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

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.”