The Future of Housing Finance – Important to Homebuyers, Important to LendersPosted by Eric Haar
In 2008, Congress passed the Housing and Economic Recovery Act (HERA). Among other things, HERA created a new federal regulator, known as the Federal Housing Finance Agency (FHFA). Importantly, HERA granted FHFA authority to place Fannie Mae and Freddie Mac ("the Enterprises") into government conservatorship if necessary. Within months of HERA's passage, FHFA acted on its authority and placed Fannie and Freddie into conservatorship. Due to insufficient capital and because of a deteriorating mortgage portfolio, Fannie and Freddie ultimately received a $187 billion taxpayer bailout.
The Enterprises have since returned to profitability and have been making periodic payments to the U.S. Treasury. In fact, since their bailout, Fannie and Freddie have paid $245 billion to the U.S. Treasury. Despite these gains, Fannie and Freddie's capital is scheduled to go to $0 on December 31, 2017. In addition, the terms of their conservatorship require Fannie and Freddie to divest themselves of many of their revenue-generating assets. Without action by Congress, many pundits speculate that Fannie and Freddie's business model will not remain sustainable.
In recent years, several economists, industry advocates, and members of Congress have suggested reforms to the secondary mortgage market. Here are a few of their proposals:
- Under a 2013 bill, Fannie and Freddie would have been eliminated over a five-year period and replaced with an entirely private secondary market.
- Under a 2014 bill, the Enterprises would have been replaced by an FHLBank-like cooperative; the cooperative would have generated mortgage-backed securities backed by a combination of private capital and government reinsurance.
- A 2015 bill would have shifted most secondary market responsibilities to Ginnie Mae.
- A 2016 bill would have recapitalized Fannie and Freddie and allowed them to continue operating in a manner similar to today.
- Recently, a group of housing policy experts proposed merging Fannie and Freddie into a government-owned corporation.
Homebuyers benefit when mortgage originators can rely on a stable secondary mortgage market. That's why FHLB Dallas closely tracks proposals that might impact our members' ability to sell mortgages into the secondary market. Please feel free to direct any questions related to this or other legislative and regulatory topics to Eric.Haar@fhlb.com.
FHLB Dallas will continue offering affordable and reliable secondary market options to our members through our Mortgage Partnership Finance® (MPF®) programs. MPF acts as alternative to Fannie and Freddie by allowing our members to sell us their fixed-rate loans under very attractive terms. Learn more about the FHLB Dallas MPF® program at: https://www.fhlb.com/products/Pages/Mortgage-Partnership-Finance.aspx.
Eric Haar is a Vice President and Director of Government and Industry Relations for FHLB Dallas.