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Former Ginnie Mae head expects GSE reform soon

A former top gun at Ginnie Mae said the Trump administration could break the partisan logjam that has stymied even minor housing-finance reforms. 

Joseph Murin, who headed up Ginnie a decade ago at the end of George W. Bush Administration, said Republicans could rewrite the role of the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac within the first two years of the new Trump administration.

Murin“The agenda is probably pretty full for 2017, but I do think there is enough folks on the Hill that would like to see the reform,” Murin told Scotsman Guide News.  

“Eight years of conservatorship is certainly way too long,” Murin continued, referring to the Federal Housing Finance Agency's (FHFA's) long-running role as the conservator of Fannie and Freddie. “It will be something that I believe that the right side of the aisle will address, and there have been some pretty good discussions about it offline.”

Fannie and Freddie were bailed out and taken over by the government in 2008. Since then, numerous groups have proposed reforms, but there has been no agreement to date. Murin, now the vice chairman of Chrysalis Holdings, has long advocated that the so-called Ginnie model be applied to the GSEs. Ginnie guarantees the payment of principal and interest of the securities underpinned by government-backed mortgages, such as Federal Housing Administration-backed loans.

One of the reform proposals for Ginnie calls for it to guarantee securities backed by conventional loans as well (loans that are now written to the guidelines of Fannie Mae and Freddie Mac). Private companies would put up the capital to fund the loans and take a first-loss position. Ginnie would guarantee the securities backed by these loans in the case of catastrophic losses, as it currently does with government loans. 

Murin said the Ginnie model could be applied to the GSEs as well. He said that approach could be attractive to conservatives, who want to expand the role of private capital in the mortgage market, but don't want to see the price of loans skyrocket. The Ginnie plan has some support from some conservative policymakers. Ed DeMarco, former acting director of the FHFA, and Michael Bright, director of the Milken Institute's Center for Financial Markets, have recently advocated for it.

“That is what Michael and Ed are promoting, that is what I am promoting,” Murin said. “If they can do that, we can have explicit guarantees by the government with a lot less risk for the taxpayers, and a much more favorable pass-through rate for the consumer. If it is just up to the private market, don’t you think that the price to the consumer will go up considerably? I do.”

Tweaking Dodd-Frank

Murin also said he expects the Trump administration to tweak, but not scrap, the Dodd-Frank Wall Street Reform and Consumer Protection Act, which is the Obama administration’s signature reform package for the banking and mortgage industry. He said it was likely that the incoming Trump administration will reign in the power of the Consumer Financial Protection Bureau (CFPB), however, which was authorized under Dodd-Frank.

“What Dodd-Frank and the CFPB have failed to do is truly signal to the marketplace what the rules are, to be definite about the rules,” Murin said. “Can we go back to a regulator that defines rule making through the rule-making process rather than through the consent process? That, to me, would be some significant changes to Dodd-Frank.”

Housing reforms will remain controversial, however. Small-lender groups, such as the Community Mortgage Lenders of America (CMLA), are worried that a future without a Fannie and Freddie as we have come to know them will return dominance to big-bank lenders.

“We have not seen any comments by President-elect Trump, nor his campaign, concerning the fate of the GSEs,” said CMLA Executive Director Glen Corso. Corso said that he doubts a Republican-dominated Congress would create a new government corporation to take over for Fannie and Freddie.

“However, we also do not see majority support in Congress for abolishing the GSEs and turning the mortgage market over to the big banks and Wall Street,” Corso said. “We continue to believe that ultimately the new administration and Congress will see the wisdom in reforming, recapitalizing and ultimately releasing the GSEs as publicly regulated utilities.” 


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