The growing chorus surrounding housing finance reform just got several new large voices, as a group of the largest trade organizations are now weighing in by asking Federal Housing Finance Agency Director Mel Watt to leave housing finance reform to Congress.
In a letter Wednesday to Watt, the Mortgage Bankers Association, National Association of Realtors, American Bankers Association, National Association of Home Builders, and the National Housing Conference state that their collective view is that “comprehensive reform to the secondary housing finance system must come through Congress.”
In the letter, the trade groups state that they believe that the current state of the housing finance system, with Fannie Mae and Freddie Mac under the conservatorship of the FHFA, has “provided stability,” but argue that more needs to be done by legislators to fully fix the system, rather than through actions Watt is authorized to take.
“Policymakers and stakeholders need to continue to work together on the important efforts to advance housing finance reform through a legislative solution,” the groups’ letter states.
“Absent reform, we run the risk of continuing to kick the can down the road without ensuring ongoing access to mortgage credit for millions of future homeowners,” the groups continue. “Policymakers need to continue to focus on the paramount objective of fixing the structural flaws that led to the breakdown of the housing finance system -- the only outcome that will protect taxpayers, preserve access to credit, and ensure a stable housing finance system.”
The letter comes just days after a group of 32 Congressional Democrats wrote to Watt, asking the FHFA director to use the authority granted to him under the Housing and Economy Recovery Act of 2008 to allow Fannie and Freddie to rebuild their dwindling capital base.
“HERA includes a number of provisions expressing Congress’ intent that the GSEs be operated in a safe and sound manner. In fact, under HERA, the FHFA Director has an express duty to ensure that the GSEs maintain adequate capital,” the Democrats’ letter stated.
“The fact that the GSEs are currently in conservatorship, and that Congress has not enacted further legislation post-HERA, does not justify an agreement between FHFA and the U.S. Treasury to ignore HERA’s mandate,” the Democrats’ letter continued.
The letter from the trade groups is broader and more general than the Democrats’ letter, but still addresses the role that Fannie and Freddie play in the housing finance system and any potential changes to the Preferred Stock Purchase Agreements, which went into effect when the government took Fannie and Freddie and require the government-sponsored enterprises send dividends to the Department of the Treasury each quarter that they are profitable.
Currently, under the PSPAs, the GSEs are prohibited from rebuilding capital and each of the GSEs’ capital base is required to be reduced, with their capital reserves scheduled to be drawn down to $0 in 2018.
Over the last year, community lenders, affordable housing advocates, civil rights groups, interested observers, financial analysts, and others have called for a change in governmental policy that would enable Fannie Mae and Freddie Mac to rebuild their capital.
The trade groups’ letter doesn’t address the GSE’s ability (or lack thereof) to rebuild capital in explicit terms, but the groups do argue that no further amendments to the PSPAs should be made.
“The extraordinary support provided to Fannie Mae and Freddie Mac has played a key role in maintaining liquidity in the secondary mortgage market, which is crucial in providing capital for mortgage lending across the country,” the groups write.
“The backstop provided by the Treasury Department and ongoing investments by the Federal Reserve have been integral in keeping mortgage rates low even while the GSEs have more than doubled their fees since 2011,” the groups continue.
“Our collective push for comprehensive reform is to ensure that any changes maintain the ongoing sustainability of the housing finance system and directly benefits consumers, rather than the balance sheets of private companies,” the groups add.
“A piecemeal approach to reform through further amendments to the PSPAs will not resolve these issues,” the groups say. “The PSPAs do not replace the need for a permanent solution to housing finance reform. However, they do provide an adequate backstop to allow Congress to complete the last piece of unfinished business from the financial crisis. Detours from this long-term goal would be counterproductive.”
The “real priority,” according to the trade groups, is “comprehensive housing finance system reform” as it is “the only way to protect against another crisis.”
The groups commend the FHFA for the work it has done since taking over as conservator of the GSEs, including making “significant progress mitigating a number of flaws in the GSEs’ operations that distorted the market pre-crisis,” including “bringing parity and transparency to their pricing models to individual lenders, moving toward a single security and developing the common securitization platform.”
But the groups caution that without “collaboration on comprehensive GSE reform,” the work that the FHFA has done is “at risk.”
Click here to read the full letter from the MBA, NAR, ABA, NAHB, and NHC