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WHAT'S
MISSING FROM
GSE REFORM
Earlier this year, the U.S. Treasury
Department released its plan to reform the
housing finance system. As part of that
reform, Fannie Mae and Freddie Mac are
preparing to exit conservatorship. However,
a new paper from the Urban Institute
states that the Treasury's plan is "based on
a misconception," regarding Fannie and
Freddie's dominance. e plan, Urban
Institute's Laurie Goodman, Jim Parrott, and
Mark M. Zandi note, would result in "would
result in less access to mortgage credit, greater
risk to the taxpayer, and no end in sight for
the system's reliance on a too-big-to-fail
duopoly."
According to the department, the
Treasury Housing Reform Plan consists
of a series of recommended legislative and
administrative reforms aimed to "protect
American taxpayers against future bailouts,"
preserve the 30-year-fixed-rate mortgage,
and help guide Americans toward the path to
homeownership.
"e Trump administration is committed
to promoting much-needed reforms to the
housing finance system that will protect
taxpayers and help Americans who want to
buy a home," said U.S. Treasury Secretary
Steven T. Mnuchin in a release by the
department. "An effective and efficient
Federal housing finance system will also
meaningfully contribute to the continued
economic growth under this Administration."
Urban alleges that with the GSEs
holding on to only a small amount of credit
risk, the only way in which Treasury might
meaningfully reduce their dominance is by
reducing their mortgage origination footprint.
However, the proposal does not do this.
"While the Trump administration's
ultimate objective is the release of the GSEs
from conservatorship as privately-owned
financial institutions, it is not at all clear that
is where its proposed reforms would actually
lead," Urban said. "In order for the GSEs to
build the level of capital presumably needed
under the capital regime eventually imposed
by the FHFA, they will need to go to the
capital markets for what would likely be the
largest capital raise in the nation's history.
is is only possible if the administration can
get investors comfortable with what they are
being asked to invest in."
