TheMReport — News and strategies for the evolving mortgage marketplace.
Issue link: http://digital.themreport.com/i/1021331
80 | TH E M R EP O RT THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T How Will the End of Conservatorship Impact the GSEs? Proposed actions aim towards lowering costs to promote homeownership. T he Executive Office of the President released its Reform Plan and Reorganization Recom - mendations, which included a proposal to "remove the Federal charter from the statute and fully privatize the GSEs." While the 132-page docu- ment proposes changes to many different areas of the federal government, one section in par- ticular will interest housing and mortgage professionals. It is titled, "Reform Federal Role in Mortgage Finance." In outlining the reasons for this proposal, the report lists increasing competition, growing transparency and accountability, aligning incentives and reducing overlap, and providing more as- sistance to those in need. The proposal calls upon poli- cymakers to "pursue an approach that would level the playing field with the private sector to decrease the Federal subsidies supporting housing," and states that competi- tion to the duopolistic role held by the now privately owned GSEs would be essential reform to decrease moral hazard and risk to taxpayers. As these systems are cur- rently organized, Fannie Mae and Freddie Mac are private companies that are congressio- nally chartered, a status that the proposal claims has been viewed as conveying "an implicit Federal backstop," a factor lowering the organizations' cost of capital, as compared to "similarly-sized institutions." This proposal aims to not only reorganize the GSEs, but to also affect the operations of other federal programs, such as those of HUD, the FHA, the VA, and the USDA, too. The combination of these enti- ties results in a "complex and over- lapping network of cross-subsidi- zation, without clear accountability as to who is paying for, and who is receiving, housing subsidies." The reorganization proposal states that this results in distortions in home pricing that could hinder the goal of homeownership. In order to combat this, the fol - lowing actions were submitted: Increase competition: By remov- ing the federal charter from and fully privatizing the GSEs, other private companies would be able to enter and begin competing in this market space. A federal entity with secondary mortgage market experience would be charged with regulatory oversight, ensur - ing an equal playing field for all competitors. Increase transparency and account- ability: This proposal would give guarantors access to "an explicit guarantee on the MBS that they issue that is only exposed in limited, exigent circumstances." In order to ensure the continued availability of mortgage financing, regulators would set fees to create an insurance fund, resulting in re - duced implicit taxpayer exposure. Align incentives and reduce overlap: Secondary market liquidity would become the focus for the GSEs to provide mortgage loans to qualified borrowers, while HUD would assume primary responsi - bility for affordable-housing objec- tives. Mandates would be enacted to define appropriate lending markets served in order to avoid cross-subsidization and open the private sector to equal opportu- nity for all competitors. Provide more targeted assistance to those in need. Affordable-housing fees transferred to HUD would enable FHA to maintain "re- sponsible and sustainable support for homeownership and wealth- building," while providing more targeted assistance to low- and- moderate-income homebuyers. All items listed in this proposal are noted as being "on-budget and accountable," as well as apart from the federal support for low- and moderate-income homebuyers. SECONDARY MARKET