More Perspective and Discussion on the Future of Housing and GSE Reform

by devteam March 24th, 2010 | Share

The House Financial Services Committee held a hearing yesterday to discuss the future of Housing Finance- What  Should the New System Be Able to Do?

MortgageNewsDaily provided a rundown of the testimony of all of thepanelrnmembers, summarizing the sense of the hearing in a number of areasincludingrnthe availability of mortgage credit, consumer protection, and financialrnstability in addition to the Adminstration's objectives on the future of the GSEs andgovernmentrnguarantees. READ MORE

Below are brief recaps of news stories and perspectives we've read on the topic so far:

The New York Times provided a broad overview of the hearing. From the story: “Mr. Geithner ruled out nationalizing Fannie and Freddie or creating several entities to compete with them. But he said it was worth considering a public-utility model, in which the entities would guarantee mortgages without maintaining investment portfolios, thereby limiting the systemic risk they would pose. Mr. Geithner’s predecessor, Henry M. Paulson Jr., had endorsed such a model.”

Bloomberg led withrnGeithner's call for an end to the “ambiguity” over governmentrninvolvement with the two corporations and his endorsement of a “need tornredesign federal guarantees in housing finance.”

According to the newsrnservice, Geithner said that Freddie and Fannie's debt was different from U.S.rnsovereign debt and should not be consolidated into the government's balancernsheet, but “We are going to make sure that these institutions have thernresources they need to meet their commitments past and future.”

He pledged that thernadministration would seek to avoid disruptions to GSE's ability to honor itsrnobligations or the liquidity of mortgage-backed securities and he disagreedrnwith committee chairman Barney Frank (D-MA) that the corporations should bernphased out.  The Treasury Secretary saidrnthat the government instead needs a new system to finance housing in whichrn”we preserve the good but end what was too risky.”

The Los Angeles Times also emphasized the Treasury Secretary's supportrnfor guarantees for the GSEs, quoting his statement that he opposed either permanentlyrnnationalizing the two or creating new quasi-governmental corporations torncompete with each other. Instead he supported two approaches recommended byrnFederal Reserve Chairman Ben S. Bernanke. rnOne would privatize the GSE's but continue some form of governmentrnguarantees; the other would restructure them into public utilities where therngovernment would regulate profits, set fees, and provide guarantees for theirrnassets. MND discussed the explicit guarantee HERE

The Washington Post said thatrnGeithner told the panel that the administration would retain the best parts ofrnthe housing finance system while it overhauls the parts that did not work.  He insisted that the old system wouldrnnot be re-created “and that Fannie and Freddie's status asrnshareholder-owned companies with the implicit backing of taxpayers wouldrnend.”  The Secretary added that therngovernment “would make clear what it stands behind and what it doesn't.

ThernWashington Post also mentioned Frank's concern that therndebate over housing policy focused too much on home buyers and not enough onrnproviding more affordable rental housing.

The WallrnStreet Journal suggests that  Treasury Secretary Timothy Geithner could have used Tuesday's speech on the mortgage market to convince America it is time to end its relationship with housing subsidies. Instead, he suggested ways to make it less dysfunctional.

The Journal also covered arnword-for-word exchange between the Secretary and Rep. Garrett over the finerndistinction between classifying the GSE's debt as “sovereign” andrnsaying that the government would do everything necessary to make sure theserninstitutions have the capital they need to meet their commitments. The story called attention to Geithner's emphasis on the administration's commitment tobackrnGSE debt as an attempt to “reassure investors (including foreignrngovernments) that own the companies' debt.”  This, the Journalrnsaid, was needed in light of a statement made by Rep. Frank twoweeksrnearlier in which he suggested the U.S. should force debt holders “totakerna haircut.”  Frank later modifiedrnthose statements. 

ThernBoston Herald  wrote a piece focusing on anexchangernbetween committee chairman Barney Frank (D-MA) and Rep. Scott Garrett(R-NJ)rnover who caused the collapse of the two Government Sponsored Enterprisesrn(GSEs). According to the Rupert Murdoch owned paper, “Garrett got theblame-game ballrnrolling by taking digs at House Financial Services Committee leaders forrnwaiting so long to tackle the thorny issue of what to do about thefirms.  Frank… shot back in a long response that itrnwas Republicans, not Democrats, who controlled Congress through most oflastrndecade and that they balked at reforming Fannie and Freddie before theyrnimploded.”

Barrons reportedrnthat Geithner said the administration didn't want to fully nationalize the GSEsrnbut that “he hasn't yet seen a workable proposal for a fully privaternalternative.”

MarketWatch covered estimony given by NAR spokesman Vince Malta. NARrnurged that Freddie Mac and Fannie Mae be restructured as government-chartered,rnnon-shareholder owned authorities.  Maltarnsaid “The newrnFannie and Freddie must ensure there is always mortgage capital available forrncreditworthy buyers and that taxpayer dollars are protected.” He cautionedrngovernment about moving too quickly in restructuring the GSEs. “Thernhousing recovery is still too fragile for the government to completely steprnaway, and any disruption in the marketplace now by doing something too radicalrnwould be harmful,” he said. “Our goal is to help Congress and ourrnindustry design a secondary mortgage model that will serve America's bestrninterest today, and in the future.”

Arnsecond MarketWatch article said that Geithner painted a “bleakrnpicture” for the House Committee, summarizing his testimony thus: “There is no happy endingrnfor the government's bailout of the mortgage giants. The transition from publicrnto private support of the markets isn't anywhere close to reality. Worse, nornclear plan has emerged to do the deed.”

The Voice of Housing calls attention to the Three R's

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About the Author


Steven A Feinberg (@CPAsteve) of Appletree Business Services LLC, is a PASBA member accountant located in Londonderry, New Hampshire.

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