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Coalition renews pitch to recapitalize GSEs

Low-income advocacy groups and two small-lender trade associations called on the government to allow Fannie Mae and Freddie Mac to once again build capital reserves and also made clear their preference for keeping a housing-finance system in place that is dominated by the two government-sponsored enterprises (GSEs).

The so-called Main Street GSE Reform Coalition released a set of principles on Wednesday ahead of Thursday’s hearing before the U.S. Senate banking committee that dealt with GSE reform. No members of the Main Street coalition testified. The Senate banking committee's ranking member, Sherrod Brown, D-Ohio, asked that the group's statement of principles be included in the record, however.

coalitionThe coalition is asking the GSEs' regulator, the Federal Housing Finance Agency (FHFA), to suspend the profit sweeps and to draw up a plan to release the GSEs from conservatorship. The U.S. Treasury scoops up all of Fannie and Freddie’s profits, and their capital reserves are being wound down to zero. The government has made billions of dollars available to the GSEs in the event of losses.

Under the coalition plan, the FHFA would implement a capital-restoration plan, and the GSEs would start retaining their earnings immediately. Once the GSEs build sufficient capital, they could be released from the conservatorship and begin operating again as private entities, but would remain under the supervision of a strong regulator, the FHFA.

The Main Street coalition also wants a system that ensures small banks have access to the secondary market and face no pricing discrimination. The GSEs mandatory support for affordable housing and obligation to make credit available in underserved areas also would continue.

The coalition includes the Community Mortgage Lenders of America (CMLA), the Community Home Lenders Association (CHLA), the NAACP, the National Community Reinvestment Coalition, the Leadership Conference on Civil and Human Rights, and the Leading Builders of America.

CMLA Executive Director Glen Corso said Congress may need to make additional limited reforms to clarify the role of the FHFA in its oversight role. But Corso adds, “We think that reform has largely been accomplished administratively." 

It would appear, however, that a significant reform bill could still emerge out of the Senate this year. Key members of the Senate banking committee on Thursday indicated they are committed to producing a bill that substantially changes the current system.The nation’s largest mortgage trade group, the Mortgage Bankers Association, also opposes recapitalizing and releasing the GSEs absent substantial reforms by Congress. MBA has proposed turning Fannie and Freddie into regulated private utilities, and allow for other entities to be chartered to compete with them.

MBA President David Stevens, among three industry representatives to testify at Thursday’s banking committee hearing, was asked about the GSE’s declining capital buffer. The buffer for each is scheduled to be wound down and kept at zero beginning in 2018. This will mean that if the GSEs suffer losses in any quarter after that point, they will have to take a draw on the Treasury line.

“The easy answer is no,” Stevens said, in response to whether the GSEs' anemic capital buffer was acceptable. “The good news is that there is an ample line of credit to cover all losses, and focusing on anything other than legislative reform is a diversion, [and] we should not go down that path.”   


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