Small lenders and affordable housing groups issue joint GSE reform proposal

A guide to protect small lenders

Small lender and affordable housing association groups worked together to create a joint release of GSE reform principles in order to ensure the safety of their respective members.

The organizations that signed the 1-page list of core common GSE reform principles include: Community Home Lenders Association, Community Mortgage Lenders of America, Leadership Conference on Civil and Human Rights Leading Builders of America, National Association for the Advancement of Colored People, and the National Community Reinvestment Coalition.

The release comes amid a growing number of housing groups discussing reforming Fannie Mae and Freddie Mac given the current administration’s intent to finally reform them. This includes Treasury Secretary Steve Mnuchin, who has publically stated that GSE reform is a priority of this administration.

“The primary objective of any GSE reform legislation should be to promote broad access to affordable, sustainable mortgage credit in all communities while minimizing risk to taxpayers,” the release stated. “Affordable housing advocates and small and mid-sized lenders alike share the following principles – which are designed to increase competition, prevent financial concentration, and prevent artificial barriers to entry in the GSE loan origination market.”

Here are a few key highlights from the release:

Create a capital buffer:

  • Fannie Mae and Freddie Mac should begin rebuilding a capital buffer now, which could be done through a suspension of the dividend being paid on the preferred stock held by the U.S. Treasury. The guarantee fees being charged by Fannie Mae and Freddie Mac include the cost for holding capital reserves in case of future losses.

Continue and expand reform:

  • Maintain a strong independent regulator, FHFA.
  • Full and equal access for all lenders regardless of size, including a prohibition on volume discounts 
with respect to both guarantee fees and risk-sharing pricing.

Ending the GSEs’ conservatorship responsibly:

  • The FHFA, utilizing its authority under the Housing and Economic Recovery Act (HERA), should establish capital standards for Fannie and Freddie and direct the GSEs to draw up plans on how to meet those standards.

This group of small lender and affordable housing associations joins a handful of other GSE reform guidelines recently made public. Just as these groups sought to release guidelines to protect their members, the National Association of Federally-Insured Credit Unions similarly published its own thoughts on GSE reform to ensure the safety of the credit union system in whatever reform is ultimately implemented. 

The Mortgage Bankers Association released its plan in a white paper, “GSE Reform: Creating a Sustainable, More Vibrant Secondary Mortgage Market.”

The MBA’s “Task Force for a Future Secondary Mortgage Market,” which is made up of some of the top lenders and insurers in the industry, developed the white paper to offer a specific vision of the end-state of the GSEs, as well as transition steps to a post-GSE system.


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