Loan Officer | NMLS #91019
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Posted On December 12, 2017
Among the numerous issues up for reform in Washington, is the discussion of what to do with the government-sponsored enterprises (GSE) Fannie Mae and Freddie Mac. Since the institutions were placed in conservatorship in the wake of the financial crisis, they have repaid their combined $187.5 billion debt and are profitable each year. However, the government has yet to take the GSEs out of conservatorship.
The mortgage industry is directly impacted by the issue of GSE conservatorship and advocacy organizations like the Mortgage Bankers Association (MBA) have even drafted detailed proposals on what form the enterprises should take post-conservatorship. Bloomberg reports that Senators Bob Corker (R-TN) and Mark Warner (D-VA) and others have collaborated on legislation to reform Fannie and Freddie and plan to introduce the bill early next year. According to the text of their plan, Fannie and Freddie would remain under conservatorship, for now, but other companies and investors would have the opportunity to create competitors.
Senator Corker stated, “reforming our nation’s housing finance system is the last major unfinished business of the financial crisis. We are engaged in productive discussions with our colleagues, the administration, and a number of stakeholders on the best path forward.”
According to Bloomberg, in Corker and Warner’s proposal, the federal government would guarantee mortgage bonds provided by Ginnie Mae for a fee. Ginnie Mae, a government-owned corporation, guarantees mortgage bonds backed by the Federal Housing Administration and other government agencies. In turn, Fannie, Freddie, and any emerging competitors would be required to pass capital stress tests, like any other big bank, and be encouraged to offload risk to private investors. Additionally, a new government fund would be set up to protect taxpayers if another mortgage meltdown occurs.
Senator Warner stated, “what we’re looking for now is a viable simplified approach that protects the taxpayer, preserves the 30-year fixed mortgage, and includes robust access and affordability provisions.”