Here is a roundup of recent news in the housing finance industry. USMI released a paper assessing housing finance reform proposals announced by housing institutions and organizations, the Senate Banking Committee held a hearing on housing finance reform, Genworth Financial introduced its first-ever First-Time Homebuyer Market Report, the Federal Housing Finance Agency (FHFA) submitted its 2016 annual report to Congress, and American Action Forum (AAF) commented on Fannie Mae and Freddie Mac’s (the GSEs) increasingly risky credit portfolios while calling for greater usage of private mortgage insurance (MI).
- USMI Releases Policy Paper Assessing Housing Finance Reform Proposals. USMI released a paper that assesses a number of reform proposals for the housing finance system. This paper analyzes the various reform proposals put forth by widely respected institutions and organizations through the lens of USMI’s housing finance reform principles, with attention to the role of private capital to protect against taxpayer risk exposure in the proposed new systems.
- Senate Banking Committee Holds Hearing on Housing Finance Reform. Edward DeMarco (President, Housing Policy Council), Dave Stevens (President, Mortgage Bankers Association), and Michael Calhoun (President, Center for Responsible Lending) testified before the Senate Banking Committee on principles for housing finance reform and specific proposals, including the importance of more private capital standing in front of taxpayers’ risk exposure.
- Genworth Introduces First-Time Homebuyer Market Report. Genworth introduced its First-Time Homebuyer Market Report – the first economic series focused on first-time homebuyer market size. The report provides data spanning two housing cycles over the past 24 years that will make the first-time homebuyer market more visible to housing industry participants and policymakers. A factsheet of the report can be found here.
- FHFA Submits 2016 Annual Report to Congress. FHFA submitted its annual Report to Congress for 2016, which describes the actions undertaken by the agency to carry out its statutory responsibilities. The report summarizes the findings of FHFA’s 2016 examinations of the GSEs as well as FHFA’s actions as conservator of the GSEs during 2016. The report also describes FHFA’s regulatory guidance, research, and publications issued during the year.
- AAF Comments on GSEs’ Increasingly Risky Credit Transfers. In a post on its website, AAF commented on the current status of FHFA and the GSEs, which are retaining risky assets and transferring very little credit risk while remaining dangerously undercapitalized. AAF warns that FHFA and the GSEs’ actions will most likely lead to another taxpayer bailout of the entities. AAF notes that while GSE reform remains a top priority to fix the housing finance system, private MI can be more extensively used in credit risk transfer to de-risk the GSEs’ portfolios, which in turn will protect US taxpayers and the federal government.
Nearly a decade after the financial crisis, the housing finance system remains largely structurally unreformed. There have been several legislative pushes for comprehensive reform after American taxpayers provided $187 billion in bailout assistance to Fannie Mae and Freddie Mac (the “GSEs”) and since both GSEs were placed into conservatorship in 2008, though all comprehensive reform efforts to date have failed to be enacted.
USMI firmly believes that reform is necessary to put our housing finance system on a more sustainable path so that creditworthy borrowers will have access to prudent and affordable mortgage credit in the future and so that taxpayers are better shielded from housing related credit risks. For more than 60 years, private mortgage insurance (MI) has played a critical role in providing access to mortgage credit and protecting taxpayers. The 115th Congress and the Trump Administration have a unique opportunity to address this last unfinished reform to truly put America’s housing finance system on a sustainable path. Recently, there have been a number of reform proposals from think tanks, trade associations, and others—each articulating a specific set of principles or visions for the structure of the new future housing finance system, and elements of the transition to a future state.
This paper, Assessing Proposals to Reform America’s Housing Finance System, seeks to analyze various proposals through the lens of USMI’s housing finance reform principles, with particular attention to the role of private capital to protect against taxpayer risk exposure in the proposed future systems. Several thoughtful legislative proposals for housing finance reform exist, but this paper is restricted to analysis of several of the white papers and reform proposals put forward by think tanks and trade associations. Simply returning to the pre-conservatorship status quo does nothing to strengthen the housing finance system, and USMI looks forward to working with industry and consumer groups, Congress, and the Administration to identify the best reforms to put America’s housing finance system on a sustainable path.
USMI appreciates the work the of authors and stakeholders who assembled these proposals, and we look forward to working with policymakers and other stakeholders to advance necessary reforms to enhance our housing finance system.
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Here is a roundup of recent news in the housing finance industry. The Trump administration released its 2018 federal budget proposal for the U.S. Department of Housing and Urban Development (HUD), Federal Housing Finance Agency (FHFA) Director Mel Watt and Treasury Secretary Steven Mnuchin testified before the U.S. Senate on potential GSE reform, USMI and numerous other housing industry groups voiced their support for the nomination of Pam Patenaude to serve as Deputy Secretary of HUD, and several third party groups released white papers on access to affordable mortgage credit and housing finance reform.
- Trump Administration Releases 2018 Federal Budget Proposal for HUD. The Trump administration released its 2018 federal budget proposal for HUD, which includes $6.2 billion – or 13.2 percent – in cuts to the agency. The cuts would be implemented through rental assistance reforms, the elimination of funding for certain programs, and through the streamlining of internal operations. The budget includes $160 million for the Federal Housing Administration (FHA) to improve risk management and program support processes, and would also provide $30 million towards modernizing the FHA’s system and updating its programming language.
- FHFA Director Watt Calls for GSE Reform. In testimony before the Senate Committee on Banking, Housing and Urban Affairs, FHFA Director Mel Watt called for Fannie Mae and Freddie Mac (the “GSEs”) to be taken out of government conservatorship as soon as possible. Watt warned of future potential GSE draws on the line of credit at Treasury as the GSEs currently have a very limited capital buffer and are scheduled to go to zero capital in 2018. Watt expressly noted that Congress should be responsible for achieving housing finance reform, not the FHFA.
- Treasury Secretary Mnuchin Testifies in Senate. Treasury Secretary Steven Mnuchin testified before the Senate Committee on Banking, Housing and Urban Affairs where he too was questioned on the topic of housing finance reform. Mnuchin said that GSE reform would be a priority in the second half of the year for the Trump administration and noted that he and the administration would work with Congress on reform efforts. Notably, Mnuchin stated that he expects the GSEs to continue to pay dividends to the Treasury Department despite statements made the previous week by FHFA Director Watt, who said he might allow the GSEs to retain profits in order to build capital buffers against potential future losses.
- Housing Industry Groups Support Pam Patenaude’s Nomination to HUD. Numerous housing industry associations expressed their support for the Trump administration’s nomination of Pam Patenaude as Deputy Secretary of HUD, including Mortgage Bankers Association (MBA), National Association of Realtors (NAR), National Association of Home Builders (NAHB), and National Fair Housing Alliance (NFHA), among others. In a letter provided to Senate Banking Committee members last week, USMI similarly voiced its support for Patenaude’s nomination. USMI’s Chairman Patrick Sinks, President and CEO of MGIC, said of the nomination:“USMI encourages members of the Senate Banking Committee to approve Mrs. Patenaude’s nomination and to move it expeditiously to the Senate floor… Mrs. Patenaude understands the housing finance system and the need for a coordinated, consistent and transparent approach to federal housing policy across government channels. Her leadership on these important issues will ensure that Americans have greater access to mortgage finance credit for borrowers, while at the same time, increasing private capital in mortgage finance and reducing taxpayer risk exposure.”
- New GSE Reform Proposals Released by Third Party Groups. In the last week, several organizations interested in GSE matters released white papers on housing finance reform for policymakers and industry stakeholders to consider. These groups include the Bipartisan Policy Center, the Milken Institute, and Moelis & Co. LLC.