Rep. Scott Garrett (R-N.J.) thinks housing finance in the future should be entirely funded by private money. The chief regulator of Fannie Mae
and Freddie Mac
added Thursday the bill was a good first step but questions remain and it would take time to install if approved.
Garrett introduced a bill
last week establishing a framework for a private mortgage market that Federal Housing Finance Agency
Acting Director Edward DeMarco said would not allow any investor to perceive an implied government guarantee by the taxpayer. It is the first proposal implementing the first option provided by the Treasury Department white paper
released in February.
"The discussion draft is a thoughtful approach to a framework that does not rely on a government guarantee," DeMarco told Garrett's subcommittee Thursday. "The final decision that policymakers must make involves determining what structure will provide a functioning housing finance market and does not place taxpayers at risk."
When asked what the future secondary market would look like if the bill becomes law, DeMarco said matter-of-factly, "It looks like one that is pricing the risk of what it actually is."
But he stopped short of fully backing the bill's singular approach that the U.S. mortgage market could be fully funded by private investors.
"It seems safe to say that there will always be some portion of the housing or mortgage market that will be assisted by government programs, either through direct funding or through guarantees," DeMarco said. "It is unlikely the FHA or the VA would go anywhere."
Importantly, the bill would shift the FHFA away from safety and soundness conservator to a de facto rule maker for the secondary mortgage market, according to the agency's leader.
DeMarco expressed some reservation about how his agency would handle such a fundamental shift.
"We've got quite an examination workforce," DeMarco said. "The current structure is focused on safety and soundness. This bill would replace that function. With regard to our size, I'm not sure how it would work to go from safety and soundness to establishing standards for the mortgage market."
DeMarco said two things are clear when considering a future financing system. One, the old GSE model simply did not work. As of Sept. 30, both Fanne and Freddie would have pulled $169 billion in bailouts from the Treasury. And second, no matter what option Congress eventually takes, investors will need a clear and consistent playbook and time to adapt.
When one Republican on the subcommittee asked DeMarco why the proposal couldn't be installed tomorrow, he waved off such an ideological motion.
"We could not do it tomorrow," he said. "It would take some time to build out the infrastructure and establish these standards. Investors are going to want to know what these standards are going to be, that these are the rules of the road and these rules aren't going to change every three months. Only then, I believe the private market can come in and take a sizeable portion of the market."
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