Industry Leaders Agree on Conventional Loan Guarantee

March 28, 2019

Any effort to take the country’s two largest sources of mortgage financing out of conservatorship must include continued government backing of conventional home loans, a REALTOR® told the Senate Committee on Banking, Housing, and Urban Affairs yesterday.

NAR President-elect  Vince Malta

Courtesy of United States Senate

NAR President-elect Vince Malta stressed the importance of a continued federal guarantee of 30-year, fixed-rate conventional mortgages after government control of Fannie Mae and Freddie Mac is lifted.

NAR President-elect Vince Malta praised a legislative outline drafted by the committee chairman, Mike Crapo (R-Idaho), because it would maintain the federal guarantee and put in place strong but flexible rules for overseeing Fannie Mae and Freddie Mac once they’re no longer under the direct control of the government.

“By emphasizing the explicit government guarantee, regulatory flexibility, and strong, reasonable regulatory authority, this outline demonstrates a genuine commitment to ensuring a future housing finance system that is both safe and vibrant,” Malta told the committee March 27.

The outline would also establish a cash window that would give small and large banks equal access to mortgage funds and retain loan limits in effect today.

The outline is consistent in many respects with a plan NAR released earlier this year for reforming into market utilities the two companies, which have been under government control since the economic crisis more than a decade ago but are now financially stable.

Testimony by industry leaders, along with Malta, made it clear that there are many points of consensus on how to approach reform. “I actually hear more agreement among all participants,” Sen. Mark Warner (D-Va.) said at the hearing. “I hear a broad set of agreement around a government guarantee, I hear a broad set of agreement around additional support for low- and moderate-income households.”

Sen. Sherrod Brown (D-Ohio), ranking member on the committee, noted several important takeaways from the hearing, including that the regulated utility model could protect the market against loan standards getting too loose. “Guarantors that are regulated utilities with regulated rates of return would serve all lenders and avoid a race to bottom,” he said.

In addition to the legislative outline, NAR’s plan, and other proposals, the Trump administration is at work on a reform outline. Yesterday, President Donald Trump directed the U.S. Treasury Department to draw up a plan with the goal of ending conservatorship and boosting homeownership.

“I look forward to working with the Federal Housing Finance Agency [which acts as the conservator of Fannie and Freddie], HUD, Congress, and other stakeholders to address the need for housing finance reform as laid out by President Trump’s Presidential Memorandum,” Treasury Secretary Steven Mnuchin said yesterday.  “We support a system that provides for access to lending for hardworking Americans, while also protecting taxpayers from risk.”

Access NAR’s reform plan here, and read the full testimony from NAR President-elect Vince Malta.

—REALTOR® Magazine