The National Association of REALTORS® GSE Reform Proposal

Recently, the White House took a significant step forward in its goal of reforming our nation’s housing finance system. As Fannie Mae and Freddie Mac have spent more than a decade under the direction and oversight of the federal government, the Trump administration made ending conservatorship a priority of its past year.

Since the recession of 2007 and 2008, the GSEs have been heavily reformed to support the nation’s housing finance system – refocused to prevent another crisis like the one we saw unfold roughly 11 years ago. Though the process has taken years already, it will take even more to finish correctly. As we all know, Rome was not built in a day, but it lasted for centuries.

Treasury and the Department of Housing and Urban Development sought the input of the National Association of Realtors^®throughout this process, affording 1.3 million Realtors^®the opportunity to suggest improvements and identify points of concern that could bring unnecessary disruption or instability to our nation’s housing market.

In March, the administration said that sustainable homeownership is the “benchmark of success” for reform, a position which NAR and its membership support fully. However, the White House implied in its President’s Memorandum on Housing Finance Reform earlier this year that it is aiming to reduce the federal footprint in the U.S. housing market.

Regardless of the document’s specifics, we know that several key pieces of a fully reformed housing finance system can only be accomplished through Congressional action. Senate Banking has scheduled a hearing next Tuesday to evaluate the future of Fannie and Freddie, during which Treasury Secretary Steve Mnuchin, Federal Housing Finance Agency Director Mark Calabria and HUD Secretary Ben Carson are all scheduled to testify. Thus, while the administration’s plan provides important mile markers, the White House will still need to work with Congress to develop the true, federal-government wide consensus needed to complete system reform.

But while unity surrounding any specific policies has yet to emerge in Washington, Realtors^®have a ready-made, pragmatic and workable plan for GSE reform in hand.

The solution is a new utility model that highlights competition and remedies the failures of the pre-crisis system, ensuring market oversight without regulating away from free market growth potential.

Under NAR’s plan, unveiled in February of this year, Fannie Mae and Freddie Mac would operate as private, shareholder-owned utilities. They would continue to purchase, guarantee and securitize single-family and multifamily mortgage loans. And by retaining an emphasis on private capital, our model protects taxpayers, consumers and the U.S. economy as a whole.

The utility model and its attributes have caught on, too. Small lenders like the Community Home Lenders Association as well as consumer groups like the Center for Responsible Lending and the National Community Reinvestment Coalition all support the benefits of a utility. Former Freddie Mac CEO Don Layton even recently argued that the GSEs effectively operate like utilities and should doing remain so.

Most importantly, as utilities, Fannie and Freddie’s foremost priority under NAR’s plan would be to serve the public mission instituted by Congress when they were first chartered – to support stability, liquidity and access in the mortgage market.

Because of the GSEs, homebuyers in Springfield, Missouri and Springfield, Massachusetts have equal access to a mortgage and pay nearly identical rates, while preserving the ability to pursue 30-year, fixed rate options. Consider the alternative, and the impact it would have on homeowners and home values across small town America.

For over four decades, middle-class Americans in communities both rural and urban have benefitted from the foundational mission of the enterprises. That mission must continue in the years and decades ahead.

John Smaby, is the 2019 President of the National Association of Realtors^®. A second-generation Realtor^®, John has been in the industry for 40 years. He is a broker at Edina Realty, where he specializes in residential real estate.