DS News

» VISIT US ONLINE @ DSNEWS.COM 65 Mae and Freddie Mac and setting them up as guarantors benefiting from the new explicit imprimatur. e GSEs enter the market with the inherent advantages of ongoing companies that have been operating in the sector for decades. Any and all other would-be guarantors would be starting from zero, almost assuring few, if any, competitors. ird, the newly proposed solution for affordable housing creates the same problems that the existing structure does—namely, merely substituting one type of subsidy for another. While eliminating the affordable housing goals and duty-to-serve rules is common sense for the reasons noted earlier, its proposed replacement, the Market Access Fund, suffers from the same flaws. Both approaches add leverage and thereby exert upward pressure on house prices, particularly, as noted, for entry-level buyers. It bears repeating: these affordable housing policies make homes less, not more affordable. A fourth flaw is setting Ginnie Mae up as operator of the securitization platform. By all accounts, Ginnie already faces serious operational difficulties and is in need of a major systems makeover. ese include serious upgrades to its platform; an issuer portal; a more robust counterparty risk-management program; and upgraded safeguards against issuer failures. Is Ginnie Mae really up to the assigned task, which would likely quadruple its issuances? How much time and money will have to be spent to get Ginnie Mae fully up to speed? Last, the proposed new structure will cause Ginnie Mae securities prices to decline and FHA rates to rise if the explicit government guarantee—now exclusive to Ginnie Mae securities—is extended to all securities issued by all approved guarantors. Suddenly, the guaranteed market grows nearly threefold but at the expense of FHA borrowers. is may well lead to unseen economic consequences. Given the past congressional failures already noted, an appropriate path forward is to use the tools already granted to the administration and regulators to address the many failings of the current government- centric approach. is could be done by the Treasury Department working with the FHFA, the FHA, and the CFPB. With respect to the GSEs, the FHFA director/conservator might make the following additions/revisions to the GSE Single-Family Scorecard for 2019: » Tightened GSE underwriting on primary purchase homes so as not to compete with FHA. is includes not acquiring high CLTV (greater than 95 percent) and high debt-to-income (greater than 43 percent) loans. » Reduce GSE single-family financing activity not directly related to the acquisition of conforming mortgages made to purchase a primary residence, by setting a goal to substantially reduce such loans so that owner-occupied home-purchase loans at conforming loan limits account for 90 percent of GSE loan acquisitions for calendar year 2023. is goal would be achieved in annual steps and would be accomplished through tightened underwriting, increased guarantee fees, or restrictions on acquiring loans unrelated to the acquisition of conforming mortgages made to purchase a primary residence. Specifically, this would include cash- out refinance (25 percent of 2017 acquisition volume), high-cost loan limit (3 percent of 2017 acquisition volume) and freeze conforming loan limit at $453,100 (2018 limit), second home and investor acquisitions (9 percent of 2017 acquisition volume), and non-cash out refinance (15 percent of 2017 acquisition volume). » GSEs to submit justification for all program and product expansion approvals that have been given while in conservatorship. ose that compete with the private sector should be terminated. » FHA and the CFPB have their respective roles also. In short, they need to end or revise policies that are pro- cyclical during home price booms. In sum, there's nothing new in this latest effort to restructure the mortgage finance system. It will not eliminate or reduce the amount or cost of the federal government's debt. Neither will it reduce moral hazard or promote financial stability. It will certainly not assist low- and moderate-income households by making homeownership more affordable. Given the past failures of congressional action, the obvious solution is to take measured and deliberate administrative action now to implement GSE reform. In five years, the government's role will have been substantially reduced without any significant market disruption. At that point, a reasonable legislative solution that helps first-time buyers and protects taxpayers will be more visible and doable legislatively. e GSEs enter the market with the inherent advantages of ongoing companies that have been operating in the sector for decades. Any and all other would- be guarantors would be starting from zero, almost assuring few, if any, competitors.

• Cover