MReport August 2019

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20 | TH E M R EP O RT FEATURE 10 Steps to Housing Finance Reform Here are some ways regulators can begin to make changes ahead of potential congressional action. By Brian O'Reilly T he government-spon- sored enterprises (GSEs) have been in conserva- torship for more than 10 years. During that time, three presidential administrations, four Federal Housing Finance Agency (FHFA) Directors, and seven dif- ferent congresses have grappled with the seemingly herculean task of bringing Fannie Mae and Freddie Mac out of conservator- ship and completing housing finance reform. While the public debate has often envisioned and emphasized the need for legislative action, that avenue has been, and continues to be, an uphill battle in an unprece- dented partisan political landscape. Still, stable growth in the housing market, strong employment, and the potential for rising interest rates point to the increasing need to establish a "new normal" for housing finance. The Trump administration has tapped regulators to take a fresh look at the options available to get momentum moving in the right direction. Published in March, the White House's Memorandum on Federal Housing Finance Reform directs the Treasury Department, in con- sultation with other key housing regulators, including the FHFA, the Department of Housing and Urban Development (HUD), and the Consumer Financial Protection Bureau (CFPB), to develop a blue- print for reform. The memo not only outlines broader national housing policy priorities but shines a light on the influential role that regulators can play in driving significant components of housing finance reform in the absence of congres- sional consensus. The 10 require- ments regulators have been tasked with represent a toolbox of policy authority that, when drawn upon, can accomplish significant progress, leaving a final few select measures up to Congress. As FHFA Director Mark Calabria said before the Mortgage Bankers Association Secondary Market Conference in May, "The perspective in the past that we must wait on Congress is not one I share. There are a number of things I can't do, where we need congressional authority, but there are a number of things I can do." Treasury Secretary Steven Mnuchin expressed a similar sentiment in a CNBC interview in February, saying the administration preferred bipartisan legislative action, but "if that doesn't work, we have admin- istrative tools that we can [use to] make moves in housing." As President Trump's memo makes clear, there are at least 10 ways regulators can lay the groundwork for reform. The memo mandates the regula- tory proposal for housing finance reform end conservatorship, facilitate competition in mortgage lending, establish regulations of the GSEs going forward, and ensure the government is compensated for support of the secondary housing finance market. The memo sets forth the following objectives to advance these priorities: 01 Preserve the 30-Year Fixed-Rate Mortgage U nsurprisingly, maintaining access to the 30-year fixed-rate mortgage—the hallmark of the U.S. housing market and the impetus for chartering the GSEs in the first place—tops the list. Regulators are tasked with preserving this product and other affordable mortgage options that "best serve the financial needs" of qualified homebuyers. At times during the decade-long debate on housing finance reform, certain industry stakeholders have disagreed on the need for the government to guarantee the avail- ability of the 30-year mortgage and asserted that private lenders and others who securitize mortgage- backed securities (MBS) could sustain access to this product on their own while also offering competitive interest rates. Calabria has argued against the necessity of the 30-year mort- gage in the past, but recently has expressed a more open position, saying during his nomination hearing before the Senate Banking Committee, "It is indeed possible for us to have a well-capitalized, strong system that preserves the 30-year mortgage." With Calabria, the Trump administration, and most of the mortgage industry aligned on this

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