RISMedia's Real Estate Magazine

MAR 2019

Real Estate magazine is the industry's leading source for real estate news and information since 1980. Published monthly by RISMedia, Real Estate magazine offers timely and relevant real estate news to the industry's top brokers and agents.

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RISMedia's REAL ESTATE March 2019 13 {Policy Matters} O n Sept. 7, 2008, as a substantial breakdown in the American housing market left Fannie Mae and Freddie Mac (the Government- Sponsored Enterprises, or GSEs) in financial trouble, the Federal Hous- ing Finance Agency moved to place the GSEs into conservatorship. To- day, more than a decade later, the financial crisis is long over, but the GSEs remain in conservatorship. The GSEs of today are not the GSEs of 2005. They have undergone sig - nificant reforms and play a key role in the secondary mortgage market, which is crucial to providing capi - tal for homeownership. The GSEs buy mortgages, package them into securities, and sell them to inves - tors with a guarantee of timely pay- ment, but their role in the market is much more. Fannie and Freddie set, monitor and enforce standards subject to their regulator for origi - nation, credit, servicing and prepay- ment for the $5 trillion conventional mortgage market. They also provide the large infrastructure and scale required in the investment markets for interest rate and credit risk, facilitating more competition than would exist without them. Because of their public mission, the GSEs are tasked with provid - ing affordable mortgage funding to all creditworthy borrowers. Fur - thermore, during the financial col- lapse, private capital withdrew from the mortgage market. Without the federal government's support of the GSEs, borrowers would have faced a private market where mort - gage rates were nearly 5 percent- age points higher. Simply put, the Great Recession would likely have become a Great Depression. A Model for the Future At an event in Washington on Feb. 7, the National Association of REALTORS®(NAR), in collabora - tion with Susan Wachter, the Albert Sussman Professor of Real Estate Finance at The Wharton School of the University of Pennsylvania, and Richard Cooperstein, head of Risk Management at Andrew Davison and Company, proposed a new sys - tem that would leverage reforms made since the crisis with a dura - ble model that protects taxpayers and supports the public mission. To achieve these goals, the GSEs would be replaced by government- chartered, private utilities that are subject to strong regulation and appropriate capital standards. The new entities will be tasked with a mission to provide stable mortgage funding to all creditworthy borrow - ers in all markets and in all eco- nomic conditions, while retaining a responsibility to underserved bor - rowers and markets. To maintain efficiencies and pro - vide capital, the utilities will have stockholders who receive a regu - lated return that varies based on the quality of their infrastructure in - vestments. The utilities will curate the market for private capital that sits ahead of taxpayers, shifting between debt and equity sources. Thus, private capital would man - age the entities' costs and take losses ahead of taxpayers, while their board would be empowered to advance their mission ahead of profits. To balance profit-seeking motiva - tions, the utilities would be super- vised by a strong regulator, regularly report to Congress on the state of their business and ability to meet their mission, and would be re - stricted from lobbying on their own behalf. What's more, they would be required to publish data on vari - ous aspects of their business and counterparties. Transparency and an effective regulator will curb risk- taking and inefficiencies. This vision of a reformed sec - ondary market for housing finance first recognizes the critical role the GSEs play in housing finance—the same need that led to their initial creation. The proposal codifies a structure that is effective, resilient and fair, balancing the tension of private operating companies with the public mission while supporting the availability of long-term, fixed- rate mortgage products (i.e., 30- year fixed-rate mortgage). It builds on what works today and creates a system that will serve Middle America and the nation for decades to come. For more on NAR's vision for housing finance reform, visit https://www.nar.realtor/fannie- mae-freddie-mac-gses. RE Ken Fears is the senior policy representative for Conventional Financing and Lending for the National Association of REALTORS®. A Vision for Housing Finance Reform This column is brought to you by the NAR Real Estate Services group. by Ken Fears

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