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.
Current Legislation/Regulation (bill number or regulation)
None at this time.
Find NAR's letters, testimonies, bill updates, and more on the NAR Federal Issues Tracker
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 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).
No major housing finance reform bills have been introduced during the 115th Congress; however, some believe the U.S. House Republicans will reintroduce a version of the PATH Act in late 2018/early2018. It is currently unclear whether the U.S. Senate and Trump Administration will support this legislation or if either entity will pursue their own plan for housing finance reform.
U.S. House Legislation: "The Path Act"
On July 24, 2013, the House Financial Services Committee passed H.R 2767, "The Protecting American Taxpayers and Homeowners (PATH) Act" (Garrett (R-NJ). NAR opposed this legislation, which includes reforms to FHA, the GSEs, and the financial regulatory law known as the Dodd-Frank Act. NAR opposed the bill based on two major concerns: 1) the end of the federal guarantee for a secondary mortgage market; and 2) the dramatic restructuring and targeting of FHA.
The bill winds down Freddie Mac and Fannie Mae over a five-year period. It would create a new Utility to promote the securitization of mortgages. However, the bill does not provide for a federal guarantee for the Utility.
NAR sent a letter to the Full Committee opposing the bill and asking for a no vote. The bill did not reach the House floor during the previous Congress.
U.S. Senate Legislation: "The Housing Finance Reform and American Protection Act of 2013"
On June 25, 2013, Senators Bob Corker (R-TN) and Mark Warner (D-VA) introduced S. 1217, "The Housing Finance Reform and Taxpayer Protection Act of 2013" that would also phase out Fannie Mae and Freddie Mac. But, unlike the PATH Act, in this bill the federal government would remain as an insurer of last resort, much like the FDIC is the insurer of last resort for troubled banks. NAR has long called for replacing Fannie Mae and Freddie Mac while ensuring continued mortgage market liquidity through the maintenance of an explicit federal presence in the market. On that basis, the Senate approach was the better starting point. However, NAR remained neutral on this bill.
The bill was the subject of hearings but was not taken up for a vote.
On May 15, 2014, the Senate Banking Committee passed S. 1217, the “Housing Finance Reform and Taxpayer Protection Act of 2014,” to overhaul the secondary housing finance market. The bill built on S. 1217 by including bipartisan changes drafted by Senate Banking Chairman Tim Johnson (D-SD) and Ranking Member Mike Crapo (R-ID). Commonly referred to as the Johnson-Crapo bill, the legislation expanded on the bill released by Bob Corker (R-TN) and Mark Warner (D-VA) that would wind down Fannie Mae and Freddie Mac and replace them with a new agency, known as the Federal Mortgage Insurance Corporation (FMIC). The bill did not advance to the Senate floor for consideration by the full Senate.
The Johnson-Crapo legislation contained many positive aspects such as an explicit government guarantee, continuing HERA conforming loan limits, and a lower down payment for first-time homebuyers; however, NAR remained concerned with the potential impact on overall mortgage costs for consumers under this bill.
Regulatory Housing Finance Reform
Since 2012, FHFA has directed the GSEs to begin working on efforts to reduce outstanding risk to the taxpayers and begin work on a new securitization infrastructure. In 2012, FHFA instructed the GSEs to develop a new program to transfer risk to the private sector with the intent of reducing overall risk they pose to taxpayers. The GSEs have begun to develop risk sharing products that fit within FHFA's set goals of being "economically sensible, repeatable, scalable, and structured to not disrupt the efficient operation of the “To Be Announced” (TBA) market (which provides the market with benefits including allowing borrowers to lock in rates in advance of closing)." Though a small part of the multi-trillion dollar mortgage market, NAR continues to evaluate how different types of risk sharing impacts the availability and affordability of mortgage credit to borrowers. Additionally, the GSEs, at FHFA's direction, have begun development of a new securitization infrastructure for the GSEs' single family loans. NAR supports the creation of a self-sufficient infrastructure whereby safe, sound, transparent, and insured MBS may be packaged and sold. The development of a common securitization platform will support single-family securitization; a single GSE security should increase liquidity of these securities in the market, increasing demand and producing better pricing.
Conventional Financing and Policy Committee