GSE Reform Back in the Spotlight

You may have noticed that GSE reform is popping up on industry blogs and news articles. Fannie Mae and Freddie Mac are still under government conservatorship. Congress has been slow to tackle this issue for a couple of reasons. With a slowly recovering national real estate market, disruption of this Goliath market could be catastrophic to the overall economy. Secondly, with most of the hard work of reform of these large companies already completed, and their significant income streams restored, the glaring need is simply not there. Since the significant income streams go directly to the treasury, we can see why Congress might be slow to turn off the tap.  

The Director of the Federal Housing Finance Administration (FHFA) is an Obama appointee and former congressman, Mel Watt, whose term will expire this year. The FHFA regulates the GSEs and, precluding Congress, has ultimate authority to direct reform. There is concern that the Trump Administration will replace the Director with a libertarian-minded leader who would look to shutter the two companies and turn their role, along with FHA’s role, over to private enterprise. The likely candidates to take over these functions in our industry would be Wall Street’s “too big to fail” banks. This is not the group Credit Unions would want to look to in providing this key service of fairly priced access to the secondary markets.

A strong push is being made to get Congress to act on GSE reform before Director Watt’s term expires.  MMS has signed an open letter to Congress, along with hundreds of small- to mid-size mortgage participants, to preserve the federal guarantee on mortgage securities, using a utility-style regulatory framework to ensure a level playing field and equal access to the secondary market for lenders of all sizes and business models.  

The current market and political happenings could provide the motivation to finally get something accomplished, so we will continue to lobby for the right solution. Feel free to do your own lobbying with your federal officials and let me know if I can be of assistance. Consider yourself on notice, if legislative progress is made, we will need a grassroots effort to fight for our access.