Has the GSE Treasury report moved the needle?

WASHINGTON – The Trump administration's report on the nation's housing finance system set out goals for ending Fannie Mae and Freddie Mac's curatorial duties, but the way in which officials go there remains highly uncertain.

As in the debate on government-sponsored enterprise reform, the Treasury report and its reactions revolve around two scenarios: the adoption of detailed legislation by the Congress and the Self-Government.

The report essentially calls both. It highlights the preference of lawmakers to create new government support, an explicit guarantee and a guarantor market to compete with GSEs. But with legislation still improbable, much attention has been paid to what the administration wants to do alone. The report says that Congress action on an explicit guarantee is not mandatory.

Yet, the fact that the Treasury is concentrating on parallel tracks has done nothing to satisfy skeptics who think that lasting reforms are not possible without the Congress. Many observers believe that nothing less than legislation aimed at permanently redefining the Fannie and Freddie charters could risk returning to the current status quo.

"If you do not go to charters, you can do a lot of things to improve the marketplace and try to level the playing field, but in the end, both types of charters have charters and statutory provisions. that can then over time, we have evolved to unequal playing conditions, and that is why it lacks permanence, "said Ed DeMarco, chairman of the Housing Policy Council and former acting director from the Federal Housing Financ Agency. He added that investors in mortgage securities would obviously prefer a fully confident state guarantee.

Others disagree and argue that the Treasury report offers real solutions to avoid the stalemate in which Congress finds itself. For example, the report recommended that, as part of Fannie and Freddie's launch of the private sector in the private sector, the Treasury be able to maintain stock purchase agreements requiring GSEs to pay "commitment fees" in a catastrophic backup fund.

"Eleven years ago, the backstop worked pretty well. The government could hope to offer them a line of credit if something goes wrong, "said Scott Olson, executive director of the Community Home Lenders Association. "If Fannie and Freddie still hold that role in 10 years and there's a problem, I just do not think we're going to sit back and let them stop making loans."

Some have argued that the call of the "recapitalization and release" administrative enterprise for GSE is that an explicit guarantee sanctioned by Congress would still be a grant for Fannie, Freddie and others potentially competing companies.

This guarantee could even be "a useless gift for these systemically important financial institutions," said Joshua Rosner, chief executive of Graham Fisher & Co.

The next steps following the release of the Treasury report and the additional recommendations of the Department of Housing and Urban Development are unclear. FHFA Director Mark Calabria, Treasury Secretary Steven Mnuchin and HUD Secretary Ben Carson are expected to testify before the Senate Banking Committee on September 10, where some industry observers are hoping for details. more detailed in terms of administration.

"There was no action plan, no implementation plan, so it's hard to know what that really means," said Laurence Platt, partner at Mayer Brown, Treasury and HUD reports. "Is it just a thought or is it really a plan for what the administration will do unilaterally?"

And while the Trump administration's report lays the foundation for a reshuffle of executive power, several other independent agencies are involved in many of the report's recommendations, DeMarco said.

"One of the key things to watch for is the type of organized follow-up to these recommendations," he said. "The recommendations are valid, we talk again to equalize the chances, to bring private capital, etc., but you have [the Consumer Financial Protection Bureau]The FHFA, the Securities and Exchange Commission and all federal bank regulators must all play a role in achieving this vision. "

Still, some believe that Calabria could hold the course of much of the administration's management and that the FHFA already has substantial authority to deal with Fannie and Freddie administratively. By opening the door to recapitulation and publication, the report may indicate that the FHFA will act aggressively.

Calabria "and [Treasury] secretary [Steven] The Mnuchin have a wide range of administrative actions, as they specify here, "said David Dworkin, President and CEO of the National Housing Conference.

But by also promoting legislative solutions, the report continues to send conflicting signals about the government's intentions. In January, Joseph Otting, acting director of FHFA, pledged significant progress in overhauling the housing finance system in the next six to 18 months. However, the report seemed to take a more deliberate approach.

"For me, the most important problem is the credibility of the Treasury and the FHFA, who say that they are committed to doing what the law says and are likely to drag their feet … for political reasons rather than for the application of legal considerations, "said Rosner.

The text of the Congress proposal was also disconcerting for many. While the Treasury reiterated that it preferred Congress to pass legislation, many of the legislative proposals were ideological, Platt said. Such a package would be impossible to advance in a divided Congress.

"We could not have a bipartisan plan in Congress," he said. "Are we going to be able to get a more partisan project going?"

Dworkin suggested that it would be more reasonable to expect Congress to oversee GSE reform by the administration instead of showing the way.

"Reinventing a whole mortgage financing system, it's like Congress is building a nuclear bomb," he said. "It is appropriate for Congress to oversee our nuclear program, but it is not reasonable to expect it to actually build it. I think that the supervision of this process and the adaptation of the statutes of the current system are at the center of the Congress's concerns. "

Nevertheless, the main congressional Democrats have rejected the government's recommendations on the revision of affordable housing goals and worried that some proposals would make mortgages more costly and disadvantage to minority borrowers. .

"It is essential that housing finance reform proposals do not reduce homeownership opportunities, increase housing costs, or make housing less available," the report said. Chair of the House Financial Services Committee, Maxine Waters, D-Calif., In a news release. "However, Trump's plan seems to do just that."

Dworkin said the repeal of affordable housing goals was a beginner, regardless of the report's recommendations.

"If you try to do that, it will take away any value from progress, and it will not happen until the Democrats keep control of the situation, and potentially even if they are not," Dworkin said. "The alternative they are proposing is a band of mortgage financing that would go to HUD for affordable housing construction, and this is the most stupid idea I've ever heard."

In the future, the FHFA must now decide whether it will take over some or all of the report's administrative recommendations, DeMarco said.

"Mark has a lot of work to do, but I think the treasury report has a very good list of actions that he and his team can look at and figure out exactly how they want to do it," he said. he declared.

Calabria said it was waiting for the conclusions of the report before negotiating stock purchase agreements with the Treasury, for which the Treasury proposed several options. The report also recommended several options for recapitalizing GSE, another goal of Calabria.

"I see this as a road map, not a plan, because they can walk many paths, but they are pretty clear about who they like and who they talk to," Dworkin said. "I expect that they will progressively move into administrative reforms, so that Congress has time to make adjustments to the statute."