Administration to Host August Conference on Housing Finance Reform

The Obama administration said Tuesday that it plans to deliver a ""comprehensive housing finance reform proposal"" to Congress by January 2011.

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Government officials will hold a conference on August 17 at the Treasury building in Washington D.C. to solicit public input from industry stakeholders that the administration says will help shape the future of the housing finance system, including the structure of the nation's two largest mortgage companies, ""Fannie Mae"":http://www.fanniemae.com and ""Freddie Mac"":http://www.freddiemac.com.

HUD Secretary Shaun Donovan says the administration is committed to public engagement on this complex and critical issue. The August conference is expected to bring together academic experts, consumer and community organizations, industry groups, and other market participants for an open discussion about housing finance reform.

In April 2010, Treasury and HUD issued a set of questions for public comment on the future of the housing finance system. Officials say so far, they have received ""more than 300 responses"":http://www.regulations.gov/search/Regs/home.html#docketDetail?R=TREAS-DO-2010-0001 from a broad cross-section of consumer advocates, industry trade groups, think tanks, and other market stakeholders, and with the perspectives provided through these submissions, the administration says it has already begun the work of developing proposals for housing finance reform.

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In a post on the ""White House Blog"":http://www.whitehouse.gov/blog/2010/07/27/moving-forward-housing-finance-reform Tuesday, Jeffrey A. Goldstein, under secretary for domestic finance at the U.S. Treasury Department, offered some context to the difficulty of the task that lies ahead.

""[E]veryone â€" across both sides of the aisle â€" agrees [the nation's housing finance system] is in clear need of reform,"" Goldstein wrote, but he stressed that the size, importance, and complexity of the housing finance market mandate that reform be crafted with great care.

Goldstein noted that the U.S. mortgage market is the second largest securities market in the world, second only to U.S. Treasuries. The two government-backed mortgage giants, Fannie Mae and Freddie Mac, currently guarantee more than $5 trillion in mortgages and hold a total of $1.6 trillion in agency loans and other securities in their portfolios.

For decades, Goldstein said, the GSEs privatized their profits while ultimately putting taxpayers at risk for losses.

Fannie and Freddie have made progress recently in improving the credit quality of their new obligations by tightening requirements for FICO scores and loan-to-value ratios, increasing their guarantee fees, and adjusting pricing for risk, Goldstein explained.

But, he says, the bad loans the GSEs took on between 2005 and 2007 during the height of the housing bubble have led to significant losses that the federal government has had to backstop, with the consequences of those poor credit choices still impacting the GSEs' business.

""This type of ‘heads private shareholders win, tails taxpayers lose' system of misaligned incentives makes no sense for the nation,"" Goldstein said.

""[T]he Obama administration is committed to an open and inclusive public dialogue about the future of U.S. housing finance,"" Goldstein said. ""Given the importance of this task, we want to hear the best ideas from all sides of the debate. Working together with our colleagues in Congress, we believe that this is the right path forward to achieve responsible reform.""