More Perspective and Discussion on the Future of Housing and GSE Reform

The House Financial Services Committee held a hearing yesterday to discuss the future of Housing Finance- What  Should the New System Be Able to Do?

MortgageNewsDaily provided a rundown of provided testimony of all panel members, summarized the sense of the hearing in a number of areas including the Adminstration's objectives on the future of the GSEs and government guarantees. READ MORE

Below are brief recaps of news stories and perspectives we've read on the topic so far:

The New York Times provided a broad overview of the hearing. From the story: "Mr. Geithner ruled out nationalizing Fannie and Freddie or creating several entities to compete with them. But he said it was worth considering a public-utility model, in which the entities would guarantee mortgages without maintaining investment portfolios, thereby limiting the systemic risk they would pose. Mr. Geithner’s predecessor, Henry M. Paulson Jr., had endorsed such a model."

Bloomberg led with Geithner's call for an end to the "ambiguity" over government involvement with the two corporations and his endorsement of a "need to redesign federal guarantees in housing finance."

According to the news service, Geithner said that Freddie and Fannie's debt was different from U.S. sovereign debt and should not be consolidated into the government's balance sheet, but "We are going to make sure that these institutions have the resources they need to meet their commitments past and future."

He pledged that the administration would seek to avoid disruptions to GSE's ability to honor its obligations or the liquidity of mortgage-backed securities and he disagreed with committee chairman Barney Frank (D-MA) that the corporations should be phased out.  The Treasury Secretary said that the government instead needs a new system to finance housing in which "we preserve the good but end what was too risky."

The Los Angeles Times also emphasized the Treasury Secretary's support for guarantees of GSE debt, quoting his statement that he opposed either permanently nationalizing the two or creating new quasi-governmental corporations to compete with each other. Instead he supported two approaches recommended by Federal Reserve Chairman Ben S. Bernanke.  One would privatize the GSE's but continue some form of government guarantees; the other would restructure them into public utilities where the government would regulate profits, set fees, and provide guarantees for their assets. MND discussed the explicit guarantee HERE

The Washington Post said that Geithner told the panel that the administration would retain the best parts of the housing finance system while it overhauls the parts that did not work.  He insisted that the old system would not be re-created "and that Fannie and Freddie's status as shareholder-owned companies with the implicit backing of taxpayers would end."  The Secretary added that the government "would make clear what it stands behind and what it doesn't.

The Washington Post also mentioned Frank's concern that the debate over housing policy focused too much on home buyers and not enough on providing more affordable rental housing.

The Wall Street Journal suggests that  Treasury Secretary Timothy Geithner could have used Tuesday's speech on the mortgage market to convince America it is time to end its relationship with housing subsidies. Instead, he suggested ways to make it less dysfunctional.

The Journal also covered a word-for-word exchange between the Secretary and Rep. Garrett over the fine distinction between classifying the GSE's debt as "sovereign" and saying that the government would do everything necessary to make sure these institutions have the capital they need to meet their commitments. The story called attention to Geithner's emphasis on the administration's commitment to back GSE debt as an attempt to "reassure investors (including foreign governments) that own the companies' debt."  This, the Journal said, was needed in light of a statement made by Rep. Frank two weeks earlier in which he suggested the U.S. should force debt holders "to take a haircut."  Frank later modified those statements. 

The Boston Herald  wrote a piece focusing on an exchange between committee chairman Barney Frank (D-MA) and Rep. Scott Garrett (R-NJ) over who caused the collapse of the two Government Sponsored Enterprises (GSEs). According to the Rupert Murdoch owned paper, "Garrett got the blame-game ball rolling by taking digs at House Financial Services Committee leaders for waiting so long to tackle the thorny issue of what to do about the firms.  Frank... shot back in a long response that it was Republicans, not Democrats, who controlled Congress through most of last decade and that they balked at reforming Fannie and Freddie before they imploded."

Barrons reported that Geithner said the administration didn't want to fully nationalize the GSEs but that "he hasn't yet seen a workable proposal for a fully private alternative."

MarketWatch covered estimony given by NAR spokesman Vince Malta. NAR urged that Freddie Mac and Fannie Mae be restructured as government-chartered, non-shareholder owned authorities.  Malta said "The new Fannie and Freddie must ensure there is always mortgage capital available for creditworthy buyers and that taxpayer dollars are protected." He cautioned government about moving too quickly in restructuring the GSEs. "The housing recovery is still too fragile for the government to completely step away, and any disruption in the marketplace now by doing something too radical would be harmful," he said. "Our goal is to help Congress and our industry design a secondary mortgage model that will serve America's best interest today, and in the future."

A second MarketWatch article said that Geithner painted a "bleak picture" for the House Committee, summarizing his testimony thus: "There is no happy ending for the government's bailout of the mortgage giants. The transition from public to private support of the markets isn't anywhere close to reality. Worse, no clear plan has emerged to do the deed."

The Voice of Housing calls attention to the Three R's