Federal Housing Finance Agency Director Mel Watt laid out his ideas for housing finance reform last week, wherein he advocates for Fannie Mae and Freddie Mac to be reincorporated as private entities.
In a paper entitled, “Federal Housing Finance Agency Perspectives on Housing Finance Reform,” Watt said Fannie and Freddie would be “secondary market entities,” which are private, shareholder-owned institutions chartered by the regulator to issue government-guaranteed mortgage-backed securities.
The Mortgage Bankers Association supports Watt’s vision.
“MBA applauds FHFA Director Mel Watt for releasing this important paper which reinforces the need for comprehensive legislative housing finance reform,” MBA President and CEO David Stevens said. “There are many similarities between this proposal and MBA’s own plan including the need for a government guarantee behind MBS to support single-family and multifamily finance, two or more competing guarantors, the use of a single security in the single-family market, and a level playing field for lenders of all sizes and business models. We look forward to continuing to work with Congressional leaders, the Administration, Director Watt, and other stakeholders to create a secondary mortgage market that provides a more stable system and broad, sustainable access to credit for all qualified borrowers.”
Independent Community Bankers of America (ICBA) said it was glad to see that the proposal would preserve the role of Fannie Mae and Freddie Mac in the secondary mortgage market. ICBA President and CEO Camden Fine said community banks depend on Fannie and Freddie for direct access to the secondary mortgage market. This, in turn, promotes lending in local communities and offers an alternative to the large financial institutions.
“This plan provides a solid foundation and a clear roadmap of realistic reforms that can be implemented without disrupting the liquidity of the secondary market as Congress works to reform the government-sponsored enterprises,” Fine said. “It also closely aligns with the recommendations laid out in ICBA’s Principles for GSE Reform White Paper, which calls on policymakers to utilize the strengths of the current system and focus reforms in areas that improve taxpayer protection through strong capital and liquidity requirements, maintenance of credit standards, regulated rates of return to shareholders, and an explicit and paid-for government guaranty on GSE-issued mortgage-backed securities. Most important, it would preserve direct, equal, and competitive access to lenders of all sizes on a single-loan basis.”