White House Chimes in on Housing Finance Reboot

As the Senate Banking Committee wound up its second day of hearings on Chairman Mike Crapo's (R-ID) outline for housing finance reform the White House issued its own memorandum.  In a memo addressed to all cabinet members and the heads of several housing related agencies, the President laid out the recent history of the system including the conservatorship of Fannie Mae and Freddie Mac (the GSEs) and the Treasury's involvement in supporting them during the housing crisis.  It then says it is time for the country to reform the system "to reduce taxpayer risks, expand the private sector's role, modernize government housing programs, and make sustainable home ownership for American families our benchmark of success."

The White House memo differs from the Crapo outline in that its recommendations are broader and less centered on operational concerns such as how to attract additional guarantors, assign risk and regulate issuance of mortgage backed securities. Oh, and this one suggests springing the GSEs.

The memo directs the creation of two separate plans.  The Secretary of Treasury is to formulate a Treasury Housing Reform Plan, concerned primarily with the GSEs Fannie Mae and Freddie Mac. Changes to FHA and the Government National Mortgage Association (Ginnie Mae) will be addressed by the Secretary of Housing and Urban Development (HUD) through a HUD Reform Plan.

Some of the specific goals and objectives enumerated for the Treasury plan are:

• The conservatorships of the GSEs should be ended upon completion of specified reforms including providing that the Federal Government is properly compensated "for any explicit or implicit support or guarantees it provides to them or the secondary market and that their activities are restricted to their core statutory mission.
• Establishing regulation of the GSEs that that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States.
• Establishing methods for maintaining control over the GSEs in terms of their capital and liquidity requirements, defining their role in multifamily mortgage finance, recommending appropriate size and risk profiles for their retained mortgage and investment portfolios, and altering, if necessary, their policies on loan limits, program and product offerings, credit underwriting parameters, and the use of private capital to transfer credit risk.
• Defining the GSEs' role in promoting affordable housing without duplicating support provided by the Federal Housing Administration (FHA) or other Federal programs;

Among the few operational guidelines are the assumption that the Federal Housing Finance Agency (FHFA) will approve guarantors of conventional mortgage loans in the secondary market and that the Secretary of Department of Housing and Urban Development (HUD) and the Director of the Bureau of Consumer Financial Protection (CFPB), will evaluate the "QM Patch," whereby the GSEs are exempt from certain requirements of the Qualified Mortgage determination.

The HUD Reform plan should include giving FHA and Ginnie Mae primary responsibility for providing housing finance support to low- and moderate-income families that cannot be fulfilled through traditional underwriting. Other goals include:

• Addressing the financial viability of the Home Equity Conversion Mortgage program;
• Assessing the risks and benefits of providing assistance to first-time homebuyers, including down-payment assistance;
• Defining the appropriate role of the FHA in multifamily mortgage finance;
• Diversifying FHA lenders through increased participation by registered depository institutions;
• Reducing abusive and unsound loan origination or servicing practices for loans in the GNMA program, including, if appropriate, by providing for cooperation with other loan program sponsors and regulators.

The President directs that both plans be submitted by the responsible parties to the Assistant to the President for Economic Policy as soon as practicable

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