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Legislation, Not FHFA’s Administrative Actions, Should Drive Housing Policy, Analyst Says

American-flag-houseHousing policy has largely been driven by administrative actions on the part of the Federal Housing Finance Agency (FHFA) since the crisis, a practice that Washington, D.C.-based non-profit think tank American Action Forum President Douglas Holtz-Eakin says needs to change.

Holtz-Eakin, former director of the Congressional Budget Office, wrote on the American Action Forum's blog, "The Daily Dish," earlier this week that logic would dictate large reforms to the housing finance system following the crash, yet no such large reform has taken place. All legislation aimed at achieving those reforms – particularly to Fannie Mae and Freddie Mac – have failed to clear either the House or the Senate.

Instead, the FHFA's administrative actions have dictated housing policy, sometimes using Fannie Mae and Freddie Mac as the vehicle, Holtz-Eakin said.

"In the end, this is no substitute for bipartisan legislation that reforms the GSEs and efforts should be made to achieve — or at least not impede — such reforms," Holtz-Eakin said.

He said that while Dodd-Frank made some important changes to underwriting policies, such as adopting standards for a qualified mortgage (the "QM" rule) and qualified residential mortgages (QRM), "[t]hese rules have been the source of some concern regarding their impact on a housing market that continues to struggle." He points to the fact that original lenders are not required to take on any of the risk with securities composed entirely of QRM.

Holtz-Eakin cited the bill proposed by Senate Banking Committee Chairman Richard Shelby (R-Alabama), the "Financial Regulatory Improvement Act of 2015" as a sensible step toward achieving housing policy reform. The bill passed in the Committee last week along party lines by a 12 to 10 vote. The first step the bill takes toward reform is preventing Congress from using increases in the guarantee fees for Fannie Mae- and Freddie Mac-backed mortgages to cover expenses that are not part of the GSEs' business or housing reform. Second, the sale of Fannie Mae and Freddie Mac's preferred stock by the Treasury Department is prohibited unless Congress approves it or directs it, which "ensures that legislation, not administrative action, determines the future of the GSEs," Holtz-Eakin wrote.

The bill also calls for the GSEs to take on more risk sharing, which must increase by 50 percent per year. Some of that risk sharing must be "front" loaded, according to Holtz-Eakin, which forces FHFA and Fannie Mae and Freddie Mac to make better use of private capital, not taxpayer money, as a backstop for mortgages.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.
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