Fannie Mae, Freddie Mac conservatorship addressed in congressional hearing

WASHINGTON — Nearly a decade after the federal government took control of Fannie Mae and Freddie Mac through conservatorship, little progress has been made in finalizing housing-finance policy that can take the secondary mortgage market beyond the status quo, according to a press release issued by the National Association of Realtors.

Leaders on the House Financial Services Subcommittee on Housing and Insurance took steps to change that earlier this month with a hearing titled “Sustainable Housing Finance: Private Sector Perspectives on Housing Finance Reform.”

Industry leaders, including members of the NAR, testified at the event. Kevin Brown, chairman of NAR’s Conventional Financing Committee, told members of Congress during his testimony that Realtors have two key objectives in the housing-finance-reform discussion.

“First, Realtors want to ensure that in all markets, affordable mortgage capital will always remain available for creditworthy Americans,” Brown said. “Second, Realtors believe that taxpayer dollars should be protected.”

Fannie Mae and Freddie Mac, both considered “government-sponsored enterprises,” are responsible for providing liquidity to lending institutions through a secondary mortgage market, where loans are securitized and sold to investors. This activity affords banks and other lending institutions the liquidity to continue making loans, while incentivizing them to make mortgage products like the 30-year fixed-rate mortgage available to middle-class consumers.

The NAR has argued that it is time to move Fannie Mae and Freddie Mac out of conservatorship, which Brown told members of Congress is unsustainable in its current form. Instead, Brown offered a vision for a “government-chartered, non-shareholder-owned” system that puts its service to homeowners and taxpayers ahead of profits.

“NAR believes this structure, with clearly defined roles and enhanced safeguards, is the best model for the new authorities, because it establishes a separate legal identity from the federal government while serving a public purpose,” Brown said.

“Unlike a federal agency, government-organizations are established to be politically independent and often are self-sustaining — not requiring appropriations from Congress,” he said. “The ability of the authorities to focus on their mission, without the need to chase risky profit-driven opportunities, is an important criteria for Realtors.”

As part of the reformed system, Brown outlined some important criteria for success, including the following:

• An explicit government guarantee of the new authorities.

• Putting profits toward capital reserves to alleviate losses that occur during market fluctuations and economic downturns.

• Converting Fannie Mae and Freddie Mac into the new authorities to utilize existing infrastructure and capabilities and minimize market disruption.

The government-chartered authorities are preferable to nationalized or fully privatized systems, Brown said, because they could respond to market downturns effectively, while also minimizing taxpayer exposure to losses. Brown also suggested that the new authorities should utilize a regulated, retained portfolio, which could be tapped during a downturn or to test innovative mortgage products.

In the past, the NAR contributed to the conversation on how a new housing finance system would work in part through a series of principles on housing finance reform. As talk of housing finance reform heats again on Capitol Hill, Brown said that achieving success is more important than ever.

“The stakes have never been higher for the housing market and the broader economy,” he said. “Yet, there are sizable challenges and risks associated with the ongoing conservatorships of the enterprises. Comprehensive housing finance reform enacted by Congress will help address many of these issues.”