The influence of the government-sponsored enterprises over the mortgage market will decline, under a proposed plan for housing market reform proposed in outline form by Senate Banking Committee Chairman Mike Crapo, R-Idaho.
That’s because under his plan mortgage guarantors would be private companies including Fannie Mae and Freddie Mac, and they would operate under far more narrow regulatory parameters than is now the case.
Although the government-sponsored entities are earning profits, in another housing downturn taxpayers might be responsible for billions of dollars—as they were in 2008 when Fannie Mae and Freddie Mac were placed in conservatorship—where they remain, according to a press release from the senator. Conservatorship is neither sustainable, nor in the best interest of consumers, taxpayers, investors, lenders or the broader economy.
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Sen. Crapo[/caption]
“We must expeditiously fix our flawed housing finance system,” said Crapo. “My priorities are to establish stronger levels of taxpayer protection, preserve the 30-year fixed-rate mortgage, increase competition among mortgage guarantors, and promote access to affordable housing.”
The role of guarantors would be to guarantee the repayment of principal and interest to investors. In addition, they could issue guarantees on eligible mortgages securitized by primary market participants or issuers. Guarantors could purchase them from the primary market through a cash window and guarantee and securitize them through a securitization platform that Ginnie Mae will operate.
There would be limits on the percentage of mortgages a guarantor could guarantee. And a guarantor wouldn’t be allowed to offer volume discounts on the guarantee fee or other terms.
In addition, the multifamily business of Fannie Mae and Freddie Mac will be sold and operated as independent guarantors. Insured depository institutions won’t be permitted to be guarantors, and they won’t be permitted to offer volume-based discounts on the guarantee fee or other terms.
The Federal Housing Finance Agency will be permitted to require guarantors to engage in approved credit risk transfers. FHFA can consider the quantity and quality of credit risk transfers when establishing capital requirements for a guarantor, all of whom will be required to remain above the statutory minimum leverage ratio.
