We can only guess at what the new director of the
Federal Housing Finance Agency (FHFA) told members of the National Association
of Realtors® (NAR) last month, but it certainly provoked a response. The Association sent a letter to Mark
Calabria on Monday urging him basically not to make changes to the system for
the sake of making them.
The letter, signed by current NAR
President John Smaby, thanked the director, who was
sworn in on April 15, for “sharing your thoughts on your new role,” apparently
in a speech to the group in mid-May.
However, it took issue with some potential reforms of the government
sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, primarily those that
might prematurely shrink the GSE footprint.
Smaby said the NAR
believes FHFA must allow Freddie Mac and Fannie Mae to meet their public
mission of supporting liquidity and broad access, and that the FHFA is correct
to respond to potential risks to them.
However, he adds that “reforms must be well designed and thoroughly
vetted before implementation. Private capital has returned to the market in
large volumes through bank portfolios and investment in the GSE’s credit risk
sharing programs, yet more remains to be done.”
He urged Calabria to
avoid any changes such as to fees or other factors that would curtail the GSEs’
market share in order to create space for private mortgage money. These “should only be done with actual participants
in mind, rather than in an aspirational attempt to generate a private market
for mortgage products,” he said.
In other words, if you
build it they might not come.
He adds that it is equally important that
such reforms are tempered with the public mission of the GSEs in mind. “If not, the consequences will be higher
costs and/or limited access for many otherwise credit worthy homebuyers.” He
referenced a letter sent to Calabria’s predecessor in March by 30 housing
organizations including NAR. It said in
part, “Efforts to reduce
the GSEs’ footprint should not move forward unless there is compelling evidence
that the private market is able to assume an expanded role. Furthermore, administrative
reforms should not impede the GSEs’ ability to grow particular business
segments in response to an unmet need or a crisis.”
suggested that any changes to the companies’ footprint should come after only
the most robust, multidimensional, data-driven analysis of the potential
impacts, especially to mortgage pricing/costs, access to affordable housing,
especially for middle income and underserved borrowers/markets and on the broader
Smaby said that the
director’s comments in recent weeks questioning the need for an explicit
government guarantee, which NAR strongly supports, are also concerning. “A curtailed or eliminated guarantee could
raise costs and threaten access to credit in small and mid-sized towns when
recessions or natural disasters hit. Dilution of the mission will also affect
middle income homebuyers and underserved markets, exacerbating the lingering
impacts of the subprime crisis on inequalities in homeownership.”
Finally, the letter
asks FHFA to create a Mortgage Market Liquidity Fund (MMLF). This would be held by the Treasury and designated
to receive funds sent to the Treasury from the GSEs. It would take credit and accounting losses
while the GSEs remain under conservatorship then be transformed to seed a fund to
protect taxpayers against any catastrophic losses by the GSEs post-reform.