Treasury, FHFA see eye to eye on housing finance reform, top official says
WASHINGTON — The Treasury Department mostly agrees with a housing finance reform plan put forward by Federal Housing Finance Agency Director Mel Watt this week, according to Craig Phillips, a senior counselor to Secretary Steven Mnuchin.
The FHFA plan would return Fannie Mae and Freddie Mac to the private market and provide them an explicit, catastrophic guarantee for their mortgage-backed securities in return for fees paid into a reserve fund.
“We are broadly supportive” of the FHFA outline, Phillips told at a Women in Housing and Finance event on Thursday.
But he acknowledged some of the exact details are still being worked out. "The harder part is the how," he said, noting the difficulty of increasing the private market's share of the housing sector while maintaining affordability goals of Fannie and Freddie.
The comments provide further evidence that housing finance reform discussions are gaining steam. Watt, an Obama-era appointee, provided the first details this week of how the agency views reform of the government-sponsored enterprise, including creating a limited number of private-sector competitors to newly privatized Fannie and Freddie.
The plan would also keep a number of affordable housing goals that would “provide benefits at least comparable” to the requirements that Fannie and Freddie currently abide by.
While Watt warned against he creation of too many private-sector competitors to Fannie and Freddie due to fears of lax standards amid heavy competition, Phillips said there could be many guarantors as long as there was strong oversight.
“The key is regulation,” Phillips said. “Whether there is one or five, we cannot have weak regulation.”
“You could take the view that if you had multiple competitors all doing the same thing with the same capital model they might do well together and they might get in trouble at the same time,” he added.
He acknowledged that creating new competitors for Fannie and Freddie would be difficult, however.
“Fannie and Freddie are not Apple but they are not not Apple,” Phillips said, referring to the tech giant. “To compete with them is a huge capital investment. It is just easier said than done. We would favor a process of phase-in along with reform and competition that form over time.”
The Senate has picked up housing finance reform discussion where it left off in 2014, building on a bipartisan banking committee deal, and Rep. Jeb Hensarling, R-Tex., who is leading talks on the House side, recently said he was willing to move off a hard-line approach that would have ended the government’s support of most mortgages.
But whether Sen. Mike Crapo, R-Idaho, can build enough consensus between Republicans and Democrats to get over the 60-vote filibuster hurdle is uncertain.
Phillips said Mnuchin recently visited Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., on Capitol Hill to discuss housing reform legislation. The two lawmakers have been leaders on crafting a way forward and the House could release legislation in the next couple months as lawmakers race to move forward before the Capitol grinds to a halt as the midterm elections pick up.
Phillips said there isn’t a “clock” on housing reform, but the issue has been out there a while.
The Senate Banking panel recently passed a bipartisan regulatory relief deal that has yet to be taken up on the chamber floor. That remains a priority above housing reform, which is expected to follow a similar path as the regulatory relief deal, with some of the same players coming to a compromise.
Housing finance reform is “my next highest priority and I want to work on it quickly,” Crapo said in a brief interview on Wednesday.
One point that Phillips also highlighted is that Treasury supports an even playing field between the private mortgage market and the public market. Any bill should consider Federal Housing Administration and Veteran Affairs mortgages as well.
Mark Calabria, chief economist for Vice President Mike Pence, made similar comments on Wednesday at the Exchequer Club.
“Mortgage finance reform simply cannot be about Fannie and Freddie, it cannot be about FHA, it cannot be about VA. It also has to be about regulatory structure,” said Calabria, who noted that while housing finance reform is a heavy lift, the foundation for reform is being built.
“This is a long process," Calabria said. "The leadership is hopeful and optimistic that we can get mortgage finance done, but even if we can’t it is important to recognize that you can lay the important framework for reform that will be used by different Congresses.”