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REALTORS’ GSE Reform Plan Recasts Fannie and Freddie as Utilities

Published on February 8, 2019 by Greg Zagorski
REALTORS’ GSE Reform Plan Recasts Fannie and Freddie as Utilities

The National Association of REALTORS® (NAR) yesterday released a working paper describing its new proposal for housing finance reform. The paper was unveiled during NAR’s Housing Finance Reform Policy Forum, which NCSHA senior staff attended. It was written in collaboration with Susan Wachter of the Wharton School at the University of Pennsylvania and Richard Cooperstein of Andrew Davidson and Company.

Mission-Driven Utilities

NAR’s plan calls for Fannie Mae and Freddie Mac to be re-chartered as “Systemically Important Mortgage Market Utilities” (SIMMUs). The new term is intended to reflect both firms’ significant roles in the housing finance market and the systemic risk they pose to the financial system, similar to the “Systemically Important Financial Institution” designation that federal regulators may assign to large banks under the Dodd-Frank Wall Street Reform Act.

Fannie Mae and Freddie Mac would operate as private shareholder-owned utilities. They would continue to purchase, guarantee, and securitize single-family and multifamily mortgage loans. Their mortgage-backed securities (MBS) would receive an explicit government guarantee to cover catastrophic losses after substantial private capital is exhausted. Fannie Mae and Freddie Mac would pay for the government-backed guarantee through fees on each loan securitized. Both firms would transfer a substantial portion of the risk on the mortgages they guarantee to private investors through various risk-sharing transactions.

As utilities, Fannie Mae’s and Freddie Mac’s first priorities would be to their public missions to support stability, liquidity, and access in the mortgage market. They would be strictly regulated by a strengthened Federal Housing Finance Agency (FHFA). FHFA would have to approve any decisions the firms make on pricing, return on equity, infrastructure, standards, products, and other business activities before they went into effect.

Strong Commitment to Affordable Housing

Fannie Mae and Freddie Mac would continue to have an obligation to promote access to homeownership financing. They would be mandated to serve all borrowers and target a lower rate of return on mortgages for underserved borrowers. The plan maintains the current Affordable Housing Goals and Duty-to-Serve requirements and anticipates that the firms would continue to make contributions to the Housing Trust Fund and Capital Magnet Fund. Finally, Fannie Mae and Freddie Mac would be expected to make long-term investments in programs and research designed to expand access to mortgage lending.

You can view an executive summary of the working paper on NAR’s website.