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Housing-industry experts’ proposal seeks to stoke conversation over GSE reform

Zigas,Barry_crop.jpgThe conservatorship that the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac have been operating under since 2008 was meant to be a “temporary fix” and “is starting to show its age,” according to former Fannie Mae executive and housing-finance expert Barry Zigas.

In an effort to energize the conversation around GSE reform, Zigas and four other housing-industry experts published a white paper recently that lays out a path forward. Zigas currently serves a director of housing policy for the Consumer Federation of America and also works as a housing-industry consultant for nonprofits and clients through his company Zigas and Associates LLC. He described the major points of the group’s GSE reform proposal as follows:

  • It would merge Fannie Mae and Freddie Mac into a single entity — a government corporation called the National Mortgage Reinsurance Corp., or NMRC.

  • The mortgage-backed securities guaranteed by the NMRC “would have the full faith and credit backing of the U.S. government, which Fannie and Freddie don’t have now,” Zigas said. That explicit securities guarantee, Zigas added, is similar to the one now offered by Ginnie Mae — which guarantees investors the timely payment of principal and interest on securities issued under its label and backed by Veterans Affairs, Rural Housing Service and other government-sponsored loans. The NMRC also would charge an explicit guarantee fee, or g-fee, sufficient to cover the added risk of the securities guarantees. Additionally, the white paper proposes that the NMRC “transfer all noncatastrophic credit risk on the securities that it issues to a broad range of private entities” — similar to an initiative already underway at the GSEs.

  • The NMRC would not be owned by private shareholders, as the GSEs are now, Zigas said, “but rather would be operated as a type of utility serving all lenders in the primary market as a source of liquidity for mortgage lending.”

Zigas, in an interview with Scotsman Guide News, said the model outlined in the white paper, “A More Promising Road to GSE Reform,” is designed to build on initiatives already underway at the GSEs.

“Fannie and Freddie are already working on developing a common securitization platform, so the companies will be operating from the same platform whether they remain separate or not,” Zigas explained. “Similarly, work is well underway on creating a common security, which both companies would issue. Given that momentum, the paper really tries to build on the steps already being taken, so that rather than try to reinvent the system from scratch, it’s based on progress already made on these different axes.”

The reform model outlined in the white paper has already drawn praise from the National Association of Homebuilders (HAHB). Ed Brady, chairman of the NAHB, described the plan as a “thoughtful, serious proposal that contains a number of elements along the lines of a white paper released by NAHB last year.”

“We believe that any plan must transition Fannie Mae and Freddie Mac into a private-sector oriented system where the federal government's role is clear, but its exposure limited,” Brady added.

In an article penned for Scotsman Guide this past November, former Ginnie Mae President Joseph J. Murin, also proposed a securities-guarantee model similar to that outlined by Zigas and his co-authors in the recent white paper.

“That business model [Ginnie Mae’s model], in some shape or form, could be an important element in making any GSE reform successful,” Murin wrote. “The Ginnie model provides enough of a guarantee to soothe the anxious investor, but has enough independence to protect it from an economic disaster.”

Zigas said the reform plan outlined in the white paper has “drawn expressions of interest from a wide variety of actors in public-policy circles,” but he declined to identify specific individuals. He also said there is “zero likelihood” that the question of GSE reform will be taken up by Congress “until well into the next presidential term.” He stressed that the GSE reform plan outlined by him and his co-authors is simply meant to “stimulate some re-examination of how we might move forward to create a system post-conservatorship.”

“[With this plan] we have a federal guarantee on the securities, we eliminate this question of the conflict between public mission and private enrichment and private-shareholder value,” Zigas said. “[The plan] retains the housing goals and the duty to serve, which is very important to those of us who work in low- and moderate-income housing finance, and it builds on the work already underway [at the GSEs].”

Zigas said people are becoming increasingly concerned about the length of time that the GSEs have been operating in conservatorship under the Federal Housing Finance Agency. “Our hope is that [the paper] will stimulate more discussion and begin to help move the conversation forward by coming at it from a somewhat different angle than has been common in the past."

Bill Conroy is managing editor of Scotsman Guide. Reach him at or (800) 297-6061.



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