Trump and Congress should turn their focus to Fannie and Freddie

Trump and Congress should turn their focus to Fannie and Freddie
© Getty Images

It has been 10 years since the financial crisis. The Great Recession was born largely from the housing crisis, the bursting of a home price bubble, which had been fed by loose mortgage credit.

A key moment in the crisis came with the failures of Fannie Mae and Freddie Mac, the government-sponsored enterprises (GSEs) that were the backbone of the housing finance system and provided billions of dollars of liquidity to the mortgage market.

ADVERTISEMENT

As growing mortgage delinquencies and loan losses threatened the GSEs’ financial condition and their ability to continue to fulfill their mission, their regulator, the Federal Housing Finance Agency (FHFA), placed them under conservatorship in September of 2008, effectively moving them under government control.

They were given capital support and a substantial line of credit with the Treasury to ensure their solvency.

At the depths of the financial crisis, it was impossible to imagine the mortgage market would be in the shape it is today. Home prices have broadly recovered, the number of foreclosures and underwater borrowers has steadily fallen, and the multifamily market continues to address the increased demand for rental housing.

The nation is in the midst of one of the longest economic expansions on record. Borrowers have better consumer protections than ever before. And, despite lingering issues with housing supply, we are entering an era of high household formation and significant demand for residential mortgage credit.

But, as with most economic realities, there’s a caveat: The GSEs remain in conservatorship with an unknown future.

To date, conservatorship has had many positive impacts. Reforms put in place over the past decade have enabled the GSEs to continue their vital role in the mortgage market.

Lenders are now on a more level playing field when it comes to pricing, significant risk has been transferred away from the taxpayer, a new infrastructure for the secondary market has been built, and the GSEs have provided strong and sustained liquidity in the multifamily rental market.

However, the success of conservatorship has been a double-edged sword. While we are closer to a safe, well-functioning real-estate finance system than before, the apparent stability of the housing finance market is not assured until Congress and the administration complete the job of reforming the GSEs. 

Recently, the Mortgage Bankers Association (MBA) submitted an open letter to the administration and Congress, co-signed by 29 organizations, including trade associations, consumer rights groups and groups representing underserved communities.

In the letter, our coalition asks policymakers to lock in recent reforms to the GSEs through formal regulations and complete the necessary additional reforms to protect taxpayers, provide liquidity and promote stability while taking care not to roll back aspects of the GSEs’ operations that are supporting the foundation of the housing market.

Further, we believe a well-functioning housing finance system should provide consistent, affordable credit to qualified borrowers across the nation and through all parts of the economic cycle, broadly available through responsible lenders, with equal access to the secondary market regardless of business model or size.

Investors should feel confident that loans are being underwritten with an eye toward sustainability, and borrowers should feel confident that they can obtain affordable credit in both high- and low-cost markets.

The benefits that flow to housing consumers provided by GSEs, both single and multifamily, have long been a cornerstone of American real-estate finance. Without the liquid secondary market for the mortgage loans they support, the iconic 30-year fixed rate and fully pre-payable mortgage would not be consistently available to American families.

Affordable housing would be out of reach for many families, both renters and owners, especially in underserved communities. That is why Congress and the administration must work together to complete the task of housing finance reform, to ensure a sound and stable future for the real-estate finance market. 

Robert Broeksmit is the president and CEO of the Mortgage Bankers Association