WASHINGTON — Fearing that housing finance reform has fallen off the congressional priority list, bank and housing trade groups sent a letter to Federal Housing Finance Agency Director Mel Watt on Wednesday to draw attention to the issue.
"We believe that the current state of conservatorship has provided stability, but policymakers and stakeholders need to continue to work together on the important efforts to advance housing finance reform through a legislative solution," said the letter from the American Bankers Association, Mortgage Bankers Association, National Association of Home Builders, National Association of Realtors and the National Housing Conference.
In a February speech, Watt warned that Fannie Mae and Freddie Mac were on an unsustainable path and called on Congress to once again pursue reform of the government-sponsored enterprises.
The letter from the trade groups said they "strongly agree with the view" Watt expressed in that speech and offered to work with him to "ensure that consumer access and liquidity are at the forefront of this effort."
In the speech, Watt also said a preferred stock arrangement between Fannie and Freddie and the Treasury Department as part of the terms of the 2008 bailout was making operations difficult and putting the two firms at risk of needing to draw from a line of credit.
"We are now over halfway down a five-year path toward eliminating the buffer completely," Watt said of the agreement that requires the mortgage companies to sweep quarterly profits and additional capital. "A disruption in the housing market or a period of economic distress could also lead to credit-related losses and trigger a draw" from taxpayer coffers.
The arrangement was originally intended to act as a deadline mechanism for Congress to address housing finance reform, but it remains to be one of the few pieces of unfinished business since the financial crisis.
Watt has said the FHFA should continue the work of preparing for a transition to a new housing finance system.
The trade groups said "a piecemeal approach to reform through further amendments to the Preferred Stock Purchase Agreements will not resolve these issues. … However, they do provide an adequate backstop to allow Congress to complete the last piece of unfinished business from the financial crisis."
But they stressed that "detours from this long-term goal would be counterproductive."
A group of activist investors have also led a push to recapitalize Fannie and Freddie and stand to benefit handsomely if the companies are returned to their prior state.
But the trades said "our collective push for comprehensive reform is to ensure that any changes maintain the ongoing sustainability of the housing finance system and directly benefits consumers, rather than the balance sheets of private companies."
"Policymakers need to continue to focus on the paramount objective of fixing the structural flaws that led to the breakdown of the housing finance system — the only outcome that will protect taxpayers, preserve access to credit, and ensure a stable housing finance system," said the letter.
Speaking at an event on Tuesday, House Financial Service Committee Chairman Jeb Hensarling, R-Texas, who was part of the early efforts to reform Fannie and Freddie, said "there does not appear again to be a meeting of minds at the moment."
"I remain hopeful, though, that perhaps in the next Congress it could" happen, Hensarling said.