White House Chimes in on Housing Finance Reboot

As the Senate Banking Committee wound up its second
day of hearings on Chairman Mike Crapo’s (R-ID) outline for housing finance
reform the White House issued its own memorandum.  In a memo addressed to all cabinet members
and the heads of several housing related agencies, the President laid out the
recent history of the system including the conservatorship of Fannie Mae and
Freddie Mac (the GSEs) and the Treasury’s involvement in supporting them during
the housing crisis.  It then says it is
time for the country to reform the system “to reduce taxpayer risks, expand the private sector’s role,
modernize government housing programs, and make sustainable home ownership for
American families our benchmark of success.”

The White
House memo differs from the Crapo outline in that its recommendations are broader
and less centered on operational concerns such as how to attract additional
guarantors, assign risk and regulate issuance of mortgage backed securities.
Oh, and this one suggests springing the GSEs.

The memo directs the creation of two
separate plans.  The Secretary of Treasury
is to formulate a Treasury Housing Reform Plan, concerned primarily with the
GSEs Fannie Mae and Freddie Mac. Changes to FHA and the Government National
Mortgage Association (Ginnie Mae) will be addressed by the Secretary of Housing
and Urban Development (HUD) through a HUD Reform Plan.

Some of the specific goals and
objectives enumerated for the Treasury plan are:

  • The conservatorships of the GSEs
    should be ended
    upon completion of specified reforms including providing that
    the Federal Government is properly compensated “for any explicit or implicit
    support or guarantees it provides to them or the secondary market and that
    their activities are restricted to their core statutory mission.
  • Establishing regulation of the GSEs
    that that safeguards their safety and soundness and minimizes the risks they
    pose to the financial stability of the United States.
  • Establishing methods for maintaining
    control over the GSEs in terms of their capital and liquidity requirements, defining
    their role in multifamily mortgage finance, recommending appropriate size and
    risk profiles for their retained mortgage and investment portfolios, and
    altering, if necessary, their policies on loan limits, program and product
    offerings, credit underwriting parameters, and the use of private capital to
    transfer credit risk.
  • Defining the GSEs’ role in promoting
    affordable housing without duplicating support provided by the Federal Housing
    (FHA) or other Federal programs;

the few operational guidelines are the assumption that the Federal Housing
Finance Agency (FHFA) will approve guarantors of conventional mortgage loans in
the secondary market and that the Secretary of Department of Housing and Urban
Development (HUD) and the Director of the Bureau of
Consumer Financial Protection (CFPB), will evaluate the “QM Patch,” whereby the
GSEs are exempt from certain requirements of the Qualified Mortgage

HUD Reform plan should include giving FHA and Ginnie Mae primary responsibility
for providing housing finance support to low- and moderate-income families that
cannot be fulfilled through traditional underwriting.
Other goals include:

  • Addressing the financial viability
    of the Home Equity Conversion Mortgage program;
  • Assessing the risks and benefits of providing
    assistance to first-time homebuyers, including down-payment assistance;
  • Defining the appropriate role of the
    FHA in multifamily mortgage finance;
  • Diversifying FHA lenders through
    increased participation by registered depository institutions;
  • Reducing abusive and unsound loan
    origination or servicing practices for loans in the GNMA program, including, if
    appropriate, by providing for cooperation with other loan program sponsors and

The President directs that both
plans be submitted by the responsible parties to the Assistant to the President
for Economic Policy as soon as practicable