MBA experts on GSE reform: Where does risk fall when it comes to reform?

Hint: It’s not the capital buffer

Fannie Mae and Freddie Mac are getting uneasily close to spending nearly a decade in conservatorship, with Sept. 6, 2008, officially marking 10 years.

As conservations have slowly shifted from almost a joke to more of a serious possibility under the new administration, several experts at the Mortgage Bankers Association’s 2017 annual convention and expo weighed in on the probability reform and what lies ahead for reform.

Rodrigo López 2017 MBA chairman, executive chairman of NorthMarq Capital Finance, led the session on Tuesday, titled, “Mapping the Course Toward Housing Finance Reform,” which included Isaac Boltansky, director of policy research with Compass Point Research & Trading, Jaret Seiberg, managing director, financial services and housing policy analyst with Cowen Washington Research Group and Michael Stegman, senior fellow of the housing finance program with the Milken Institute.

To start, López asked, “We’ve been talking about reform for nine years. Why do we need reform?”

Boltansky responded by pointing out the fact that government-sponsored enterprises capital buffers that are slated to fall to zero next year.

However, he explained that there is not a single congressional staffer that views the buffer issue as a meaningful catalyst, from a policy side, to start reform in Congress.

Stegman put the feelings of Congress into words well, saying, “When we are going on 10 years (in conservatorship) and when there are good things in the market, it takes away the urgency for reform.”

Stegman questioned the saying that “conservatorship is not sustainable when we are in the tenth year. If we made a loan to a low income family, I would suggest that is sustainable.”

And as a result, why would Congress feel the need to change the status quo.

“Congress only acts when there is a fire. There is no fire here. The market is functioning well enough for members of Congress,” said Boltansky.

Boltansky said for that reason, he is pessimistic on the idea of GSE reform any time soon. “The earliest you will see anything is 2019 when (House Finance Services Committee Chairman) Jeb Hensarling, R-Texas, is termed out.”

He even joked that anyone, literally anyone, even House Financial Services Committee Ranking Member Maxine Waters, D-Calif., would be better for GSE reform than Hensarling. The comment was enough to draw a hearty laugh from the audience.  

Outside little incentive, Boltansky added that he is also pessimistic since even though there’s been considerable progress toward GSE reform, there are meaningful questions that haven’t been answered.

Boltansky said rather than the capital risk spurring Congress to action, the political risk should.

“The political risk is palpable,” said Boltansky, pointing to the uncertain future of who will replace Mel Watt as director of the Federal Housing Finance Agency.

Seiberg expanded on the idea of who will lead the FHFA after Mel Watt, who was sworn in on Jan. 6, 2014 to a five-year term as director of the agency.

There’s lot of people that could come in and take over the FHFA and gut a lot of the affordable issue that Democrats want, Seiberg said.

He added that Democrats seem to downplay that fact, and even if Democrats take the House in the future, they still need the Senate.

This risk, to Seiberg, should be incentive enough for Democrats to consider GSE reform.

Going back to the capital buffer side, this topic is still likely to be addressed.

When asked if recapping the GSEs helps or hinders GSE reform, Boltansky explained the possibility.

He said that the most likely option is to change the quarterly dividend calculation to an annual one, so it would smooth out some of the quarterly volatility.

However, in regards to the overall idea of GSE reform, Seiberg, said, “The risk is really high for inaction.”



3d rendering of a row of luxury townhouses along a street

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