U.S. Senators, Industry Leaders Debate GSE Reform
Real Estate In-Depth | April 2019
WASHINGTON—As the Senate Banking Committee solicited feedback on Chairman Mike Crapo’s plan to restructure America’s housing finance system at multiple hearings last week, industry consensus surrounding the principles of reform began to emerge. Between hearings on March 26 and 27, when NAR President-Elect Vince Malta testified before the committee, the desire for a well-regulated utility reformed under congressional legislation was heavily emphasized.
“Last week’s hearings in the Senate Banking Committee showed multiple points of broad industry consensus on GSE reform. Specifically, many participants agreed that our housing finance system would benefit from a utility model that can serve the national market and promote stability in the housing market, particularly during times of economic distress,” NAR Senior Vice President of Government Affairs Shannon McGahn said.
NAR’s white paper outlining a vision for GSE reform, unveiled earlier this year, was also referenced as a guide for GSE reform legislation in Congress. Identifying where competition works and where it does not, the research builds on a structure designed to maximize private investment.
Some highlights of industry and congressional perspectives expressed in last week’s hearings included Ranking Member Sherrod Brown who said, “I want to highlight a couple of important takeaways… Guarantors must serve a broad national market. Guarantors must all serve all lenders equitably, and that takes more than a cash window… Third, we must preserve a duty to serve. And fourth having guarantors that are regulated utilities with regulated rates of return would serve all lenders and avoid a race to bottom.”
Michael Calhoun; President, Center for Responsible Lending, said, “In order to make sure the government guarantee is used to further and focus on the public mission, the entities need to function as utilities with utility oversight.” He later explained how such a structure “prevents misuse of the guarantee and also delivers far lower prices for all borrowers, and in particular for lower wealth borrowers.”
Lindsey D. Johnson; president, U.S. Mortgage Insurers, noted, “The primary rationale provided for using a “multiple guarantor” model has been that it decreases the GSEs’ duopoly by increasing competition with other FHFA-approved and regulated private guarantors… However, there are significant challenges to enabling competition in a system that allows the GSEs to exist in a future state and simultaneously allows for or mandates more competition.
He added, “The GSEs themselves could be turned into highly regulated utility-like entities, with transparent capital and pricing, explicit and limited functions in the secondary market, and open-access and transparent underwriting engines and systems.”
NAR will continue to engage with Congressional and Administrative leaders in effort to influence GSE reform conversations, particularly as the Realtors’ vision generates additional support and traction amongst industry stakeholders, NAR officials stated.