Fitch: Don't expect housing reform any time soon

By Peter Schroeder - 08/13/12 11:18 AM ET

The already slow-moving work on housing finance reform could creep along even more now that Fannie Mae and Freddie Mac are posting profits, according to a top credit rater.

Fitch Ratings said Monday that it is lowering expectations for a comprehensive plan from Congress to overhaul the nation's housing market any time soon. As the housing market appears to be improving, and so too the finances of the nation's two government-sponsored enterprises (GSEs), the pressure on Congress to address the current system could wane, according to the rater.

While housing finance reform has been a common topic of conversation on Capitol Hill and in the Obama administration since the bubble burst, little actual traction has been made on the difficult issue. Republicans in the House readily point out the billions that Fannie and Freddie have pulled from the government since being put on a lifeline. They also have put forward a number of bills, both piecemeal and comprehensive, to overhaul the housing sector and wind down Fannie and Freddie, but none have made substantial advances.

Meanwhile, the White House released a white paper in February 2011 running down the options it sees for remaking the housing market, but little has come of that either.

Policymakers did little to address the nation's housing finance system when Fannie and Freddie needed billions in government support to stay afloat. Now that the two GSEs are posting profits for the first time in years, Fitch views the push to reform housing finance as even less prominent.

"Absent a near-term requirement for more Treasury capital contributions to Fannie and Freddie, we believe pressure in Congress for a major overhaul of the agencies' operations will be reduced," the rater said in a statement Monday.

Earlier this month, Fannie and Freddie reported a net income of $2.8 billion and $1.1 billion in the second quarter of the year, respectively. The gains come as a marked turnaround for the GSEs, both of which have tapped the government for roughly $190 billion in taxpayer funds since the federal government stepped in to save them in the fall of 2008.

Fitch noted that new mortgage origination trends for the two have been "solid" recently, as the GSEs are backing new high-quality loans while maintaining a dominant position in the nation's housing market.

While home prices have stabilized recently, Fitch noted that the housing comeback is still uncertain, meaning the finances of the GSE's could be "volatile" over the coming months. It also noted that the two so far have not built up substantial reserves to weather any adverse situations, instead pumping most of their profits into dividend payments to the Treasury Department in efforts to pay back their federal support.