Page 12 - January-February-2018_GSE_Report

FANNIE MAE AND FREDDIE MAC JJAN.U- AFERBY. 22001188
In the spring issue of American Affairs Journal, economist Dean Barker argues for keeping the status quo, writing:
...In the years immediately following the nancial crisis, there were few people who would have bet that, in 2018, the GSEs would still be in a conservatorship in which they are effectively publicly owned companies. Nonetheless, inertia has proven to be a powerful force. In this case, I would argue that it has been a force for good in the housing market. The current system is one that minimizes the problem of moral hazard in housing nance, which was so important in the run-up in prices in the housing bubble years.
It also is the most ef cient mechanism for nancing mortgages, as it requires fewer resources to be wasted on housing nance. We could make the system more ef cient by getting rid of MBS altogether and having the GSEs just hold their mortgages, but keeping the GSEs as public companies is a good start for now.
Congress’ next steps on housing reform
Senate Banking Committee chairman Mike Crapo (R-ID) is expected to release details about his proposed housing nance reform legislation in the near future. While it’s unclear which elements
of the Corker-Warner draft will be included in Crapo’s proposal, many anticipate the chairman’s proposal will broaden participation in the Common Securitization Platform (“CSP”) to private sector guarantors.
With Senator Orin Hatch’s retirement in 2018, Crapo is a potential successor on the Finance Committee. In light of this possibility, Crapo might push more aggressively on passage of housing nance reform—one of his stated priorities.
House Financial Services Committee chairman Jeb Hensarling (R-TX) announced his plans to retire at the end of the 115th Congress. In a December 6th speech, Hensarling conceded that a government guarantee in the secondary mortgage market will be part of any successful attempt at housing nance reform. Hensarling also pointed to the Milken reform proposal, offered by former FHFA Acting Director Ed DeMarco and Ginnie Mae EVP Michael Bright as a means by which to move housing nance reform forward.
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