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The US Treasury Department on Thursday released a plan to reform the housing finance system to protect US taxpayers against future bailouts.
The government spent $ 190 billion on taxpayers to save government-sponsored businesses in 2008: the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
According to the Treasury, the new reforms preserve the 30-year fixed-rate mortgage and "help hard-working Americans achieve their goal of buying a home."
Treasury Secretary Steven Mnuchin said in a press release, "An effective federal housing finance system will also make a significant contribution to continued economic growth under this administration."
The Treasury Department report says: "Although this plan includes legislative and administrative reforms, the Treasury prefers and recommends to Congress to pass a comprehensive law on housing finance reform."
The report attempts to clarify the government's role in supporting the housing market. "The stability of the housing finance system is crucial and generally advises to preserve what works in the current system, including the long-standing support of the 30-year fixed rate mortgage," the report says.
Among the proposals, the Treasury recommends:
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Congress repeals existing statutory regulatory definitions of CSGs that limit the discretion of the Federal Housing Finance Agency (FHFA) to prescribe regulatory capital requirements. These definitions should not be incorporated into future legislation.
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FHFA's regulatory capital requirements should require that each guarantor, or GSE pending legislation, be appropriately capitalized by maintaining sufficient capital to remain viable in operation after a severe economic downturn and to also ensure that shareholders and unsecured creditors, rather than taxpayers, bear losses.
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The regulatory capital requirements of the FHFA should also include a simple and transparent leverage restriction that complements risk-based capital requirements.
GSEs remain under guardianship more than 10 years after the first government bailouts. The Treasury Plan recommends the end of the conservation mandate through recapitalization.
The plan can be supported by at least one former GSE insider. Edward Marco was acting director of the Federal Housing Finance Agency (FHFA) from 2009 to 2014. In this capacity, he served as curator for Fannie Mae and Freddie Mac and recently proposed measures Similar. At the meeting last month, he said he was seeking a reform that "transfers all these risks to US taxpayers and brings them back to private capital." He added "fundamentally, we will need Congress to decide the role of the US government and the role of the taxpayer in the US mortgage system".
The Treasury Plan states that "the FHFA should prescribe liquidity requirements that require each guarantor, or each GSE awaiting legislation, to maintain high quality liquid assets sufficient to ensure its safe and healthy operation."
Secretary of State Mnuchin will visit Capitol Hill next Tuesday to present his project at a hearing of the Senate Committee on Banking, Housing and Urban Affairs titled "Housing Finance Reform: The Next Steps" ". Secretary Mnuchin will testify alongside Ben Carson, Secretary of the Department of Housing and Urban Development.
Adam Shapiro is co-presenter of Yahoo Finance On the Move.
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