Nearly eight years of conservatorship has turned talks of reforming Fannie Mae and Freddie Mac into a myth that the industry might discuss but doesn't believe will actually happen.
The same could be said, however, about where the industry now stands under the current administration.
Few people forecasted that overhauling the Consumer Financial Protection Bureau, changing Dodd-Frank and working on reforming the government-sponsored enterprises would all be top priorities in 2017.
Up until this point, housing wasn’t even a main concern in government, including during the election.
While talks about replacing the Dodd-Frank Wall Street Reform and Consumer Protection Act continue, GSE reform seems stuck in neutral, despite a handful of people under the current administration, including Treasury Secretary Steve Mnuchin, publicaly stating that GSE reform is a priority of this administration.
So what’s the main factor stopping GSE reform? No one really understands how to do it. This problem is exactly what the Mortgage Bankers Association is trying to fix.
Earlier this year, I attended a panel session featuring Edward DeMarco, senior fellow in residence with the Milken Institute, Michael Bright, director at the Milken Institute Center for Financial Markets, Mark Zandi, chief economist at Moody’s Analytics, Jim Parrott, senior fellow at the Urban Institute and owner of Falling Creek Advisors, and Jim Millstein, founder and CEO of Millstein & Co. The panel discussed GSE reform while attendees ate their lunch, creating an oddly light mood for such a serious issue.
An attendee at the conference asked the panelists, “Who exactly is stopping GSE reform if there are so many people fighting for various reform options? After all, it’s been nearly a decade with no change.”
In essence, the response was that the topic is too complex for people in Congress to want to get involved.
“We need to explain this in a way that is coherent,” said Parrott.
Now, several months later, the MBA could have the solution.
A big portion of the MBA’s white paper, “GSE Reform: Creating a Sustainable, More Vibrant Secondary Mortgage Market,” addresses what the GSE reform process will look like.
“Although the GSEs’ transition out of conservatorship remains among the most critically important components of comprehensive GSE reform, this subject has not received the significant analytical treatment it deserves. This section seeks to describe the objectives of the transition process and to provide some concrete detail as to what would be involved in its successful implementation,” the white paper states. The section in the paper it is referring to focuses on transition.
David Stevens, MBA president and CEO, said in an interview that part of the reason GSE reform has taken so long it that it is really complex.
Outside of GSE reform, the Senate banking committee doesn't often have to grapple with topics as complex as this.
The Senate wanted to find ways to simplify as much of the complexities as possible, Steven stated, which is why the white paper focuses on that. “We have a much more simplistic model,” he said.
Stevens explained that the paper lays the groundwork for reform and goes a long way to streamline the subject.
He also reiterated that the task force that developed the paper represents a broad cross-section of the residential and multifamily real estate finance industries, including entities of varying sizes and business models.
GSE reform was barely taken seriously before this year. One reason, as the industry noted, was that it needed to be made digestible for those in Congress, so the MBA has done exactly that. It created a roadmap for what comes next.