEs, thus preserving their capital buffer, which is scheduled to be reduced to zero by January 1, 2018.
Watt himself sounded the alarm in the industry back in February when he said in a speech at the Bipartisan Policy Center [2] that there were risks facing Fannie Mae and Freddie Mac that were “certain to escalate” the longer they remain in conservatorship of the FHFA—namely, the elimination of the GSEs’ capital buffer.
Ten groups signed the letter to Watt, including Community Mortgage Lenders of America, Center for Responsible Lending, Community Home Lenders Association, National Community Reinvestment Coalition, and the NAACP. The groups stated about the reducing of the GSEs’ capital buffer to zero, “This course of action is likely to destabilize the housing economy, undermine efforts to make housing finance more accessible and affordable, and drive up the costs of homeownership.”
The groups in the letter agreed with Watt’s assessment of the risk posed to taxpayers by the reducing of the GSE capital buffer and pointed out that the director has “sole discretion on whether or not to declare quarterly dividends on GSE Senior Preferred Stock. The groups urged Watt to use his authority granted by the Housing and Economic Recovery Act of 2008 to suspend GSE dividend payments to Treasury and “implement capital restoration plans so they have enough capital to safely manage their business and to support America’s housing finance system.”
Also in the area of housing finance reform this week, the Financial Services Roundtable [3] (FSR) called on presidential candidates [4] to reveal their plans for housing finance reform, which includes how they will handle the end the conservatorship and the risk it poses to taxpayers.
The FSR posed five questions to the presidential candidates regarding housing finance reform:
- How will the future system protect taxpayers?
- How will private capital be brought into the current system?
- How will the new system enable consistent sources of credit for consumers through the 30-year fixed rate mortgage and similar stable products?
- What will the transition be from Fannie Mae and Freddie Mac to a new system?
- Will you build on the current efforts underway to expand credit risk sharing, utilize a common securitization?
“Since 2008, Fannie Mae and Freddie Mac have been in ‘conservatorship,’ which leaves taxpayers at risk for future bailouts while providing no long-term solution to ensure consumer access to stable mortgage credit in the future,” FSR’s Housing Policy Council President John Dalton said. “The presidential candidates have an opportunity to better protect taxpayers and help consumers by making housing finance reform a top priority.”
FSR and its Housing Policy Council are advocating for comprehensive housing finance reform that includes gradually winding down the GSEs and replacing them with a structure backed by private capital.