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What Should Be the Aim of GSE Reform?


As the GSE conservatorship surges forward with little promise of reform, many in the industry cannot help but wonder what will happen next.

Gary Acosta, Co-founder and CEO of the National Association of Hispanic Real Estate Professionals (NAHREP), Jim Park, CEO of the Mortgage Collaborative, and Joseph J. Murin, Vice Chairman of Chrysalis Holding LLC and Chairman of JJAM Financial LLC said in an essay published by the Urban Institute that if the GSE reform should happen, the industry should aim to meet the needs of future generations of homeowners, not the wants of political interests. In order to do this, however, Ginnie Mae will need to come forward as its own government corporation.

"These needs can be met only with a sustainable structure that provides consistent market execution, low down payment opportunity, and long-term fixed-rate mortgage finance, with the government taking as little risk as the market can bear to deliver this sustainable structure," the authors wrote.

The authors suggest a reform that uses “existing plumbing” of the mortgage market to "develop a safer and more sustainable market bearing an explicit catastrophic-risk government guarantee that will serve each segment of the homebuying public."

The proposal focuses on two goals: (1) Meeting the consumer needs, and (2) Eliminating as much of the government risk exposure as possible.

The authors proposed two models under a new Ginnie Mae 2.0 structure that uses the best of the GSEs’ core capabilities and Ginnie Mae’s functionality.

"Ginnie Mae is the most viable solution with the least disruption because the U.S. mortgage market is already familiar with Ginnie Mae, as are most domestic and foreign investors," the authors stated. "Other proposals seem too complicated or create unnecessary additional structures to meet the consumer and MBS buyer needs. Too many other proposals don’t seem sustainable or simply don’t remove the “private gain and public risk” that partly caused the housing crisis and continues to haunt us."

They concluded, "Any solution for the future of the GSEs needs to be based on simple principles and meet the two goals we believe are strategic imperatives for America. Ginnie Mae 2.0 could meet those goals and the needs of current and future homebuyers and MBS buyers in the least disruptive and most sustainable manner."

Taxpayers can breathe a sigh of relief after receiving the news that Freddie Mac will not need a draw on Treasury following widespread speculation in the previous week or so that Freddie Mac would need another draw due to the GSEs' dwindling capital buffer, which is currently $1.2 billion.

First the good news from Freddie Mac’s Q1 2016 Financial Results released on Tuesday morning: Freddie Mac will not need a draw on Treasury for the time being.

Now the bad news: Freddie Mac reported a net loss of $354 million for the first quarter following a net profit of nearly $2.2 billion in Q4. Not only that, but Q1 marked the second time in the last three quarters that Freddie Mac suffered a net loss; for the third quarter of 2015, the net loss was $475 million.

Fannie Mae earnings are expected tomorrow. Will this government-sponsored enterprise need a bailout from Treasury?

About Author: Xhevrije West

Xhevrije West is a talented writer and editor based in Dallas, Texas. She has worked for a number of publications including The Syracuse New Times, Dallas Flow Magazine, and Bellwethr Magazine. She completed her Bachelors at Alcorn State University and went on to complete her Masters at Syracuse University.

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