Housing Experts: Finance Guarantee Is Key to Mortgage Reform

February 7, 2019

An explicit federal guarantee of financing for 30-year fixed-rate conventional mortgages must be part of any effort to reform or replace Fannie Mae and Freddie Mac, lawmakers and real estate leaders said Thursday at a policy forum hosted by the National Association of REALTORS®. “We all want to keep the 30-year fixed-rate mortgage,” Rep. Sean Duffy (R-Wis.) told hundreds of REALTORS®, real estate industry leaders, and policy professionals at NAR’s forum on housing finance reform. “We want a government backstop. We’re not getting rid of the federal backstop.”

Rep. Sean Duffy (R-Wis.)

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At NAR's housing finance reform forum Thursday, Rep. Sean Duffy (R-Wis.) said he supports protecting federal financing for 30-year fixed-rate mortgages.

Preserving the federal guarantee is one of NAR’s priorities as lawmakers consider what to do about the two secondary mortgage companies, which were put under conservatorship after the housing meltdown. Fannie and Freddie are now making money again.

NAR released its own plan for reforming the companies at the forum. The proposal envisions reforming Fannie Mae and Freddie Mac into a federally chartered private utility. The utility would have a mission-oriented board and enhanced regulator, use the two companies’ common securitization platform, and maintain the explicit federal guarantee for catastrophic risks while having private shareholders in the utility take the first-place risk.

Robert Broeksmit, president and CEO of the Mortgage Bankers Association, who spoke on a panel of real estate experts, agreed with NAR and other groups about the importance of preserving the federal guarantee. He said legislation released in the House Financial Services Committee provides a good starting point for reform because it shows the guarantee can attract bipartisan support. “With the explicit guarantee, it gives license to successors [on the committee] to move with that part solved,” said Broeksmit.

Industry groups raised concerns with one proposal that has been floated in Washington, which would recapitalize Fannie Mae and Freddie Mac and then release them to package mortgage-backed securities to investors without a federal guarantee. “We need to get past recap and release,” said NAR President-elect Vince Malta.  “We need to maintain the $5 trillion [Fannie-Freddie] footprint and work toward meaningful reform.”

The two most recent chairs of the House Financial Services Committee, Jeb Hensarling (R-Texas) and Barney Frank (D-Mass.), both of whom are now retired from Congress, also agreed the federal guarantee should be part of any long-term solution. “There’s a potential grand bargain to be had,” said Hensarling.

At the forum, Timothy Pataki, special assistant to President Donald Trump for the Office of Public Liaison, said reform of the mortgage system is a priority of the administration. “The White House expects to announce a comprehensive reform proposal shortly,” he said.