Page 5 - January-February-2018_GSE_Report

FANNIE MAE AND FREDDIE MAC JJAN.U- AFERBY. 22001188
FANNIE MAE AND FREDDIE MAC
The prospects for housing nance reform are uncertain at best
At the end 2017, some industry observers believed the stars were aligned for the passage of housing nance reform this year. In congressional testimony last month, FHFA Director Watt said that the conservatorship of Fannie Mae and Freddie Mac is unsustainable and urged lawmakers to pass housing nance reform. Watt moved the ball forward on the housing reform debate with the release of a white paper, outlining his agency’s perspectives on housing nance reform.
Some industry stakeholders perceive 2018 is their last opportunity to pass housing nance reform ahead of the 2018 election cycle and the approaching end of FHFA Director Mel Watt’s tenure in January 2019. Treasury Secretary Steven Mnuchin suggestion that “getting Fannie and Freddie out of government ownership” is one of Treasury’s top 10 priorities fueled stakeholders’ hope that the administration might be willing to make a deal on housing reform this year.
Those sentiments are not necessarily shared by everyone on Capitol Hill or in the industry. In private meetings, House and Senate Leadership staff have signaled that there is not enough “Floor” time to be able to consider this legislation this year, particularly since it would likely be very controversial. In addition, Republicans and Democrats have their eye on the November 2018 elections. The Republicans, in particular, are not interested in considering legislation that might split their key voting constituencies.
Prospects for passage of housing nance reform by the 115th Congress are uncertain at best.
Any legislation that Congress might pass must be bipartisan in nature to attract the required 60 votes in the Senate—something that has eluded lawmakers over the last decade due to the lack of consensus on three critical factors:
1. The role of government in housing. Should the federal government provide borrowers access to a guaranteed xed-rate mortgage? Should the government maintain liquidity in the mortgage-backed securities market via a back-stop (e.g., retained portfolios)? Should the federal government mandate that affordable housing goals be met?
2. The absence of a private MBS market. After the 2008 nancial crisis, nearly all mortgage- backed securities have been issued by Fannie Mae, Freddie Mac and Ginnie Mae. Dodd- Frank’s mortgage retention rules have made private-label MBSs extremely costly from a capital and liquidity standpoint. The DFA’s current regulatory framework sti es any prospect for
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