Posts tagged ‘GSE Reform’

Treasury Releases its Post-GSE Blueprint and Why it Matters

Yesterday, the Treasury Department unveiled its long-awaited vision of a post-GSE housing market. Here are my initial takeaways:

  • RIP to “the Patch.” As I explained in previous blogs, Dodd Frank authorized mortgages eligible for sale to Fannie or Freddie to be classified as “Qualified Mortgages.” This is an important designation, as it provides mortgage holders a presumption that the borrower had the ability to repay a mortgage loan should it have to be foreclosed on. To the surprise of no one, the report recommends that this important exception for the GSE expire. The CFPB is already preparing for a post-Patch world. The Patch is set to die in July 2021.
  • Fannie and Freddie would become recapitalized entities, no longer having a government charter with the implicit backing of the U.S. Treasury. In addition, the Treasury recommends that Congress encourage the creation of competitors to the GSEs. To ease the barrier of entry into the industry, it suggests that Fannie and Freddie would have to make some of their proprietary information available to the public. This idea intrigues me as I think it’s an approach that should be used in many other big data contexts, but that’s a blog for another day.
  • One of the primary concerns of credit unions and community banks is that a world without Fannie or Freddie would be a world in which they could not cost-effectively and competitively sell mortgages. The big guys with their volume will always be able to undercut smaller institutions. To address this issue, the Treasury recommends that the new GSE-like institutions be required to purchase mortgages for cash and give the seller the option of whether or not to sell their servicing rights. The buyers would also be prohibited from offering volume discounts.

What does all of this mean? Realistically, there is no way that serious housing reform will be undertaken before the November 2020 election. That being said, the demise of the Patch gives whoever is in power real leverage to get Congress talking following the election. Translation: expect housing reform to be the top issue following the next election and at least some of these ideas to gain traction.

On that note, enjoy your first weekend of football. Let’s hope for real lousy weather on Sunday so that those of us committed to forgoing any physical movement or interaction with the family for approximately the next 22 Sundays don’t have to feel too guilty.

September 6, 2019 at 8:54 am Leave a comment

Washington’s great housing failure

fanniemae The inability of Congress and the Obama Administration to decisively reshape housing policy is the single greatest piece of unfinished business in the financial sector with which the Trump administration must deal. The outcome of what promises to be a messy partisan debate could have huge implications for your credit union.

Predicting on September 6, 2008, when Fannie and Freddie were placed in conservatorship and taken over by the government, that they would not only survive the next administration but become even more integral to our nation’s housing market, would have been as foolish as predicting that Donald Trump would give up his gig as the star of Apprentice to successfully run for President. Get real.

But that is exactly what has happened. According to the GAO, from 2008 through 2013, the federal government directly or indirectly supported over three-quarters of the value of new mortgage originations in the single-family housing market. That same 2016 report concluded that “clarity on issues related to comprehensive housing finance system reform is needed in order for the enterprises to exit conservatorship,” but that clearly defined objectives can only come from Congress.

Why is this so important to credit unions? Because credit unions and banks are more dependent on selling their mortgages to the GSE’s than are the biggest players. The fear is that a truly free market for the sale and securitization for mortgages will leave them out in the cold paying higher mortgage costs.

Why hasn’t that clarity been provided? The second great failure when it comes to housing has been the Qualified Mortgage myth. The myth is that you can tighten lending standards without decreasing the number of people who own a home. The reality is, that for all of the justified outrage over banker recklessness, the mortgage crisis came about because too many people were given houses they couldn’t afford. The President could have started a national dialogue about homeownership and its limits. Instead, we have a political environment in which the cost of servicing mortgages has risen astronomically and politicians are still perpetuating the myth that if it wasn’t for the evil banks, everyone could afford the home of their dreams.

This is politically expedient but dangerously myopic. It’s as if we haven’t learned anything over the last eight years.

January 20, 2017 at 9:23 am Leave a comment

GSEs Will Be Here For Years To Come

Show Me The Money!

The NCUA chalked up two more settlements in its lawsuits against investment banks involved in the sale and underwriting of the mortgage-backed securities purchased by the failed corporates. NCUA announced that it reached settlements with Barclays Capital ($325 million) and Wachovia ($53 million) to settle claims about their underwriting activity.  NCUA says it has now obtained over $3 billon in settlements.

Housing Reform is Dead

The Obama administration virtually assured yesterday that housing reform is going to be the next President’s problem.  For credit unions, this is a good thing, at least in the short to medium term.  It also speaks volumes about just how messed up – dysfunctional is too kind at this point – our political system has become.

Since it’s been a while since I talked about housing reform, let me get you up to speed. When Fannie and Freddie were taken over in 2008, causing the first tremor of the mortgage meltdown, they were placed in conservatorship under the supervision of the newly created Federal Housing Finance Administration.  They were nationalized.  The government brought slightly less than 80 percent  of their common shares.

