The Bipartisan Policy Center’s Housing Commission threw its hat into the GSE reform ring earlier this week, issuing a detailed report calling for a gradual, yet transformative, change to how the nation’s mortgage markets currently operate – and one that could actually gain some traction among policymakers.
Because GSEs – government-sponsored enterprises, a la Freddie Mac and Fannie Mae – play such a disproportionate role in housing finance, the Housing Commission called for more diversity in the mortgage markets, arguing that such a change would increase ownership and rental housing choices for consumers.
The GSEs in the Mortgage Markets
But just how disproportionate is the GSEs involvement in the nation’s mortgage markets? See our infographic below for some perspective (click on the circles next to each market to see the GSEs’ market share):
How to go about GSE Reform?
Given the outsized role of GSEs in the mortgage markets, though, GSE reform will not come easy, and the Housing Commission is arguing for a slow, gradual change to the governments role in home financing.
Over a five-to-10 year transitional period, the Housing Commission recommended dissolving Fannie and Freddie, and replacing them with what it labelled a “Public Guarantor,” or, a wholly-owned government corporation that would perform a number of tasks, including: provide investors with payments on principal and interest in the mortgage-backed securities markets (similar to what Ginnie Mae does now); oversee a “catastrophic guarantee,” in the event of another housing crash, along with establishing guarantee fees and managing risk funds for the single-family and rental markets; and finally, qualifying institutions to serve as issuers of securities.
David Stevens, the president and CEO of the Mortgage Bankers Association, was supportive of the Housing Commissions’ suggestions for GSE reform.
“There is widespread agreement that the government’s footprint in housing finance is currently too large,” Stevens said. “The Commission’s report rightfully highlights the need for a greater role for private capital in bearing credit risk, while also acknowledging the continued desire for a limited government function to ensure sufficient mortgage liquidity for qualified borrowers, particularly in times of market stress.”
But do you see GSE reform actually occurring? After all, it’s been one of the main long-term goals of the Obama White House, but such proposals have, for the last 18 months or so, gained no traction on Capitol Hill.