With the much-anticipated Treasury Department report on housing finance reform plans expected to come out as early as this month, some mortgage policy experts are skeptical about how much the findings might change the narrative around charting a future path for the GSEs. Industry experts anticipate few specifics, expecting that the report will be short on details.
In March, President Trump directed the Treasury Department and the Department of Housing and Urban Development to report on both the administrative and legislative reform options “as soon as practicable”. Federal Housing Finance Agency Director Mark Calabria indicated that he will await those reports before making any decisions about how to oversee the GSE’s exit from conservatorship. The findings, which will either be released in one or several reports, are expected in the coming weeks.
There is some concern that the reports might reiterate the administration’s plans to privatize the mortgage giants without offering any specifics around the mechanics or funding of their efforts. Experts recommend that the administration avoid implementing lasting reforms without congressional involvement.
“These are very difficult things to do with administrative action – leveling the playing field and doing this without really increasing interest rates and facing any political blowback,” said Michael Bright, the CEO of the Structured Finance Association.
The FHFA has yet to publish a proposed capital framework to be implemented in conjunction with the GSEs’ exit from conservatorship. Calabria announced that he is reviewing the risk-based capital requirements framework introduced by former FHFA Director Mel Watt last year. He also intends to negotiate changes to the preferred stock purchase agreements that govern Treasury’s shares in Fannie and Freddie.
Before taking aggressive action, Bright argues that the administration needs to address capital questions for the GSEs. “You want to de-risk them, you say you want them to play a smaller role in the economy . . . you also want them to have more capital, and it’s unclear exactly what counts as capital,” he said.
The report is expected to preserve congressional engagement with the reform process, while also introducing administrative actions that don’t require supportive legislation. Bright believes there would be a “pretty significant market reaction” if the administration minimizes the role of Congress. He added, “I hope that it’s a thoughtful addition to the discussion that adds an element that says there’s a lot that Congress has to do, but there are some things that make sense to be done administratively and those are as follows and we’ve thought through a few of them and we think we can take some steps,” he said. “That would be a good outcome, if it’s something along those lines, so it’s sort of measured in terms of its goals.”
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