Seven years ago, it was unthinkable that Congress would not act to restructure a housing system that had to be bailed out by the American taxpayer, but some funny things have happened since then:

(1)  Housing reform requires compromise of the type proposed by a group of level-headed Senators who actually want to get things done in Washington.  But posturing is so much easier than legislating these days and a lot more fun.  Their legislation couldn’t make it to the floor.(

(2)  The GSEs started making sizeable profits and the government claimed the profits.

(3)  The American public is as dependent on the secondary market provided by the GSEs than ever before.  Estimates vary, but approximately half of the new mortgages entered into in this country are brought by these behemoths which package them into mortgage-backed securities.  Credit unions and smaller banks are concerned that a world without virtually guaranteed secondary market access would drive up the cost of their mortgages and force them to provide fewer mortgages to their members and consumers. That is why it’s a good thing that the status quo will be in place, at least for now.

Recently there have been whispers about a possible Whitehouse plan to recapitalize the GSEs and put them back in private hands. Earlier this week Bloomberg news reported that “Fannie Mae and Freddie Mac shares both jumped more than 8 percent Oct. 6 after a Washington political intelligence firm published a report that said the White House was in the ‘very early stages’ of weighing its options to end federal control, known as conservatorship.”

Yesterday’s White house statements slammed the door on this speculation. In an Opinion piece, Antonio Weis, an aid to Treasury Secretary Jacob J. Lew, argued that “ Recap and release could raise the cost of mortgages for Americans, and potentially expose taxpayers to another painful bailout.”  And in a speech before the Mortgage Bankers, Michael Stegman, a top adviser to President Barack Obama on housing, warned against what he called  the increasingly noisy chorus of the advocates of recap and release, many of whom have placed big bets against reform so they can make a profit, and are doing everything they can to make sure that those bets pay off.”

What’s next? There is a slim chance that things will change whether Washington wants them to or not.  A lawsuit has been brought in Federal District Court in Iowa in which GSE shareholders are contending that since 2012 the Treasury has illegally claimed GSE profits that belong to the remaining private shareholders.

A second thing to keep in mind is that under Dodd-Frank any mortgage purchased by a GSE is a Qualified Mortgage. This is important because the GSE’s have less stringent underwriting requirements than does the CFPB.  But this “GSE eligible flexibility” ends in 2021.


October 20, 2015 at 10:16 am Leave a comment

The Hangover

As someone who is trying to post this blog while still suffering the after-effects of a Christmas party replete with my wife’s turn-of-the-century punch and two children who don’t appreciate the after-effects of drinking it, I can certainly empathize with the difficulties confronted by our congressmen and their staffers.  In the midst of the holiday season, they are trying  to hobble together a budget plan to get us through to next October and an extension of the payroll tax cut with the presidential primary season only weeks away.  Still the last few days of policy debate in Washington reminds me of that sinking feeling you get the day after the Christmas party when you begin to realize what it is you actually said.

Saturday, the Senate overwhelmingly passed a bill (H.R. 3630) extending unemployment benefits and a payroll tax cut due to expire at the end of this year, but only until February of 2012.  As tartly reported by the Washington Post, if the bill is passed by the house it would simply mean that “December’s battle is likely to become February’s war.”  By Sunday morning, House Speaker John Boehner pronounced the proposal dead on arrival in his chamber even though the Senate was under the impression that it had an agreement on the bill.  This might actually be a good thing.

The Senate bill pays for the two-month extension by raising fees charged to homeowners who receive FHA guaranteed mortgages, as well as fees paid to Fannie Mae and Freddie Mac for guaranteeing mortgage-backed securities.  The fees charged for FHA backed insurance will be in addition to the premiums paid by these homeowners.   So, if one of your members takes out a $200,000 mortgage with a FHA guaranteed loan they will have to pay an estimated additional monthly fee of little less than $15 a month.  

It would be odd if the end result of the mortgage crisis is not reforming the system but making the middle class taxpayer who benefits most from cheaper mortgage loans pay more for its maintenance.   These fees are justified by both parties as providing incentives for more private sector involvement in mortgage lending by leveling the playing field.  I can’t help but think that this is doublespeak for let’s keep the current system in place but make the homeowner pay more for it. The housing crisis in this country didn’t result from too little competition for Fannie and Freddie. There may be better ways of maximizing mortgage availability for the American consumer and it is even legitimate to ask if the government should be subsidizing homeownership in the first place.  But neither of these questions is seriously addressed by a backdoor tax on middle class homeowners because Congress can’t agree on how much to cut spending or increase taxes to deal with our nation’s fiscal problems.

December 19, 2011 at 7:25 am Leave a comment

Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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