The Bipartisan Policy Center hosted a keynote address and panel discussion titled "Housing Fiance Reform:Opportunities and Obstacles of Risk Sharing" on Tuesday.
The event highlighted GSE reform and conservatorship, the need for more private capital in the financial system and to transfer risk away from taxpayers and GSEs, focusing on risk sharing, specifically “front-end,” which makes housing finance more sustainable.
While the GSEs are experimenting with additional forms of risk sharing, all of them are handled on the back end after the loan is on the GSEs balance sheets.
The keynote speakers were Sen. Bob Corker (R-Tennessee), member, Senate Banking Committee and Sen. Mark Warner (D-Virginia), ranking member, Senate Securities, Insurance, and Investment Banking Subcommittee.
The other panel included Laurie Goodman, director of the housing finance policy center at Urban Institute; Mike Fratantoni, chief economist at the Mortgage Bankers Association; Kevin Chavers, managing director at BlackRock; Pat Sinks, CEO of Mortgage Guaranty Insurance Corp.; and Bob Ryan, acting deputy director of the division of conservatorship at the Federal Housing Finance Agency.
Nic Retsinas, senior lecturer in real estate at Harvard Business School, moderated the panel.
In June, a bipartisan group of Senate Banking Committee members wrote a letter to the Federal Housing Finance Agency (FHFA) requesting that the agency expand and provide better transparency of the development of the credit risk transfer programs.
"We supported the direction of the risk sharing language within Title VII of The Financial Regulatory Improvement Act of 2015, and we strongly support the expansion of these transactions, given they provide a vehicle for moving the government out of the first loss position and inform the process for policymakers looking to invite greater private capital into the market," the senators noted in the letter.
“The credit risk transfers are a vehicle for moving the housing market forward by attracting private sector investors, improving access to credit, and reducing taxpayer risk. As such, we ask that you prioritize work with the Enterprises on transactions designed specifically to push out first loss credit risk to the market, and to encourage transparency for investors and the public so that we can all better judge how these transactions impact returns to the Enterprises, costs to the taxpayer, and effects to the health of the broader housing finance system," the letter stated.
Coker cautioned that GSE reform could "be a while and won’t happen in the next year and four months. Some of our wingers are migrating over to this third amendment thing because it makes it easy not to do anything.”
The overall consensus of the panelists was that moving forward, the goal should be to strengthen the housing market, build more capital, and enhance credit risk transfers.
However, GSE reform could be a lengthy and a difficult issue to overcome as "legislation on this topic remains elusive, the new word for ‘not happening,’” the introductory speaker said.
Video of the event will be posted here.