MReport August 2020

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18 | M R EP O RT COVER STORY Pinto said it took a while for the current administration to gets its people in place, especially within the FHA. "There was a lot of pushback in the Senate. A minority of the Senate was holding up a lot of ap- pointments, and continue to hold up appointments," he said, noting the delay in approving Brian D. Montgomery as first the Housing Commissioner and then more recently as Deputy Secretary of HUD. The Next Step for the GSEs President Donald Trump and Steven Mnuchin, Secretary of the Department of the Treasury, un- veiled the administration's plan to privatize Fannie Mae and Freddie Mac in September 2019. The department's Treasury Housing Reform Plan consists of a series of recommended legisla- tive administrative reforms aimed to "protect American taxpayers against future bailouts," preserve the 30-year-fixed-rate mortgage, and help guide Americans toward the path to homeownership. "The Trump administration is committed to promoting much needed reforms to the housing finance system that will protect taxpayers and help Americans who want to buy a home," Mnuchin said in a release at the time. "An effective and efficient Federal housing finance system will also meaningfully contribute to the continued economic growth under this Administration." Fannie Mae and Freddie Mac suffered significant losses due to their structural flaws and lack of sufficient oversight during the financial crisis of 2008. The GSEs received more than $190 billion from the Treasury Department. President Trump issued a Presidential Memorandum on March 27, 2019, directing Mnuchin to develop a plan to address the "last unfinished business of the financial crisis." Michael Fontaine, COO and CFO, Plaza Home Mortgage, was among those who noted the plan released by the Treasury Department was lacking some- thing—details. "There's no details behind that," Fontaine told MReport in a prior interview. He said the plan will keep the GSEs in place in some form to not disrupt the housing market. Fontaine said there is a lot of con- cept and "high-level" ideas, but no details on how to execute them. One of the plans that lacked details, according to Fontaine, was the possibility of eliminating the QM patch for GSEs for loans over 43% DTI. However, if there is no alternative, Fontaine said, it could limit access to credit for a lot of consumers, as the GSE handles many loans over 43% DTI. Golding said the GSEs exiting conservatorship is an "important step if we are going to get innovation in the mortgage market." "Proposed capital levels are way too high for the risk and will result in a massive transfer of wealth from the taxpayers to investors," he said. Golding added that it would be better to set capital level at 2%— more than is needed—and then charge an FDIC like insurance premium on the GSEs of 10-15 bps. "This can be accomplished without legislation. However, to allow for new competitors will need a simple legislative fix to allow FHFA to charter new GSEs," he said. Rood said the COVID-19 crisis has "clearly reshuffled" priorities for the FHFA regarding GSE reform and has delayed the exit of Fannie Mae and Freddie Mac from conservatorship indefinitely. Rood said that while he doesn't doubt that Treasury Department's plan was developed in earnest, he fears lawmakers remain conflicted about the fate of the GSEs given their implementation in public policy during COVID-19. "[The FHFA is] also keeping down costs both for borrowers in the form of lower interest rates and seller/servicers. Once out of conservatorship, the cost of mortgage credit and the availability of mortgage credit is most certainly going to worsen," Rood said. "Aligning lawmakers' priorities of keeping borrowing costs low and home values high with Director Calabria's objectives to de-risk the enterprises and get them out of conservatorship will be fascinating to watch." He added that Congress has struggled for more than a decade with restructuring the GSEs—and doesn't see a resolution soon. "The political will to radi- cally reform these organizations through legislation simply does not exist on Capitol Hill as there is much to lose and little to gain," he said. Pinto said there are "many hurdles" along the path toward freeing the GSEs from conservatorship. There are actually two components of these issues: first, the exit from conservatorship, and second, the recapitalization of the GSEs. "There's a lot of statutory and regulatory provisions that have to be met with. There is the repay- ment of the taxpayers, whatever ends up having to be done there for the senior preferred stock. There's the repayment of the taxpayers for the guarantee that's been in place since 2008," he said. An added concern is the current COVID-19 crisis, with Pinto saying that is the "big question mark" on what the impact will be on the GSEs. . A graduate of the University of Alabama, MIKE ALBANESE has worked for news publica- tions since 2011 in Texas and Colorado. He has built a portfolio of more than 1,000 articles, covering city government, police and crime, business, and sports and is experienced in crafting engaging features and enterprise pieces. He spent time as the sports editor for the Pilot Point Post-Signal and has covered the DFW Metroplex for several years. He has also assisted with sports coverage and editing duties with the Dallas Morning News and the Denton Record- Chronicle over the past several years. "We should allow easier [refinances], regardless of forbearance or employment status." —Edward Golding, Nonresident Fellow, Housing Finance Policy Center, Urban Institute

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