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BPC: Here’s a bipartisan path forward to accomplish GSE reform

And ensure adequate access to credit

A lack of bipartisan support nearly shattered any chance of reforming Fannie Mae and Freddie Mac, leaving the government sponsored-enterprises in conservatorship for almost a decade. The Bipartisan Policy Center, however, is set on correcting this issue as talks for reform start to resurface.

Over the years, talks of GSE reform have transformed from something that could happen to the boy who cried wolf, but the Trump administration is shifting this mentality, vowing to make GSE reform a priority.

During his confirmation hearing to be Treasury Secretary, Steven Mnuchin, said, “We need housing reform. We shouldn’t leave Fannie and Freddie alone for the next four or eight years without reform.”

Given these growing talks of reform, the Bipartisan Policy Center added their name on Wednesday to the growing list of housing groups weighing in on the conversation.

The BPC is a non-profit organization that combines ideas from both parties to promote health, security and opportunity for all Americans. The organization drives policy solutions through analysis, negotiation and advocacy.

In its newest brief by Michael Stegman, a fellow at the Bipartisan Policy Center, the BPC emphasizes the need to revisit an issue that stymied negotiators in the 2014 reform effort: how to ensure adequate access to credit in a new housing finance system.

Before joining the BPC, Stegman worked under the Obama Administration, where he served as a senior housing advisor at the National Economic Council and the Treasury Department.

The full brief, “A Framework for Improving Access and Affordability in a Reformed Housing Finance System," found here, builds on the 2014 Johnson-Crapo legislation by including a Market Access Fund and integrating a duty-to-serve provision that could be implemented in three different ways.

“The following three options identify a middle ground that does not compromise the obligation to provide liquidity to all corners of the market at the least possible cost, consistent with taxpayer protection and safety and soundness. Each option attempts to ensure that the system as a whole provides access and affordability at least as much as the existing system; includes an explicit and transparent fee on the outstanding balance of guaranteed MBS; and includes a duty to serve the broadest possible market,” the brief stated.

An overview of the three different options include:

  1. Firm-level obligations that serve all corners of the market and specifically designated underserved markets.
  2. Hybrid obligations that by statute require the system to serve all corners of the market but with a firm-level duty to serve obligation imposed on individual guarantors that exceed a specified percentage of the total market.
  3. System-wide obligations that are mandated on the regulator.

“Each option attempts to ensure that the system as a whole provides access and affordability at least as much as the existing system; includes an explicit and transparent fee on the outstanding balance of the guaranteed mortgage-backed securities; and includes a duty to serve the broadest possible market,” said Stegman. “We hope the administration and Congress will consider this new framework as it provides a middle ground approach to housing finance reform that has received bipartisan support in the past.”

The brief concluded that its goal is to ensure any system that supports mortgage lending with a government guarantee does not discriminate against LMI borrowers should be an essential feature of any reform.

“As policymakers make another attempt at housing finance reform, they may find themselves converging on a new consensus that the status quo is less desirable than a new approach to the issues of access and affordability,” added Stegman.

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