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Spotlight on Housing Reform

The Treasury Department and the Federal Housing Finance Agency (FHFA) is making steps toward reforming Fannie Mae and Freddie Mac. On Tuesday, the Senate Committee on Banking, Housing, and Urban Affairs held a hearing to discuss the next steps in housing reform. U.S. Department of the Treasury Secretary Steven Mnuchin, Housing and Urban Development (HUD) Secretary Ben Carson, and FHFA Director Mark Calabria appeared before the Committee as witnesses.

“Today, we are joined by the leading voices within the Administration on reforming and strengthening our housing finance system: the Secretary of the Treasury and the Secretary of Housing and Urban Development, both of whom have just submitted housing finance reform proposals to the President, as well as the Director of the Federal Housing Finance Agency, who serves as regulator and conservator of Fannie and Freddie,” said Committee Chairman Mike Crapo.

When asked if Fannie Mae and Freddie Mac are systemically important, all three witnesses said yes. According to Secretary Mnuchin, the GSEs “have a competitive advantage over other market participants under the so-called “QM patch” to the  Consumer Financial Protection Bureau’s (“CFPB”) ability-to-repay rule.”

“I must emphasize, and our recommendations make it clear, that the Administration’s preference is to work with Congress to enact comprehensive housing finance reform legislation,” Mnuchin said in his opening statement. “Legislation could achieve lasting structural reform that tailors explicit Government support of the secondary market, and repeals the GSEs’ congressional charters and other statutory privileges that give them a competitive advantage over private sector competition.”

Secretary Carson announced that HUD has submitted its plan for housing finance reform, calling housing finance reform a key priority for this Administration. In his opening statement, Carson discussed HUD’s plan for the FHA.

“Congress must work with the Administration to: refocus FHA to its core mission of serving low- and moderate-income families, including first-time homebuyers (FTHBs), that cannot be fulfilled through traditional underwriting; protect American taxpayers from bailouts; provide FHA and GNMA with the tools they need to manage risk of their oversized portfolios; and provide liquidity to the housing finance system,” Carson said.

Director Calabria, meanwhile, focused on GSE Reform. Reforming Fannie Mae and Freddie Mac has been one of Calabria’s priorities since his appointment as director, and in his statement, he stressed the need for reform, noting Fannie and Freddie’s status in the current economic climate.

“In their current financial condition, the Enterprises are not equipped to withstand a downturn in the housing market,” Calabria said. “The Enterprises own or guarantee a combined $5.5 trillion in single and multifamily mortgages out of a $12 trillion combined market. Yet with just $6 billion in allowable capital reserves, the Enterprises’ combined leverage ratio is nearly a thousand to one.”

In a statement, National Housing Conference President and CEO David M. Dworkin discussed the impact of the hearing on housing, noting that it is an important step toward housing finance reform post-Great Recession.

“The most important thing the hearing accomplished is that it has reinvigorated the debate on housing finance reform after 11 years of conservatorship and established a path forward that requires both Congress and the administration to get right," Dworkin said. "Housing finance reform does not require the invention of an entirely new mortgage finance system. Notably, at the hearing’s conclusion, Senator Brown offered to have Senate and Treasury staff begin discussing next steps. That is a major development and demonstrates Senator Brown’s good faith. Treasury should immediately take steps to respond to this offer.”

Watch the webcast of the hearing here.

About Author: Seth Welborn

Seth Welborn is a contributing writer for DS News. He is a Harding University graduate with a degree in English and a minor in writing, and has studied abroad in Athens, Greece. An East Texas native, he also works part-time as a photographer.
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