Mortgage

Carson and Watt call on Congress to take on housing finance reform

Both tell MBA Annual crowd that conservatorship has lasted too long

During his speech Monday morning at the Mortgage Bankers Association Annual Meeting in Denver, Federal Housing Finance Agency Director Mel Watt reiterated his recent sentiments that it is time for Congress to take on housing finance reform because the conservatorship of the government-sponsored enterprises has gone on too long.

And Watt wasn’t the only big-time housing official to call on Congress to tackle housing finance reform.

Speaking just before Watt, Department of Housing and Urban Development Secretary Ben Carson also said that Congress needs to address the future of Fannie Mae and Freddie Mac and said that HUD will be an “active participant” in those discussions moving forward.

“As I recently told members of the House Financial Services Committee, I share a great personal interest with this administration to tackle housing finance reform,” Carson told the crowd at MBA Annual.

“We are entering the 10th year of the government-sponsored enterprises, Fannie Mae and Freddie Mac, being placed into conservatorship, which is far too long for this issue to remain unresolved,” Carson continued. “Moving forward, HUD will be an active participant in this critical dialogue because of our fundamental housing mission, and because our (Federal Housing Administration) mortgage insurance program and our Ginnie Mae mortgage-backed security guaranty are large and vital components of the housing finance system.”

Carson said that Ginnie Mae’s nearly 50 years of providing a federal guarantee for mortgage-backed securities means that the agency can serve as a valuable resource in the housing finance reform debate.

“Of course, the details of housing finance reform have yet to be written. But I think there is a broad agreement that there is an opportunity for reform to ensure a well-functioning housing finance system for future generations that expands the role of the private sector and reduces taxpayer exposure,” Carson said. “And, we must approach these questions comprehensively to avoid unintended consequences.”

In his speech, Watt said that the calls for housing finance reform are growing “more urgent” each day.

“Fannie Mae and Freddie Mac reached another milestone last month, completing their ninth year in conservatorship under the control of FHFA. A conservatorship with a nine-year duration is unprecedented in the history of our country,” Watt said. “What is perhaps even more startling, however, is the percentage of the overall economy that has been in conservatorship for this protracted period. The enterprises back over $5 trillion in mortgages, by any measure not an insignificant percentage of the U.S. economy,” Watt continued. “It is not surprising, therefore, that calls for housing finance reform are growing more and more urgent every day.”

Watt also restated his belief that it should be Congress’ job to enact housing finance reform, not the FHFA. Watt also said that he believes there is a difference between GSE reform and housing finance reform.

“FHFA has taken a number of steps to reform the enterprises and reduce the risk of their business models while they have been in conservatorship. I have spoken and testified about these important reforms in much detail and on multiple occasions,” Watt said.

“While I think of these reforms as GSE reform, I have also made it clear that I firmly believe that it is the role of Congress, not FHFA, to do housing finance reform,” Watt added. “Unlike what I have characterized as GSE reform, housing finance reform will address issues that only Congress can decide.”

Watt also laid out a series of questions that he believes Congress needs to consider and address in whatever housing reform efforts are undertaken, including:

  • How much backing, if any, should the federal government provide and in what form?
  • What process should be followed to transition to the new housing finance system and avoid disruption to the housing finance market, and who should lead or implement that process?
  • What roles, if any, should the Enterprises play in the reformed housing finance system and what statutory changes to their organizational structures, purposes, ownership and operations will be needed to ensure that they play these roles effectively?
  • What regulatory and supervisory structure and authorities will be needed in a reformed system and who will have responsibility to exercise those authorities?

“I hope you will continue to join me in encouraging Congress to decide these important issues as soon as possible,” Watt said. “This is becoming more urgent every day.”

And while Watt did discuss housing finance reform, he did not talk about the GSEs looming zero capital buffer. Watt did discuss that issue earlier this month, when he told members of the House Finance Services Committee that the GSEs need to be allowed to hold some capital, because operating with no capital buffer is “especially irresponsible” to both the health of the companies and the American taxpayers alike.

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