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14 CONGRESSMEN AGREE WHITE HOUSE HAS NOT MADE GSE REFORM A PRIORITY Appearing as panelists in a discussion at the Bipartisan Policy Center titled, "Housing Finance Reform: A Status Report," U.S. Reps. Randy Neugebauer (R-Texas) and John Delaney (D-Maryland) agreed a major reason such reform has not happened is because the White House has not made it a top priority. e size of the government's footprint in housing has been a much-debated topic in the last year as the Federal Housing Finance Agency (FHFA)'s conservatorship of Fannie Mae and Freddie Mac will reaches its seventh anniversary this month. While many lawmakers on both sides agree GSE reform is necessary, the debatable issue is what, if anything, should replace them. Legislation has been introduced, including a bill co-sponsored by Sens. Bob Corker (R-Tennessee) and Mark Warner (D-Virginia) in 2013 to eliminate Fannie Mae and Freddie Mac and replace them with a private insurance company system with a government backstop. e bill, known as the Housing Finance Reform and Taxpayer Protection Act of 2014 (S.1217), passed in the Senate Banking Committee by a vote of 13 to 9 in May 2014 but has made little progress since. "We've been getting mixed signals from this White House," Neugebauer said during the panel discussion. "is is a big lift, if you start down this road, whether it's a Senate bill or a House bill, just to get those out of those chambers and into a conference, you have to get some help from the White House to make that happen. I've had the conversation with the current Treasury secretary and the former Treasury secretary, and everybody talks about, 'Yeah, we need to do this,' but when you say, 'Is there a commitment from the White House to participate in this process,' I don't think they've sent a positive signal." Fannie Mae and Freddie Mac required a $187 billion bailout from taxpayers in 2008 to stay afloat. At that time, they were taken into conservatorship by FHFA. e FHFA released the results of a stress test in late April indicating the GSE could possibly need another bailout of up to $157 billion in the event of certain adverse economic conditions. Discussion moderator Nick Timiraos, national economic correspondent with e Wall Street Journal, compared the lack of action on GSE reform to a famous New Yorker cartoon in which an executive was on the phone saying, "No, ursday's out. How about never? Will never work for you?" Delaney said he believes the current system is "unsustainable," but has been lately because of macrodynamics, notably strong housing recovery. "I don't think the White House has made this a top priority," Delaney said of GSE reform. "I hope that's changing. When you think about what happened in the Senate, where they did make a pretty decent run at a bipartisan proposal, I think a lot of the Democratic Senators working on that turned around and expected to see the White House behind them and there was no one there. "is is a big lift to fix this, and you have to get it right. It involves a lot of thought, and there's been a big ideological divide about the role of the government with, respectfully, many of my Republican colleagues thinking there is no role for government, and many of my Democratic colleagues thinking government should have an even bigger footprint. I think both of those are flawed at some level, and there is a role for smarter government to be involved in housing, but in a more disciplined way." Neugebauer said he doesn't believe the government should be able to "manipulate a particular industry, particularly one that is so important to American families. I still believe that we can accomplish something, but it will take everybody committed to coming up with some solutions." ARE FIRST-TIME HOMEBUYERS A BIGGER RISK? YES AND NO Mortgages by first-time homebuyers tend to perform worse than those of established buyers, but that doesn't mean first-timers are an inher- ently riskier group, according to a new working paper authored by Saty Patrabansh of the Fed- eral Housing Finance Agency's Office of Policy Analysis and Research. e working paper, released in July, analyzed mortgages backed by Fannie Mae and Freddie Mac between 1996 and 2013. e author found while first-time mortgages performed worse than repeat homebuyer mortgages, the comparison is actually an apples-to-oranges mismatch. Patrabansh called first-time homebuyers "in- herently different from repeat homebuyers. ey are younger and have lower credit scores, lower home equity, and less income and, therefore, are less likely to withstand financial stress or take advantage of financial innovations available in the market than repeat homebuyers." However, with these "distributional differ- ences" factored out, Patrabansh reported, there is virtually no difference between the "average" first-time and repeat homebuyer in their prob- abilities of default. "e difference in the first- time and repeat homebuyer loan performance is due to the . . . borrower, loan, and prop- erty characteristics and not because first-time homebuyers are an inherently riskier group," the author stated. According to the paper, if first-time buyers were riskier, it could have consequences. If first- timers were actually more likely to default, the author wrote, any community that sees an influx of first-time buyers could portend increased foreclosures. As long as the borrower, property, and loan characteristics at the time of origination reflect a borrower's ability to repay, there should not be a concern that the average first-time buyer is inherently any riskier than the average repeat homebuyer, the author stated. "Both types of mortgages can be expected to default at a similar rate if borrowers, loans, and properties are similar in all other regards," Patrabansh wrote. at said, the author did find first-time buy- ers are less likely to prepay a mortgage compared to repeat homebuyers, and the author suggested paying closer attention to prepayment issues in future studies. "At the very least, this result suggests that a loan-month level mortgage default-prepayment model should test controlling for whether or not borrowers are first-time buyers," Patra- bansh stated.

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