Over the last few months, several groups, including 32 congressional Democrats, attempted to push the Federal Housing Finance Agency to allow Fannie Mae and Freddie Mac to rebuild their dwindling capital base.
The letter sent by the congressional Democrats asked FHFA Director Mel Watt to use the supposed authority granted to him by the Housing and Economy Recovery Act of 2008 to let Fannie and Freddie hold capital instead of funneling it to the Department of the Treasury, as is stipulated by the Preferred Stock Purchase Agreements that went into effect when the government took Fannie and Freddie.
In the wake of that letter, a group of the largest trade organizations in housing delivered a strong rebuke to the Democrats’ efforts, as the Mortgage Bankers Association, National Association of Realtors, American Bankers Association, National Association of Home Builders, and the National Housing Conference said that their view is that “comprehensive reform to the secondary housing finance system must come through Congress,” rather than from Watt and the FHFA.
Thus far, the FHFA has not responded directly to those efforts, but Watt did take part in the Financial Stability Oversight Council’s annual report, which stated that it believes that Congress needs to take the lead on housing finance reform to fully stabilize the country’s housing finance system.
Now, several of the most significant voices on housing finance reform in the Senate are weighing in with their own view on the situation.
Their advice? Leave housing finance reform to us.
Last week, a bipartisan group of six senators sent a letter to Watt, telling him to continue to take “incremental steps” to facilitate housing finance reform, but caution that significant changes to the current housing finance system need to come via legislative efforts, not from “unilateral action by this or any future Administration.”
The letter is signed by Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va, who co-authored the Corker-Warner Bill, which failed in the Senate last year and would have seen Fannie Mae and Freddie Mac wound down and replaced.
Sens. Mike Crapo, R-Idaho, Dean Heller, R-Nev., Jon Tester, D-Mont., and Heidi Heitkamp, D-Mont., joined Corker and Warner in signing the letter.
Crapo also co-authored an unsuccessful attempt at housing finance reform in 2014.
In their letter, the senators ask Watt to not “release” Fannie and Freddie from conservatorship without “comprehensive reform.”
Of releasing the GSEs from conservatorship, the senators write: “Doing so would perpetuate the pre-crisis of socializing losses and privatizing gains.”
The senators state that they agree that changes need to be made to the current structure of the housing finance system and remind Watt that he’s prohibited from recapitalizing the government-sponsored enterprises for two years.
“That is why Congress included a provision in the 2016 omnibus legislation which restricted the release of Treasury’s shares in the GSEs,” the senators write. “The passage of this provision reasserted the desire of Congress to have a say in determining the fate of Fannie and Freddie.”
The senators state that they are in support of the GSEs risk-sharing efforts, which work to re-attract private capital to the mortgage market, as well as the continued “wind-down” of the GSEs’ portfolios.
“These two steps both lessen the risks posed by the GSEs and will help facilitate housing finance reform down the road,” the senators state.
But just how far down the road is housing finance reform? The conclusion of the senators’ letter gives insight into the lack of inertia for GSE reform in the current Congress.
Spoiler alert: Don’t hold your breath for GSE reform this year.
“In closing, we are hopeful that housing finance reform will be on the agenda for the next Congress and Administration and look forward to working with you on that effort,” the senators conclude. “Until that time, we strongly encourage you to focus your efforts on steps that would help, not hurt, housing finance reform legislation.”
To read the senators’ full letter, click here.