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ICBA: GSE reform will be a heavy lift

Most industry groups believe Congress and the Trump administration will make a push next year to reform the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, which could lead to a resolution of the GSEs' nine-year conservatorship. Ron Haynie, senior vice president of mortgage-finance policy for the Independent Community Bankers of America (ICBA), recently discussed the prospects for reform with Scotsman Guide News. 

Are you optimistic that something will get done next year?

ronhaynieReal legislative reform is a big lift. It is a heavy lift. So far, Congress hasn’t shown that they are really able to do anything like that yet. Now, if we get tax reform passed and signed, well, then that’s a good sign that they can do something. But it took several years to negotiate and pass HERA [ the Housing and Economic Recovery Act], and you had a much different climate in Congress. Of course, at that time, the housing market was starting to implode — and it still took time.

So, I don’t know. I don’t see it happening this year for sure. Could somebody drop legislation? Is that possible? Absolutely. People write bills all the time. It doesn’t mean they go anywhere. Maybe next year is an opportunity. We would hope so. By then it would be 10 years since the GSEs were put in conservatorship. We certainly support reform, targeted reform. We certainly don’t support tearing up the existing system and creating something that destroys all that liquidity. It makes no sense whatsoever. The system actually works pretty well.

Do you think there is much consensus over the large points?

I think there is consensus. There is consensus around the concept of converting the GSEs to a utility model. We support the utility model concept , where you would have regulator-controlled returns, with very strict oversight by the FHFA [Federal  Housing Finance Agency]. It would keep them focused on their mission. I think there is a lot of consensus around that.

If you listen and look at everybody’s statements, they all sort of sound similar. We want to maintain open access for lenders of all sizes. We want to prevent concentration with the largest financial firms. Those kinds of things, they all sound similar. But, the devil is always in the details. Depending on how you hook up the plumbing, you can get a very different result, yet you are saying the same thing. So, we will just have to see. But I do think there is quite a bit of consensus around the utility model and certainly not handing the system over to the largest financial firms in the country and Wall Street. I don’t think there is a whole lot of desire to do that.

At the recent Mortgage Bankers Association conference in Denver, MBA President David Stevens said he expected a principles document to come from the Treasury Department fairly soon. Has the White House given any indication where they want this to go or what they might favor?

It is still pretty much a mystery. We have been hearing that rumor too about a principles document. In fact, we have been hearing it for about a month and a half now, and we haven’t seen it. The White House’s biggest focus right now is obviously tax reform and dealing with the aftermath and recovery from the hurricanes. Those kinds of things are front and center for them as they should be. We have heard about the principles document, but we haven’t seen anything or heard what the content is, other than it was going to be very high-level, very broad-brushed.

Do you expect the FHFA to make any changes to the dividend sweep agreement that might minimize the likelihood of a Treasury draw?

We believe [FHFA Director Mel] Watt is very concerned about his responsibilities as the safety and soundness regulator. Based on his recent testimony in Congress and on conversations we have had with him, he takes those responsibilities very seriously, and he does not want to see a draw [by the GSEs] from the Treasury on his watch. So, I think, he will take some action. We’ve heard statements from them that he is working with Treasury. He has stated that he is concerned a draw could lead to market disruption. Clearly, it would be perceived by all as a bailout. He doesn’t want that on his watch.

He is trying to thread the needle as best he can, and he has options. He has the ability not to pay the dividend flat out. I doubt he will go that route. I think he is more likely to try to change the schedule. As opposed to a quarterly dividend sweep, make it an annual sweep. That way, if you have a bad quarter, it washes itself out. I think that is the more likely path. And it is just an interim step. That doesn’t recapitalize them. It doesn’t change anything. They are not released from conservatorship. It still leaves the path open for Congress to do what they need to do.

Some say that Congress must do something to wire in the reforms that have been made internally during the conservatorship to prevent arbitrary changes by new FHFA directors with different policy views. Do you agree that legislation is absolutely necessary prior to the end of the conservatorship?

I don’t completely agree with it. You have to assume that anybody who is the head of an agency — and it doesn’t matter if it is at the FHFA or the CFPB [Consumer Financial Protection Bureau], the Fed, you can go right down the line — any time you have a change in an administration, you can have a change in the tone and direction of any of those agencies, any of them. And so, to say that you have to do legislative reform to lock in what has already been done, I have problems with that argument. I think that is more of a scare tactic than anything else.

The reality is that a lot of stuff has already happened, and the GSE operations have changed. More than anything else, they have a tough regulator. If you look at before the crisis, before HERA [the Housing and Economic Recovery Act of 2008], the GSEs did not have a single, strong regulator. FHFA is a strong regulator. And these are much different entities as a result of FHFA’s oversight than they were before. That is not to say that if you have a change in administration, things couldn’t change. Things could change, but that is the nature of any of the agencies and regulators. As their terms come up, the next head of that agency is going to put their own imprint on it. So, I think it is a hollow argument. I don’t think anybody wants to go back to the bad old days. Nobody wants to be credited with going back to the bad old days. You are in a different world, and things have moved on.


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