NMP - November 2019 - 76

Piecemeal
GSE Reform
Is Risky
By David H. Stevens, CMB

NOVEMBER 2019 n National Mortgage Professional Magazine n

NationalMortgageProfessional.com

76

ince the
September
announcement
by the U.S.
Treasury
Department on
government-sponsored
enterprise (GSE) reform,
there have been a series of
statements, interviews,
Congressional hearings, and
actions taken from the
Federal Housing Finance
Agency (FHFA) and the
Treasury.
While calling for legislative
reform, the Administration
and the FHFA made clear
that they were ready to move
forward without Congress if
necessary. To date, we have
now seen the implementation
of the first steps, some of
which have only increased
market volatility. FHFA
Director Mark Calabria has
established some boundaries
related to GSE activities by

S

eliminating pilots, including
things like financing
servicing for some lenders
and appraisal pilots, and
calling for the end of any
pricing incentives to select
lenders. In addition they have
modified the net worth sweep
that was established in the
third amendment to the
PSPA's by allowing for the
retention of earnings to get to
a higher core capital base in
exchange for increased
preference to Treasury.
Beyond that, the Director has
called for increased capital
and suggested that there
should be no pricing bias in
the market in favor of the
government guaranteed
programs.
In the most recent
testimony, the Director
suggested an option of
extinguishing the private
shareholders, stating that
this should have been

considered as part of the
conservatorship formation in
2008. This raising of the
possibility of a receivership
path has caused a great deal
of speculation causing the
share prices of the GSE's to
fluctuate significantly.
While some applaud these
moves, it reminds me of a
management book I once read
titled, Ready, Fire, Aim.
While bold action can appear
to be a sign of strength and
commitment to results,
movements in isolation from
a clear, coordinated, and
specific outcome can also risk
disruption to the nation's
housing system. And when
dealing with the complexity
of this multi trillion
marketplace that is
intricately weaved
throughout the domestic and
global capital markets, it is
critical for policy advocates to
make sure to challenge the

notion of "change for change
sake" as a process.
Several major trade groups
have GSE reform policy, and
papers written on the subject,
calling for "comprehensive
legislative reform." When
determining how to address the
conservatorship, a
comprehensive approach is not
only recommended, it should be
demanded.
Here is what's at risk ...
For the past decade,
following the Great Recession
which took down financial
institutions and brought the
United States to the brink of
depression, including the
collapse of Fannie Mae and
Freddie Mac, the
conservatorship actually has
helped the housing market
recover and maintained a
steady flow of mortgages to
support housing. It brought
continued liquidity, and
through the work of then


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NMP - November 2019

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Contents
NMP - November 2019 - CT1
NMP - November 2019 - CT2
NMP - November 2019 - Cover1
NMP - November 2019 - Cover2
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NMP - November 2019 - Contents
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