The White House plan calls for ending the GSE’s federal charters and turning Fannie and Freddie into private companies. Other private entities would also bankroll mortgages and issue mortgage-backed securities (MBS), thus breaking a longstanding duopoly in the housing-finance system.
The government would provide an explicit government guarantee on the bonds. That guarantee would only cover timely payment of the bonds during times of extraordinary stress. By doing that, MBS issuances would remain attractive, and theoretically the mortgage market would continue to see reasonably priced, 30-year fixed mortgages.
A self-sustaining insurance fund would be created to cover losses in extraordinary circumstances. The GSEs would be required to hold capital that could absorb the losses in normal downturns. A federal regulator would establish their fees and regulate their activities to ensure sound underwriting.
The plan also would transfer most of the GSEs’ responsibilities that support affordable housing to the U.S. Department of Housing and Urban Development. All the new private entities that issue MBS would pay into a fund that would support affordable-housing goals, which would now be handled by HUD and the Federal Housing Administration.
Mortgage Bankers Association (MBA) President David Stevens praised the release of the plan.
“It includes many core principles that MBA has long advocated for, such as an explicit government guarantee on MBS only as a catastrophic backstop, allowing for multiple guarantors and ensuring small-lender access,” Stevens said. “MBA is heartened that the proposal recognizes that reform must be part of any plan before either Fannie Mae or Freddie Mac is released from conservatorship.”
Stevens said, however, “The devil is in the details.”
The nonbank trade group the Community Home Lenders Association said it had significant concerns about adding GSE guarantors, believing that such a move will give large banks an opportunity to establish affiliated entities that will cut deals with their retail operations, crowding out smaller private mortgage companies. The Trump plan says one of its goals is to create a level playing field for all lenders, however.
“CHLA also encourages the administration to incorporate explicit policies of g-fee [guarantee-fee] parity and banning volume discounts into their GSE-reform proposals as they are developed, to protect those very same small lenders and consumers," the trade group said.
Victor Whitman