Stevens: Lack of congressional action precarious for Fannie, Freddie

A top housing industry official said Monday that lack of congressional action on legislation to overhaul mortgage giants Fannie Mae and Freddie Mac puts lawmakers in a precarious position in case of another financial crisis.

David Stevens, head of the Mortgage Bankers Association, said that without more support for a bill crafted by Senate Banking Committee leaders the measure will remain at a "political stand-still" while the mortgage finance market remains primarily under government control.

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“Should the housing market experience any significant downturn, the GSEs [government-sponsored enterprises] would find themselves in need of another draw from the Treasury,” he said at an MBA secondary market conference.

“The risk of congressional overreaction of doing GSE reform in the midst of a crisis is a real and scary proposition.”

The Banking panel approved a measure last week co-authored by Chairman Tim Johnson (D-S.D.) and ranking member Mike Crapo (R-Idaho) but it failed to win the support of six committee Democrats, putting it into a legislative limbo.

Stevens argued that “those who did not support the bill significantly hampered any hopes of a reasonable path forward, out of conservatorship.”

Yet, lawmakers and many housing market experts argue that Congress has to provide a path that shifts from government domination of the market to private investors taking on the majority of the risk.

Fannie and Freddie are running out of profit streams and there is growing concern that they may need to draw more taxpayer help from the Treasury in the near future because “both companies acknowledge that a sizeable portion of their earnings were one-time gain.”

At the end of April, the Federal Housing Finance Agency released the results of the Dodd-Frank mandated stress tests showing that Fannie and Freddie arent' quipped to handle a crisis similar to the one that nearly decimated the economy 2008 without drawing down billions of dollars from Treasury.

“We can choose to avoid a future cycle of increasing mortgage costs, less access to credit and choked-off demand for housing, leading to a weaker and increasingly unstable market,” Stevens said.

“It requires Congressional action to reform and stabilize the system.” 

While there are other issues facing the housing market winding down Fannie and Freddie over a period of a few years is the last unresolved issue from the housing downturn.

With legislation is stuck in Congress, Stevens implored the housing industry to “be proactive leaders and address some of the difficult choices to set the stage for future legislative action and help prepare the system for long-term, sustainable change."

He applauded FHFA Director Mel Watt for ensuring that Fannie and Freddie remain in a stable position while Congress works on the legislative solution.

“Like it or not, structural change will only come slowly, so we are stuck with current system for the time being," Stevens said.

"And if we have learned anything coming out of the crisis, it is that the system, and the housing recovery, are fragile, and can be upset at the smallest bobble," he said.

"Better coordination and consultation with the GSEs will help us avoid the kind of disruptions that could derail the housing recovery.”

Stevens suggested that there are several tracks to overhauling the housing finance system. 

That includes the Johnson-Crapo bill, even though "it will clearly be a much longer legislative process than we would have hoped" as well as taken steps that don't need congressional approval to help mortgage finance. 

He said the third track is the return of private capital.

"We must address the structural, regulatory and economic impediments that are keeping private investors on the sidelines," he said.  

"Uncertainty will remain until their trust and confidence in the marketplace can be restored."

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