NAR Recommends Revamp of GSEs. Treasury Says Not Until Next Year

ThernNational Association of Realtors® (NAR) suggested Tuesday that there be arnsweeping reorganization of the two government sponsored enterprises (GSEs) FreddiernMac and Fannie Mae.  The proposed changesrnwould create two non-profit government-chartered secondary mortgage marketrnauthorities which, NAR said “should ensure that the flow of capitalrncontinues to enter the mortgage market regardless of the state of the housingrnor mortgage markets or overall economy.”

Thernnew entities would not be government agencies per se.  They would be self-sustaining, require nornannual appropriations from Congress and would be politically independent butrnwith strong oversight by the Federal Housing Finance Agency (FHFA). Thernbusiness model, however, would require that the “government must clearlyrnand explicitly guarantee the business of this entity.”

Thernrisk to taxpayers would be mitigated by a requirement of mortgage insurance onrnany loan with an 80 percent loan to value ratio or higher and by higherrnmortgage backed security (MBS) guarantee fees.  Only if these insurance pools are insufficientrnto meet a future crisis would the government have to provide financial backup.  

ThernNAR said it believes that “any organization with a private profit andrnpublic loss structure as the GSEs are presently structured is inherentlyrnflawed.” However, it feels that the two GSEs are best positioned tornsmoothly transition into such authorities because of their existingrninfrastructure.  The new authorities, thernAssociation said, should take the best components of Fannie and Freddie andrnimport improvements from other secondary market models. 

Arnpilot program to increase the use of covered bonds, particularly in commercialrnreal estate should be conducted in the multifamily housing area with an eyerntoward exploring their ability to provide additional capital for residentialrnlending.  NAR suggests that the FDICrnmight be used to guarantee the covered bond option to encourage private marketrnparticipation.

In regard to the NAR's proposal that the “government must clearlyrnand explicitly guarantee the business of this entity,” this will not occur in 2011. Today, speaking before the House Budget Committee, Treasury Secretary Tim Geithner said that he did not believe it was necessary to consolidate the obligations of Fannie Mae and Freddie Mac onto the federal budget.

“We do not think it is necessary to consolidate the full obligations of Fannie and Freddie onto the nation's budget but we do think it's very important … that we make it clear to investors around the world that we will make sure that we will take the actions necessary” to ensure their stability”

Geithner also said that Treasury will lay out broad principles for Fannie and Freddie later this year while legislative proposals would come next year. MND expects the GSE reform process to be slow. READ MORE

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