Housing Authorities Envision More Limited Role for Fannie Mae and Freddie Mac

HUD Secretary Julián Castro and Republican Rep. Ed Royce see room for cooperation on housing reform.

Department of Housing and Urban Development Secretary Julián Castro at National Journal's event, "Sustainable Homeownership: The Future of Housing Finance" at the Newseum in Washington, D.C. on June 3, 2015.
National Journal
Zach C. Cohen
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Zach C. Cohen
June 3, 2015, 2:04 p.m.

The hous­ing mar­ket could look very dif­fer­ent later this year if cer­tain play­ers get their way.

Among the pos­sible changes com­ing to the hous­ing sec­tor: a re­duced role for Fan­nie Mae and Fred­die Mac in fam­il­ies’ mort­gages, with the hope that more private lenders feel con­fid­ent enough to give out loans again.

“The pres­id­ent has pre­vi­ously stated he sup­ports a com­pre­hens­ive hous­ing-fin­ance re­form, centered on the need “¦ to re­quire more private cap­it­al in the sys­tem,” Rep. Ed Royce said at Na­tion­al Journ­al‘s “Sus­tain­able Homeown­er­ship: The Fu­ture of Hous­ing Fin­ance” con­fer­ence, un­der­writ­ten by 1st Al­li­ance Lend­ing, on Wed­nes­day af­ter­noon at the New­seum. “Ex­actly. And I think Con­gress should take him up on this and put a bill on his desk that does just that.”

Royce, a Cali­for­nia Re­pub­lic­an who sits on the Fin­an­cial Ser­vices Com­mit­tee, lauded a re­cent bill from Sen­ate Bank­ing, Hous­ing, and Urb­an Af­fairs Chair­man Richard Shelby that would phase out Fan­nie Mae and Fred­die Mac, call­ing them “the un­fin­ished busi­ness of the fin­an­cial crisis.”

Since the hous­ing bubble burst in 2007, cred­it—and by ex­ten­sion, homeown­er­ship—has de­clined, something that Hous­ing and Urb­an De­vel­op­ment Sec­ret­ary Ju­lián Castro said must be fixed in or­der to buoy the rest of the eco­nomy.

“Re­spons­ible homeown­er­ship re­mains a fun­da­ment­al pil­lar of the Amer­ic­an Dream,” Castro said. “It al­lows folks to in­vest in their own com­munit­ies, it sparks a wave of eco­nom­ic activ­ity, “¦ and for many hard­work­ing Amer­ic­ans, buy­ing a home is the best av­en­ue to build wealth.”

Castro in part en­dorsed Royce’s out­look, say­ing that Pres­id­ent Obama wanted a pro­pos­al from Con­gress to en­cour­age the private sec­tor to take on some of the risky loans now held by the quasi-na­tion­al­ized Fan­nie Mae and Fred­die Mac. However, he said, “the proof is go­ing to be in the pud­ding.”

“I agree with him that … the ad­min­is­tra­tion would like to see hous­ing-fin­ance re­form hap­pen,” Castro said, “and I think that we agree on some of the com­mon ele­ments of that, in­clud­ing tak­ing the tax­pay­ers off the hook, get­ting more private cap­it­al in­to the sys­tem.”

Such a pro­pos­al has some back­ing in the busi­ness com­munity, which Royce said was ready to en­gage and lend again giv­en the right op­por­tun­ity. The bank­ing in­dustry could sup­port a slimmed-down Fan­nie Mae and Fred­die Mac.

“Love? Maybe. Like? Sure,” said Joseph Pigg, seni­or vice pres­id­ent and seni­or coun­sel of the Amer­ic­an Bankers As­so­ci­ation. “It’s def­in­itely a bet­ter vis­ion of the fu­ture than where we are today. “¦ Right now we view them as pretty much the only game in town.”

Pan­el­ists—which in­cluded Ju­lia Gor­don, seni­or dir­ect­or of hous­ing and con­sumer fin­ance at the Cen­ter for Amer­ic­an Pro­gress, and An­drew Jak­abovics, seni­or dir­ect­or of policy de­vel­op­ment and re­search at En­ter­prise Com­munity Part­ners—also dis­cussed the prop­er role of a reg­u­lat­or to make sure gov­ern­ment agen­cies provid­ing loans didn’t take on too much risk, re­peat­ing the same con­di­tions that led to the fin­an­cial col­lapse.

“If you’re go­ing to cre­ate that mor­al haz­ard “¦ you have to have a reg­u­lat­ory sys­tem that con­trols the risks,” said Mark Ca­lab­ria, dir­ect­or of fin­an­cial-reg­u­la­tion stud­ies at the Cato In­sti­tute.

Royce ad­mit­ted that his op­tim­ism about re­form be­com­ing law would sur­prise the audi­ence. But as he rushed back to the Cap­it­ol for a vote, he had a few part­ing words for Castro: “Take a look at the Sen­ate bill.”

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