TheMReport

62 | TH E M R EP O RT SECONDARY MARKET 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 GSE Status Quo No Longer an Option One Idaho Senator is calling for action on the GSE reform front. K eeping Fannie Mae and Freddie Mac as is? That's no longer an option according to Sen. Mike Crapo (R-Idaho). Crapo, who currently serves as Chair - man of the Senate Committee on Banking, Housing, and Urban Affairs, said as much in his open - ing remarks at the committee's Principles of Housing Finance Reform hearing in late June. According to Crapo, the "status quo is not a viable option." "Fannie and Freddie are cur - rently earning profits, but if the housing market experiences a downturn, and at some point, it will, taxpayers could again be on the hook for many billions of dollars," Crapo said during his remarks. "Reform is urgently needed, and the Committee is actively exploring a variety of options." There are several principles, ac - cording to Crapo, that will guide the Committee's path toward re- forming the GSEs. These include preserving an affordable 30-year fixed-rate mortgage, creating mul - tiple levels of taxpayer protection, attracting strong capital, ensuring a level playing field for smaller lenders, and utilizing the existing infrastructure whenever possible. "We need multiple levels of taxpayer protection standing in front of any government guaran - tee, including down payments, loan-level private insurance, and substantial, robust, loss-absorbing private capital at guarantors com - parable to the amount of capital maintained by global systemically important banks," Crapo said. "Strong capital is essential to ensure that guarantors and other market participants can with - stand market downturns. We must ensure that small lenders have a level playing field when accessing the secondary market." Additionally, Crapo said the Committee would work to pre - serve Fannie and Freddie's exist- ing multifamily programs in some form. These he said "performed well through the crisis and already involve meaningful risk- sharing with the private sector." The Committee is also consid- ering other concepts, including "securitiz[ing] conventional mort- gages with a Ginnie Mae wrap," Crapo said. Edward J. DeMarco, President of the Housing Policy Council of the Financial Services Roundtable and one of three witnesses who addressed the Committee, recent- ly co-authored a paper detailing how that would be done. "The approach to reform that HPC supports, and that is reflect- ed across most reform proposals, provides for a single MBS that has an explicit catastrophic backstop federal guarantee to replace the separate MBS issued by Fannie Mae and Freddie Mac that carried an 'implied' guarantee," DeMarco said in his testimony. "A common platform would be used to issue these securities and place the federal guarantee. Multiple private entities would be able to add loans to the common pool. This is how the Ginnie Mae securitiza- tion process works today." Two other witnesses also ad- dressed the committee: Michael D. Calhoun, President of the Center for Responsible Lending; and David H. Stephens, President and CEO of the Mortgage Bankers Association. According to Crapo, the Committee may also examine the Federal Housing Administration, as well as its role in the overall housing finance system. The FHA may need reform in order to establish a new system, he said. "A housing finance system dependent on two government- sponsored enterprises in perpetu - al conservatorship is not the solu- tion," Crapo said. "Recapitalizing the enterprises and releasing them back into the market without sig- nificant reforms is also not a solu- tion. The current system is not in the best interest of consumers, taxpayers, investors, lenders, and the broader economy."

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