Fannie/Freddie Reform: Reaction Redux


I have been sitting at the Brookings Institution for much of the day, listening to housing and mortgage experts react to the Obama Administration's "white paper" on winding down Fannie Mae and Freddie Mac and reforming the mortgage market.

The morning began with Treasury Secretary Timothy Geithner, who was actually a last minute add to the event, because this event was scheduled long ago and just coincidentally with the release date of the white paper.

Geithner was quite careful, making clear that whichever of the three proposalsis chosen, it will take many many years for the big changes to be implemented.

His main point: "Homeowners need to hold more equity in their homes".

He admitted that could have a negative effect on the many Americans who use home equity loans to invest in their small businesses, but I guess that is the necessary evil, at least to his point.

I'm still waiting for the keynote from Alan Greenspan, the former chairman of the Federal Reserve, who presided during much of the headiness in the housing boom, but here are just a few of the comments that have gone out this morning from industry, analysts and politicians:

Michael Berman, Chairman of the Mortgage Bankers Association:

"We are gratified to see that one of the concepts they articulate closely tracks MBA's proposal, released eighteen months ago, that visualizes a workable, commonsense system driven by private capital. Our proposal envisions an explicit, but limited, government guarantee of lower-risk mortgage-backed securities. The guarantee would be paid for by fees used to build a fund to protect taxpayers. We continue to believe that this is the most prudent approach, one that places the primary risk on private investors and ensures sufficient liquidity during times of economic stress in order to provide affordable mortgage finance in all types of mortgage markets. Our proposal directly addresses the problems that caused the failure of the Fannie Mae/Freddie Mac system."

Chris Whalen, Institutional Risk Analytics:

"We repeat our admonition to all sides of the GSE debate to be careful what they wish for. The residential housing sector is in freefall — six down months in a row for Case-Shiller. Nobody wants to discuss this. Our channel checks confirm that volumes for new residential loan applications are falling off sharply. Were it not for the repurchases of bad loans, FNM/FRE would be shrinking. Think about that. The GSEs are the only bid for secondary market in loans. Virtually all bank production today is being written for Fannie/Freddie/FHA guarantees. The guarantee fees are less than half the market rate, whatever that its. So talk about privatization is childish. Meanwhile, the Obama Administration is proposing to raise the conforming loan limit on a "temporary" basis."

Paul Miller, Analyst, FBR Capital Markets:

"This should be a positive for all banks as it allows for a more competitive and robust private mortgage market where credit is more accurately priced. This could see significant pushback from Realtors, homebuilders and mortgage brokers because it will be more expensive to buy a house because of higher mortgage rates and larger down payments, which should lead to lower purchase volumes. We expect the final plan will eventually fall somewhere between the second and third options mentioned above."

Chairman, House Financial Services Committee, Spencer Bachus:

Mortgage Mess - A CNBC Special Report
Mortgage Mess - A CNBC Special Report

"The Administration’s report incorporates several elements of the plan that House Republicans proposed two years ago to fix Fannie Mae and Freddie Mac and end their $150 billion taxpayer bailout, and for that I commend them. However, what the Administration offered today isn’t a plan to move us forward, but rather a collection of options to consider. What’s needed is a real plan, and we intend to sit down with Administration officials to find common ground. We must address this as part of a comprehensive housing finance reform, which will include FHA as well as the private sector. The Administration’s report today is just a start. What we need is legislation that protects taxpayers from further losses and future bailouts and builds a stable housing finance system based on private capital.”

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