What Do We Need? GSE Reform. When Do We Need It? Now.

May 15, 2019

REALTORS® Legislative Meetings & Trade Expo

The newly appointed director of the Federal Housing Finance Agency, Mark Calabria, shared his vision for the future of Fannie Mae and Freddie Mac with REALTORS® attending the legislative meetings in Washington, D.C. Speaking Tuesday at the Regulatory Issues Forum, Calabria said his priority would first be to ensure the soundness of their business operations.

The two agencies have been under the conservatorship of the FHFA since the onset of the Great Recession more than a decade ago. The arrangement wasn’t supposed to be long-term. In the fall of 2008, when then-Treasury Secretary Henry Paulson announced the decision, he said the objectives were “providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers.” Calabria, at the time a staff member of the Senate Banking Committee, said he expected the conservatorship to last six months.

Regulatory Issues Forum

© REALTOR® Magazine

Mark Calabria, appointed director of the Federal Housing Finance Agency in April, talks with Vanity Fair contributing editor Bethany McLean about getting private capital back into the secondary mortgage market. Calabria, once an economist for the National Association of REALTORS®, was addressing the Regulatory Issues Forum during the REALTORS® Legislative Meetings & Trade Expo in Washington, D.C.

Bethany McLean, a contributing editor at Vanity Fair and author of Shaky Ground: The Strange Saga of the U.S. Mortgage Giants, moderated Tuesday’s event. She speculated that Congress and the regulators have been kicking the can down the road because no one wants to break the complex system that ensures the flow of mortgage capital.

But assuring smart reform of the government-sponsored entities has long been a priority for the National Association of REALTORS®, and Tuesday’s forum was an opportunity to discuss a path forward that NAR released in February. Susan Wachter of the Wharton School at the University of Pennsylvania and Richard Cooperstein of Andrew Davidson and Co. collaborated with NAR on the plan.

Following her discussion with Calabria, McLean spoke with Wachter, Cooperstein, and NAR Senior Policy Representative Ken Fears about the NAR plan, which proposes to model the agencies as publicly regulated private utilities (like gas and electric companies) that would ensure a reliable and affordable source of mortgage capital for Americans going forward.

“I commend NAR for taking on this complex issue,” McLean told the audience. “[NAR’s] plan is the smartest one we’ve heard yet.”

Wachter called the status quo “quite frightening” and advocated for moving forward with reforms within the next year. People may be lulled into complacency because the GSEs seem to be doing their jobs profitably, but “if they were to suffer a downturn, their future would be at the whims of politicians. That’s frightening for what you do,” she told the audience, “and for all of us who depend on the system.”

In late March, NAR President-Elect Vince Malta presented testimony on the topic before the U.S. Senate Banking, Housing, and Urban Affairs Committee. Malta said bipartisan congressional action on GSE reform was the only way to secure an explicit government guarantee, a critical component of a robust U.S. housing market. Malta also urged the committee to ensure that any future housing finance system has a national mission to secure middle America’s access to affordable mortgage credit.

President Donald Trump's administration has announced its intention to end the conservatorship of the GSEs, though Calabria told the forum audience he has no specific timeline in place. He said he wants to focus first on ensuring that a good business model with proper regulatory oversight is in place. Among his priorities: increasing the capital requirements for the secondary market agencies so they’re on a level playing field with other large financial institutions and “so we have that capital there to protect the taxpayer. At the end of the day, I think that can be done in a way that really does not adversely impact the consumer.”