Posted on Monday, February 14, 2011
Administration Unveils Plan to Restructure GSEs, Federal Role in Housing Finance; Debate Now Moves to Congress
As required under last year’s “Dodd-Frank” financial reform law, the Obama Administration today unveiled its long-awaited framework for winding down the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, reducing the government’s footprint in housing finance, and bringing private capital back to the mortgage market. Treasury Secretary Geithner emphasized the importance of reforming the system on a responsible timeline that does not jeopardize economic recovery or repair of battered housing markets, estimating the process could take 5-7 years. (Treasury Dept. News Release and "Reforming America's Housing Finance Market" report - pdf download)
Treasury Secretary Timothy Geithner unveiled the Administration's "Reforming America's Housing Finance Market" report - pdf download)
The Other key planks of the reform proposal are to:
• Fix fundamental flaws in the residential mortgage market to better protect borrowers, lenders, and investors (e.g., by helping consumers avoid unfair practices and make informed decisions about mortgages, increasing accountability and transparency in the securitization process, raising capital standards to help ensure that banks can better withstand future downturns, declines in home prices and other sudden shocks, and by improving servicing and foreclosure processes).
• Better target federal support for affordable housing, e.g., by reforming and strengthening the Federal Housing Administration (FHA), rebalancing the nation’ s housing policy and strengthening support for affordable rental housing, and ensuring that capital is available to creditworthy borrowers in all communities.
The plan puts forward three separate policy paths to guide upcoming debate on revamping the federal role in the secondary mortgage market. As The Wall Street Journal reported today, the first would provide for a new government backstop of certain mortgages under a federal “reinsurance” model. Option No. 2 would provide a more limited backstop “that would scale up primarily during times of economic crisis.” The third is a more bare-bones approach under which there would be no government backstop beyond existing agencies such as the FHA.
House Financial Services Committee (HFSC) Chairman Spencer Bachus (R-AL) and Senate Banking Committee ranking member Richard Shelby (D-AL) were reportedly disappointed in the Administration's reform plan, but pledged to work with the White House and both parties in Congress to find “common ground” on GSE reform and broader housing issues (imarketnews, Feb. 11).
House Financial Services Committee member Scott Garrett (R-NJ)
HFSC member Scott Garrett (R-NJ), reportedly a frequent critic of the Administration, said he was “encouraged to see the Administration included a number of reform ideas that track closely with my own” (The Wall Street Journal, Feb. 11).
In The Roundtable’s view, any forthcoming reforms in this area should ensure a mechanism for supporting the conventional multifamily loan market during periods when the private financing market is distressed. In 2005-2007, Fannie and Freddie accounted for only 35 percent of the multifamily market. Today, they account for approximately 90 percent of new apartment loans, filling the void left by the stalled CMBS and commercial bank markets.
Policymakers should focus their efforts on creating a system that fosters market stabilization, while permitting prompt re-engagement of private lenders in the market. Additionally, with some $400 billion worth of apartment loans maturing by year-end 2014, it is important to have a functional multifamily finance system in place. Real Estate Roundtable