Fannie Mae & Freddie Mac (GSEs)

Overview

Fannie Mae and Freddie Mac play a key role in the secondary mortgage market, which is crucial in providing capital for mortgage lending. During the housing finance sector's collapse, private capital withdrew from having a significant, competing role with the GSEs. Without the government’s support of the GSEs and FHA-insured loans, which currently constitutes a large portion of the market space, there would be almost no capital available for mortgage lending. This would severely restrict, if not curtail, home sales and any supporting ancillary home sales services.

Political Advocacy

What is the fundamental issue?

On September 7, 2008, the Federal Housing Finance Agency (FHFA) placed Fannie Mae and Freddie Mac (the government sponsored enterprises, or GSEs) into conservatorship. FHFA explained it took this action “to help restore confidence in Fannie Mae and Freddie Mac, enhance their capacity to fulfill their [housing] mission, and mitigate the systemic risk that has contributed directly to the instability in the current market.” The conservatorship continues today.

I am a real estate professional. What does this mean for my business?

Fannie Mae and Freddie Mac play a key role in the secondary mortgage market, which is crucial in providing capital for mortgage lending. During the housing finance sector's collapse, private capital withdrew from mortgage markets having a significant, competing role with the GSEs. Without the government’s support of the GSEs and FHA-insured loans, which currently constitute a large portion of the market space, there would be limited capital available for mortgage lending. This would severely restrict, if not curtail, home sales and any supporting ancillary home sales services.

NAR Policy:

NAR believes that Fannie Mae and Freddie Mac should be replaced by a non-shareholder owned government authority(s) that is subject to tighter regulations on product, revenue generation and use, and retained portfolio practices in a way that ensures the mission of the GSEs continues to meet the needs of consumers and the taxpayer is protected. Moreover, NAR recommends that the entity(s) be managed in such a way as to encourage private capital's participation in the secondary mortgage market. Additionally, NAR believes that the future housing finance system must ensure that there is mortgage capital in all markets at all times and under all economic conditions, and that there is an explicit government guarantee in the secondary market, which should ensure the availability of long term, fixed-rate mortgage products (i.e. 30-yr fixed-rate mortgage).

Read NAR's Housing Finance Reform Principles

Legislative/Regulatory Status/Outlook

No comprehensive housing finance reform legislation will be signed into law this year.

Reps. Hensarling (R-TX) and Delaney (D-MD) have introduced a discussion draft called the "Bipartisan Housing Finance Reform Act of 2018," where Ginnie Mae provides a central role in the secondary mortgage market. It is unlikey that this draft will be introduced as a bill this year.

On the U.S. Senate side, Sens. Corker (R-TN) and Warner (D-VA) have been working to develop a proposal that would have multiple guarantors competing with Fannie Mae and Freddie Mac in the secondary mortgage market. So far this proposal has not garnered much support.

The Office of Management and Budget (OMB) relseaded their own proposal this year, which would largely privatize Fannie Mae and Freddie Mac, while allowing for a government guarantee on mortgage-backed securities (MBS).

While all of the plans differ in substantive details, they include some form of a government guarantee, which is a significant shift in the overall housing finance reform discussion.

NAR Committee:

Conventional Financing and Policy Committee

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