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Former Ginnie Mae CEO says 'the status quo' will trump GSE reform

The former top gun for Ginnie Mae said this week that the Obama Administration’s unwillingness to take Fannie Mae and Freddie Mac out of conservatorship is part of a “deliberate strategy,” and he also expressed skepticism that any meaningful reforms of the mortgage giants will result even after the next presidential election.

Joseph Murin, former president and CEO of Ginnie Mae, told Scotsman Guide News that he was not surprised by the recent statements from U.S. Treasury and White House officials indicating that the government-sponsored enterprises (GSEs) Fannie and Freddie will not be recapitalized and will remain under the government’s control.

Former Ginnie Mae CEO Joseph Murin“The Treasury is using them as a cash cow to use their cash flows for other areas of the federal government, where the administration feels that they need funding,” Murin said. “It is a deliberate strategy to be able to keep the GSEs where they are today, let them continue to earn and to transfer those earnings over to the Treasury.”

In October, Treasury Secretary Jack Lew said on cable-news network CNBC that the Obama Administration would not consider a policy of allowing Fannie and Freddie to retain their earnings nor would they be released from conservatorship, a position the GSEs have been in since 2008. Lew indicated that Obama wants Congress to embark on housing-finance reform that minimizes the risk to taxpayers.

During the Mortgage Bankers Association Annual Conference in San Diego last month, White House Senior Policy Advisor Michael Stegman also said Obama wouldn’t support a recapitalization-and-release plan for the GSEs.

Murin, who led Ginnie Mae in the last year of the Bush Administration before leaving in 2009 after one year under Obama, said the recent statements by administration officials indicate that the status quo is the policy. He also was skeptical that any major changes to the GSEs would be adopted in the near future, though he said reform was more likely under a Republican president "based on the configuration in Congress."

“I think they will continue to kick the can down the road,” Murin said. “Everybody is pointing to a new administration in 2017. However, I am not sure that is something that is in the cards.”

In the telephone interview, Murin made clear that he doesn’t support a policy of “recap and release” as Fannie/Freddie shareholders and some mortgage-industry trade groups and Civil Rights groups have recently advocated.

He supports replacing the GSEs with a single entity like Ginnie Mae, which currently insures mortgage securities issued by government agencies, such as the Federal Housing Administration (FHA), but, unlike the GSEs, does not purchase mortgages.

“If you take a look at Ginnie’s record with [Veterans Affairs] and FHA structured bonds in the last 40-some odd years, it has worked very well,” Murin said. “I don’t think they have to put the GSEs back in the same position that they were, but I think a single-agency structure makes sense for the whole marketplace.”

Murin also said it isn’t practical to remove the government guarantee altogether, expecting private capital to fill the void. Without a backstop, mortgage rates would shoot up by 200 to 300 basis points, he said.

“Whether it is the House Financial Services Committee or the Senate banking guys, they would like to see the private marketplace take over,” Murin said. “I don’t think that is ever going to happen, where the private marketplace takes over. The cost of liquidity under a private environment will be too high and it will impact in a negative manner the housing and mortgage market in this country.”

Others call for ‘recap-and-release’ now

A chorus of disparate interest groups, however, have called on the Obama Administration to recapitalize Fannie and Freddie. Most recently, the NAACP and two other progressive groups sent the White House a letter indicating that the GSEs should be recapitalized and released from conservatorship, fearing that access to credit for lower-income borrowers is threatened under the status quo.

The Community Home Lenders Association and the Community Mortgage Lenders of America (CMLA) also sent the White House a letter urging the administration to adopt a “recap and release” plan.

Some mortgage trade groups are worried that so long as Fannie and Freddie are under the government’s control, Congress will be tempted to raid their fees and use the revenues to fund nonhousing-related government programs. More generally, groups that support “cap and release” are concerned that  that Fannie and Freddie will eventually be wound down and eliminated. CMLA Executive Director Glen Corso said that possibility becomes more likely when the GSEs are undercapitalized and have less of a buffer to prevent future draws on the Treasury.

On Tuesday, for example, Freddie Mac reported a net quarterly loss of $475 million, despite reporting a good book of business in the quarter. The loss was mainly due to its accounting for losses on derivatives used to hedge against changes in interest rates. Although Freddie won’t have to make a Treasury draw this time, Federal Housing Finance Agency Director Mel Watt predicted that the GSEs will likely have to make draws as their capital reserves are wound down to the target of zero by 2018 and earnings remain volatile.

Corso said taxpayer-funded bailouts, regardless of the reason, are unpopular and could ultimately spell the demise of the GSEs.

“There are folks out there that would like to see the GSEs shut down, and our concern is that gives them ammunition to argue that, ‘My God, they are at it again; they are losing money, let’s shut them down right now,’” Corso said. “Our members are very concerned about that.” 


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