WASHINGTON, D.C. – The Federal Housing Finance Agency (FHFA) has recently announced it will increase the capital of Fannie Mae and Freddie Mac to levels that will protect taxpayers and greatly reduce the risk of a future bailout. The Main Street GSE Reform Coalition, representing affordable housing advocates, civil rights organizations, small and mid-sized lenders, and homebuilders, believes that the conservatorship of the GSEs should end, with the adoption of the following principles, and rebuilding capital is an important first step.
Yet we remain concerned about any moves to shrink the “footprint” of the GSEs or drive up the cost of credit. More than a decade after the economic crisis, homeownership rates remain low particularly in communities of color, the gap in the demand for and availability of affordable rental housing continues to widen, and federal support for homeownership and affordable housing efforts remains inadequate. Given the tremendous importance of housing to the communities we represent and to our national economic health, we believe it is vital that the GSEs maintain their vigorous role in supporting affordable housing finance.
Under the Housing and Economic Recovery Act (HERA) of 2008 and administrative reforms undertaken by the FHFA acting as conservator, critical “GSE Reforms” have already been achieved. The primary objective of any further legislative or administrative GSE reform should be to promote broad access to affordable, sustainable mortgage credit in all communities while minimizing risk to taxpayers. The Main Street GSE Reform Coalition shares the following principles, which would increase competition, prevent financial concentration, and prevent artificial barriers to entry in the GSE loan origination market.
- Establish capital levels consistent with what the GSEs are charging the market currently, consistent with statute and the unique risk characteristics of the GSEs.
- Maintain lines of business that enable the cross-subsidization of lending within all markets and communities, benefiting all borrowers.
- Retain FHFA’s role as a strong independent regulator, with full oversight and approval of operations, capital requirements, fees, charges, and prudential standards.
- Ensure full and equal access for all lenders, regardless of size, including a prohibition on volume discounts with respect to guarantee fees, buy up and buy down fees, cash pricing, loan level price adjustments, and risk-sharing pricing.
- Serve all markets, including underserved, rural, and urban areas, equally.
- Expand access to all creditworthy borrowers and affordable housing through pooling of risk, more level pricing, and equitable distribution of the cost of catastrophic capital to protect against another market failure like the Great Recession; strengthening and ensuring compliance with affordable housing goals; enforcement of “duty to serve obligations;” compliance with fair housing and lending laws; and full funding of the Housing Trust Fund and Capital Magnet Fund.
- We believe that chartering additional guarantors would be overly disruptive and would not foster competition in the secondary market, instead creating a race-to-the-bottom environment for loan purchases and a potential competitive advantage that comes from vertical integration.
- Continue the credit risk transfer program by the GSEs to reduce their overall risk consistent with an economic benefit, with prohibitions on market structures/actions that create an unlevel playing field for loan origination.
- Charge a fair ongoing fee for maintenance of the existing Treasury line of credit or any explicit federal guarantee.
- Continue moving forward with administrative recapitalization plans to permit the GSEs to exit conservatorship into a utility-type system, including regulation of pricing and rates of return, to provide investors a fair return and to further the GSEs’ public mission.
- While we believe critical GSE reforms have already been accomplished through HERA and FHFA administrative actions, any additional reforms should achieve and conform to the above principles.
Community Home Lenders Association
Community Mortgage Lenders of America
Independent Community Bankers of America
The Leadership Conference on Civil and Human Rights
Leading Builders of America
NAACP
National Community Reinvestment Coalition
National Urban League
Prosperity Now