Written by Hannah Lang for American Banker on February 1, 2019
Senate Banking Committee Chairman Mike Crapo (R-ID) looks to restore congressional engagement with the housing finance system, introducing a legislative outline for productive GSE reform. Crapo’s plan comes on the heels of a reported executive overhaul, orchestrated by the White House and FHFA Director Joseph Otting without congressional counsel. SFIG President and CEO Michael Bright praised the outline, endorsing a strong legislative presence in GSE reform efforts.
Crapo’s outline indicates a growing tension between the executive and legislative branches on GSE reform. Otting has indicated that the Trump administration intends to end federal conservatorship of Fannie Mae and Freddie Mac. Crapo’s recommendations require legislation; he recommends privatizing Fannie and Freddie, allowing small private guarantors to compete with the mortgage giants. Ginnie Mae, then, would act as a federal backstop to competition in the housing finance system.
Though analysts have widely praised Crapo’s efforts, many are skeptical of his legislation’s potential on the House floor. “We believe this outline is a major step forward,” said Jaret Seidberg, a representative of the Cowen Washington Research Group. “Yet the odds are stacked against enactment in this Congress. Housing finance reform will require a level of bipartisanship that we believe cannot occur in an election year.”
In addition to privatizing Fannie and Freddie, Crapo’s outline would mandate that eligible securitized mortgages be backed by a government guarantee. Ginnie Mae would operate a securitization platform, backing mortgages from approved guarantors. The FHFA would also have a revised role, chartering, regulating, and supervising all active guarantors. FHFA admins would establish requirements in capital holding, loan leverage, asset liquidity, resolution plans, and stress tests. Any credit risk transfer or pricing change attempted by a private guarantor would require review and approval from the agency.