BankThink

White House Opposes GSE Recap, Homebuyers Suffer

White House and Treasury Department officials recently made clear they are not interested in recapitalizing Fannie Mae and Freddie Mac — let alone releasing them from government conservatorship — while lawmakers continue to stall on long-term reform for the government-sponsored enterprises.

But in doing so, they indicated the administration intends to leave office without addressing both the GSEs' diminishing capital bases and tight credit conditions for many working Americans.

Recent statements by officials opposing recapitalization sounded orchestrated. "None of us should be misled by the increasingly noisy advocates of GSE release," Michael Stegman, a White House advisor on housing issues, said in a speech. The same day, Antonio Weiss, a counselor to Treasury Secretary Jacob Lew, penned an op-ed for Bloomberg View saying that a "recap and release … would do nothing to increase access to the housing market for creditworthy borrowers."

The apparent goal of this administration is to keep billions of dollars from the GSEs flowing into the U.S. Treasury while turning a blind eye to the next generation of homebuyers. To date, the GSEs have paid back $239 billion to the government, well over the $187 billion Treasury injected into the companies.

With tight credit conditions shutting out millions of American families from the housing market, some have argued the GSEs' extended conservatorships have contributed to these tight conditions.

A diverse group of mortgage lenders and housing advocates do not share Treasury's patience to wait on long-term legislative reform. The CMLA fully supports recapitalizing the mortgage giants and believes the government should also take steps to release the GSEs from conservatorship.

While we also support comprehensive GSE reform legislation, the congressional vote will likely remain deadlocked for years.

The GSEs remain pivotal to all market players — homebuyers, lenders, Realtors and a multitude of related venders — and yet we allow them to conduct their massive businesses on nearly nonexistent amounts of capital. For the combined $4.5 trillion in outstanding mortgages that the GSEs own or guarantee, they hold a grand total of $6.4 billion in capital. Most importantly, the Preferred Stock Purchase Agreement or between each GSE and Treasury, which lays outs terms of the conservatorships, requires the firms to remit all quarterly profits to Treasury and reduce existing capital each quarter until they literally have zero capital in 2018.

The higher guarantee fees paid to the GSEs go to deficit reduction, and potentially to transportation projects, rather than to strengthening the companies' safety and soundness. These fees have now become a regressive tax on homebuyers trying to get on the first rung of the economic ladder.

Stegman has repeatedly claimed that it is solely the responsibility of Congress to decide what to do with the GSEs. This is simply inaccurate. Under the Housing Economic Reform Act of 2008, Congress created the Federal Housing Finance Agency to oversee Fannie and Freddie. As such, the FHFA has certain responsibilities, one of which is an obligation to return the GSEs to a sound economic position that helps ensure their long-term viability. In fact, HERA grants the FHFA the authority to allow the GSEs to begin rebuilding capital.

We also believe the government should create a plan to utilize all relevant legal authority, including further amendments to the PSPA, to release the GSEs from conservatorship. Simultaneously, the conservator should transition the GSEs into utilities that supply liquidity in the market, while preventing the practices that led to the need for a bailout in the first place. Ample authority exists to accomplish this goal.

What is needed is willingness on the part of the administration to resolve the situation, rather than simply passing GSE reform on to the next administration.

Brooke Anderson Tompkins is president of 1st Priority Mortgage located in Williamsville, N.Y., and chair of the Community Mortgage Lenders of America.

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Law and regulation GSEs Consumer banking Mortgages Housing
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