DS News

» VISIT US ONLINE @ DSNEWS.COM 59 conservatorship of the GSEs. Today, he serves as President of the Housing Policy Council at the Financial Services Roundtable. For DeMarco, this is a time that reminds him of the flaws in America's housing finance system. "at period was a painful reminder of sev- eral things," DeMarco said. "Your home should not be viewed as a piggy bank or even primarily as an investment. It is consumption." Additionally, DeMarco noted the need for transparency to make financial markets work, as too much of the housing finance system was opaque going into the crisis. However, DeMarco's most thought-provok- ing lesson learned during his time at the helm of the FHFA is the reminder that concentrating economic activity on a few players, Fannie Mae and Freddie Mac especially leads to systemic risks. "We should want more competition," De- Marco explained. "We should want not fewer channels for lending and financing, but more. Another thing, it served as a reminder that en- couraging leverage in household balance sheets that exceeds what we allow for banks, is curious public policy. It's one that creates a lot of risks for households, and in the crisis, it led to terrible damage to the very households policymakers thought they were helping." DeMarco believes consumers and lenders are more risk-averse in the wake of these changes. While that's healthy, the negative of this is post- crisis regulations that arguably went too far and today may be limiting credit and innovation in the marketplace. What's the cure? DeMarco urges establish- ing equilibrium and balancing regulations with extending credit and encouraging innovation. After the savings and loan crisis, most mort- gage credit risks either ended up in a government guarantee program such as Federal Housing Agency (FHA) or Veterans Affairs (VA), or at Fannie Mae and Freddie Mac. According to DeMarco, Fannie and Freddie retained virtually all the credit risk on $5 trillion of mortgages, while operating with a broadly perceived back- ing of the government. is was reinforced by remarkably weaker capital requirements set in statute, and weaker relative to what banks and thrifts faced. Fundamentally, housing finance reform is about replacing that concentration of mortgage credit risk in two GSEs with a competitive private market for mortgage credit risk that seeks private capital through numerous channels and across many risk holders. "e reason why I advocate for this change is that having multiple sources of capital is more resilient than having just two," DeMarco said. "It better protects taxpayers, and it naturally leads to investor demand for transparency re- garding the risk characteristics of the loans they are supporting. In turn, that should produce more accurate market signals of risk, which benefits both borrowers and lenders." Hon. Joseph Murin, Chairman of the Board of Chrysalis Holdings JJAM Financial Services, formerly served as President of Ginnie Mae, where his efforts ensured strong support for the housing market during the worst of the housing crisis. He served both the Bush Administra- tion and the Obama Administration during his tenure. "at was a difficult time in our nation and to the housing and mortgage industry," Murin said. "You really don't know what you're getting into when you get into it because it's almost a baptism by fire." Ginnie Mae's monthly issuance that was between $7 billion and $9 billion started to grow rapidly and ultimately peaked at around $70 bil- lion a month, which caused a lot of issues. When Fannie and Freddie were thrown into conservatorship, there was a lot of confusion in the marketplace. Foreclosures began to accelerate and the only liquidity vehicle available then was government loans through Ginnie Mae issuance. JEB HENSARLING Chairman, House Committee on Financial Services MICK MULVANEY Interim Director of the Consumer Financial Protection Bureau HON. EDWARD DEMARCO President of the Housing Policy Council, Financial Services Roundtable

• Cover