Housing advocates want Congress to wrap up finance system overhaul

Housing advocates want Congress to wrap up finance system overhaul
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Housing and mortgage industry advocates are calling on the United States's top housing regulator to let Congress devise a legislative solution to overhaul the nation’s housing finance system.

In a letter sent on Wednesday, the five groups told Federal Housing Finance Agency (FHFA) Director Mel Watt their view is that "comprehensive reform to the secondary housing finance system must come through Congress."

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The government took over mortgage giants Fannie Mae and Freddie Mac during the 2008 financial crisis and injected nearly $188 billion of taxpayer money to keep them afloat.

The groups — the National Association of Home Builders, the American Bankers Association, the Mortgage Bankers Association, the National Association of Realtors and the National Housing Conference — said that "policymakers and stakeholders need to continue to work together on the important efforts to advance housing finance reform through a legislative solution."

“Absent reform, we run the risk of continuing to kick the can down the road without ensuring ongoing access to mortgage credit for millions of future homeowners.” 

Congress needs to do the heavy lifting on a housing finance front while acknowledging that the FHFA has made major strides in providing stability for Fannie Mae, Freddie Mac and the overall housing market while waiting for lawmakers to enact a reform package.

They said that the FHFA has made significant progress in mitigating a number of flaws in Fannie's and Freddie's operations that distorted the market before the crisis nearly eight years ago.

The agency is moving toward a single security standard and developing the common securitization platform to keep the mortgage giants on stable footing. 

But they said it's up to congressional lawmakers to take the lead. 

"Policymakers need to continue to focus on the paramount objective of fixing the structural flaws that led to the breakdown of the housing finance system, the only outcome that will protect taxpayers, preserve access to credit and ensure a stable housing finance system," the groups wrote.

"However, without collaboration on comprehensive GSE reform, the important work FHFA has accomplished is at risk."

The groups told Watt that they strongly agree with his view in a February speech that Congress needs to “engage in the work of thoughtful housing finance reform before we reach a crisis of investor confidence or any other kind of crisis.”

At this point, prospects for legislation have been pushed to next year.

"Our collective push for comprehensive reform is to ensure that any changes maintain the ongoing sustainability of the housing finance system and directly benefits consumers, rather than the balance sheets of private companies," they wrote

The trade groups also said it would be best to avoid any piecemeal fixes that would be counterproductive.

Specifically they said that additional amendments to the Preferred Stock Purchase Agreements (PSPAs) will not resolve the lingering issues.

“The PSPAs do not replace the need for a permanent solution to housing finance reform,” they wrote.

“However, they do provide an adequate backstop to allow Congress to complete the last piece of unfinished business from the financial crisis.”

The preferred stock agreements prohibit Fannie and Freddie to rebuild capital and require them to pay all of their dividends to the Treasury. Their capital reserves are set to reach zero in 2018. 

The Treasury Department's backstop and ongoing investments by the Federal Reserve have played key roles in keeping mortgage rates low even while Fannie Mae and Freddie Mac have more than doubled their fees since 2011, they said. 

"The extraordinary support provided to Fannie Mae and Freddie Mac has played a key role in maintaining liquidity in the secondary mortgage market, which is crucial in providing capital for mortgage lending across the country," they wrote.

Updated at 10:45 a.m.