For many policymakers and housing stakeholders, ending the conservatorship of government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac represents the last piece of unfinished business from the 2007–2008 financial crisis. In the years since the GSEs entered conservatorship, their dominance in the market has only grown, while the federal government’s role in housing finance has become further entrenched. As the Trump administration considers options for ending the conservatorship, it is crucial that any exit strategy clarifies the GSEs’ roles in both the single-family and multifamily mortgage markets, maintains affordable mortgage credit, minimizes taxpayer risk, duly considers the impact of ending conservatorship to our interconnected housing finance system, and promotes market stability.
The Bipartisan Policy Center has been working to forge a bipartisan path forward on comprehensive housing finance reform since the release of the BPC Housing Commission’s 2013 report, Housing America’s Future: New Directions for National Policy. Building on this history, though recognizing the realities of the GSEs’ nearly 17-year conservatorship, we offer the principles outlined below. Our aim is to provide a clear, bipartisan framework for a thoughtful exit from conservatorship, considering the significant economic and political challenges involved.
1. A reformed housing finance system should promote the uninterrupted and broad availability of affordable mortgage credit, while reducing the federal government’s exposure, shrinking its footprint, and protecting American taxpayers.
2. The federal government conferred substantial benefits on the GSEs before conservatorship, and these benefits should not continue out of conservatorship without adequate taxpayer compensation.
3. Extending mortgage credit and absorbing a preponderance of the risk is a role that private capital can and should continue to play for the vast majority of loans originated.
4. There must be a clear, institutionalized structure for the government to expand its catastrophic credit-risk role temporarily and flexibly during severe economic downturns.
5. To ensure the continued safety and soundness of our housing finance system and that the GSEs are operating within their charter-granted mission, the GSEs must have a strong prudential regulator, robust capital standards, and clarified market structures that reflect a post-conservatorship evaluation of the appropriateness of the many market-changing reforms implemented during the GSEs’ conservatorship.
6. Because of the size and importance of the GSEs to both the single-family and multifamily mortgage markets, as well as the broader financial system, an orderly exit from conservatorship requires a well-conceived plan with a clearly communicated timeline and steps that give investors, borrowers, taxpayers, and other stakeholders confidence.
7. To optimally provide liquidity, stability, and affordability to the mortgage market, reform should further a coordinated housing finance policy and contemplate the appropriate roles and responsibilities of the different government entities that support the housing finance system, ensuring that the government does not crowd out the private sector from market segments where it can efficiently supply adequate capital.
These principles reflect some of the key areas of bipartisan consensus that have emerged after years of debate about the GSEs’ futures. BPC will continue to monitor proposed changes to the GSEs and assess their potential impact on housing policy, markets and affordability.
Source: bipartisanpolicy.org
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