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9
A BLUEPRINT
FOR REFORM
How can the housing finance system be
reformed in the absence of legislation? A
new report by the Milken Institute sets out
to answer this question, by building upon
the progress that has been made towards a
safer housing finance system through the
conservatorship of the government-sponsored
enterprises (GSEs) under the Federal Housing
Finance Agency (FHFA).
Titled, "A Blueprint for Administrative
Reform of the Housing Finance System," the
report makes a case for why the government
must avoid releasing Fannie Mae and Freddie
Mac from conservatorship without fixing
some of the flaws in their charter. e report's
authors, Eric Kaplan, Michael Stegman,
Phillip Swagel, and eodore Tozer outline
actions that can address some of the challenges
related to legislative action to set the stage for
further reform that "includes changes to the
GSE charters."
"Ending the conservatorship without
further reforms would preserve flaws that allow
the GSEs to privatize profits and socialize
losses," said co-author Eric Kaplan, Director of
Housing Finance Policy at the Milken Institute
Center for Financial Markets. "Implementing
our recommendations would help strengthen
the housing finance system and pave the way
for bipartisan legislation putting in place the
last piece of the housing finance reform puzzle."
e report argues that the GSEs' post-
crisis success has occurred under the protected
"duopolistic status that impedes entry and
competition, unparalleled access to capital with
government backing," and due to the strong
economic environment that reflects historically
low delinquencies.
Some of the actions recommended by the
report include greater transparency into and
FHFA oversight of GSE activities, more risk-
based pricing combined with explicit affordable
housing subsidies, and finalizing a GSE capital
rule that supports a housing finance system that
is "driven by private capital that can survive
future downturns and maintain liquidity
for creditworthy borrowers throughout the
economic cycle."
e report also made recommendations for
the Consumer Financial Protection Bureau
(CFPB). ey include actions for CFPB on
the ability to repay/qualified mortgage rule
and facilitating innovation while maintaining
consumer protection.
