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Dividend sparks GSE debate

by  | Corporate
Posted:     Updated: Apr 3, 2017  14:40 ET
 
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The government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac last week made their fourth-quarter dividend payments to the U.S. Treasury on time.

Normally this wouldn’t be news, but the impending deadline brought the issue of housing-finance reform back to the surface.

GSE

Several special interest groups, including the small-lender groups the Community Mortgage Lenders of American (CMLA) and the Community Home Lenders Association (CHLA), have been putting pressure on the GSEs' regulator, the Federal Housing Finance Agency (FHFA), to allow Fannie and Freddie to retain their earnings until they rebuild a sufficient capital buffer to withstand quarterly losses.

Through an agreement with the government, Fannie and Freddie pay out almost all of their earnings to the U.S. Treasury, and their capital buffers are being wound down to zero.

In 2018, the GSEs will have zero buffers to absorb losses. The Treasury has made billions available to the GSEs to draw on in the event of quarterly losses, and their mortgage-backed securities are backed explicitly by the U.S. government.

Advocacy groups, like the NAACP and small lenders, however, are worried that if the GSEs take a draw, which could be politically unpopular, Congress will be under pressure to make hasty reforms that ultimately weaken or kill off the GSEs. Some of these groups, such as the CHLA, have suggested housing-finance reform proposals that would preserve the GSEs’ missions, but reform their charters. Because Congress may take several years to change the system, however, these groups say the immediate focus of the FHLA should be to end the profit sweeps and allow each GSE to rebuild a buffer to avoid likely draws on the Treasury.

“CHLA is not saying that they should recapitalize in the absence of the administration and Congress,” CHLA Executive Director Scott Olson told Scotsman Guide News. “I don’t see how a small buffer like what we are calling for, which is probably like $8 billion or $10 billion each, I don’t see any way in which that would interfere or create problems for the House or Senate acting on comprehensive legislation.”

Others, however, such as the nation’s largest mortgage trade group, the Mortgage Bankers Association (MBA), want the FHFA to keep the current agreement in place, which might in turn motivate Congress to get moving on reform.

“Given that momentum for GSE reform is starting to build on Capitol Hill, now would be exactly the wrong time for the regulator to independently recapitalize the GSEs, a move that would clearly antagonize policymakers, potentially resulting in a detrimental outcome,” said MBA President David Stevens in a statement last week.

The Senate Banking Committee has been hosting informal panels with industry officials, seeking input on GSE reform. Last week, a bipartisan group of senators on the committee urged the FHFA not to alter the government’s agreement, saying it would undercut their efforts to jumpstart reforms.

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Victor Whitman is chief reporter for Scotsman Guide Media. Reach him at (800) 297-6038 or victorw@scotsmanguidenews.com.

Topics: Residential economy | Residential legislation and compliance
More by: Scotsman Guide Media

 

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Dividend sparks GSE debate

by Scotsman Guide Media | Corporate
Posted: Apr 3, 2017  14:38 ET    Updated: Apr 3, 2017  14:40 ET

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