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GSE Reforms

  • by Cami Morrill
  • Sep 23, 2019, 14:08 PM

The National Association of Realtors® GSE Reform Press Release Statement:

“The National Association of Realtors® thanks President Trump and his administration for initiating thoughtful, genuine effort toward housing finance reform. We look forward to reviewing the proposal in more detail and are optimistic that, at a minimum, the administration’s efforts will shed light on the remaining mile markers on the path to reform."

“NAR continues working with the White House and Congress as we move closer to securing palatable, pragmatic improvements to our housing finance system, and we maintain our belief that NAR’s blueprint for GSE reform represents the best path forward for this system and our economy. Our proposed utility model, as any successful reforms must, highlights competition, protects taxpayers and remedies the failures of the pre-crisis system while ensuring equal access for responsible, mortgage ready Americans in every market, safeguarding the role the GSEs were intended to play in our housing market.”

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.


The National Association of Realtors® is offering answers to questions regarding the Trump administration’s impending release of its proposal to reform the Housing Finance system and end the conservatorship of Fannie Mae and Freddie Mac (GSEs). 
 
 
What will happen to the housing finance system following this announcement?

- NAR does not expect the pending announcement will call for any immediate changes, but rather to outline the steps remaining needed to end the conservatorship of the GSEs, a timeline for the changes, and whether the administration or Congress can make the changes. Some changes could come within months of the announcement, though.

- A number of the components in the proposal floated by the administration have been discussed repeatedly in Washington for years, particularly since President Trump made GSE reform a focus of his presidency.

- This is one step of many in the long, ongoing process to secure GSE reform that will put our housing finance system in position to serve aspiring homebuyers and the housing market in the decades ahead. 
 
Do you anticipate any changes to the 30-year mortgage or to interest rates?

- Economic conditions are critical in a presidential election year, so the Trump administration will likely avoid any moves that could disrupt the housing market or the economy, particularly one that could jeopardize something as universally popular as the 30-year fixed-rate mortgage.

- More likely, the report will focus on capital standards for Fannie and Freddie, the scope of the GSEs market coverage, and on the prospects a of government guarantee, also meaning little volatility in interest rates as a result of the announcement. 
 
What are the next steps in GSE reform?

- Fannie Mae and Freddie Mac have spent 11 years in conservatorship. They have been heavily reformed and refocused to support the nation’s housing finance system and to prevent another crisis. This process has taken years and will take more to finish it correctly.

- The administration is likely to determine whether the GSEs’ debt to the government is repaid, whether and how they should be allowed to build capital, how much capital they need, and potentially aim to shrink the GSEs market coverage.

- However, several key parts of a fully reformed housing finance system can only be accomplished by Congress. Thus, the administration’s plan provides important mile markers, but it will need to work with Congress to complete true reform of the system 
 
How does this plan compare to NAR’s blueprint for GSE reform?

- The White House, as implied in the President’s Memorandum on housing finance reform, aims to reduce the federal footprint in the U.S. housing market.

- In March, the White House said that Sustainable homeownership is the “benchmark of success” for reform, a position which NAR and its 1.3 million Realtor® members can support fully.

- We look forward to reviewing the proposal in more detail and are optimistic that at a minimum, the administration’s efforts will shed light on the remaining mile markers on the path to reform.

- However, we remain concerned that ill-conceived reform could increase costs and limit access for responsible, mortgage ready Americans and maintain our belief that NAR’s utility model represents the best path forward for this system and for our economy as a whole.  
 
How does NAR plan to maintain its involvement in this process going forward?

- HUD and Treasury sought NAR’s input for its report over recent months, and NAR’s staff shared opportunities for improvement and points of concern with the administration at every turn.

- We will continue pursuing our proposal – which highlights competition, protects taxpayers and remedies the failures of the pre-crisis system while ensuring the American Dream of homeownership is available to aspiring buyers in every market in the country – as the best possible path forward for GSE reform.