December 5, 2023


Making a New Home

NAR: To Boost Mortgage Market, Treat Fannie, Freddie like Utility

4 min read

Fannie and Freddie oversight must change, and NAR strongly advocates a proposal it says will keep loan money flowing: Treat the two big lenders like they’re a utility.

WASHINGTON – The National Association of Realtors® (NAR) held a virtual event on Thursday focused on the future of Fannie Mae and Freddie Mac – companies that buy loans from banks so those banks can then make more loans. The federal government took over the two mega-lenders  during the Great Recession, and lawmakers of both parties agree that the ownership arrangement must change, but there is little agreement on what that change should look like.

NAR has its own proposal: Treat Fannie Mae and Freddie Mac as if they’re mortgage market utilities.

“As market utilities, Fannie and Freddie would strike a balance between utilizing private capital to protect taxpayers, incorporating market incentives and innovation, and fulfilling their charter mission to American consumers,” says NAR President Charlie Oppler. “While the enterprises have operated safely, effectively and efficiently since the Great Recession, NAR’s plan locks down this structure for the future in a way that improves access to mortgages while maintaining market stability.”

During Thursday’s virtual event, NAR welcomed guests, including former Freddie Mac CEO Don Layton, Dr. Susan Wachter and Richard Cooperstein. NAR also showcased new research that offers specific guidance on how Fannie and Freddie can attract investors, minimize taxpayer risk and keep costs down as they make the transition into a mortgage market utility.

The research – GSEs: Their Viability as Public Utilities – is posted online.

In the spring 2019, NAR and financial market experts Wachter and Cooperstein first proposed transitioning the Government Sponsored Enterprises (GSEs, or Fannie Mae and Freddie Mac) into market utilities, and it created an outline, Working Paper: NAR’s Vision for Housing Finance Reform.

In the months since, NAR has worked to promote and refine its utility proposal. In the wake of the COVID-19 pandemic, the GSEs now support nearly 80% of the U.S. residential market.

NAR and others says that the GSEs’ somewhat conflicting roles as both shareholder-held and congressionally-chartered entities make them perfectly suited for a utility designation. The GSEs receive special federal-government treatment in order to comply with their mandate to support underserved markets and maintain liquidity – but they also must defend profits while answering to taxpayers and shareholders who take losses before taxpayers.

“Fannie and Freddie are central to the industry as they provide the infrastructure, maintain critical functions for the market to survive and carry out a public service,” Oppler says. “But the market in which they operate is not naturally competitive and could lead to negative outcomes like overpricing, restricted access and low-quality products for investors.”

The idea of a utility designation isn’t completely new. Since the Great Recession, Fannie Mae and Freddie Mac have been reformed to be safer and operate more like utilities.

NAR contends the GSEs would not have been as effective in protecting the nation’s real estate market and the broader economy during the worst of the pandemic’s fallout if they were not structured this way. Without the GSEs, rates would be higher in normal times, access would decline and the 30-year fixed-rate mortgage may not be widely available.

Treasury, FHFA change shareholder rules on Thursday

Separately, while NAR was hosting its virtual event to discuss the GSEs’ future, the U.S. Department of the Treasury and the Federal Housing Finance Agency announced an agreement to amend the Preferred Stock Purchase Agreements (PSPAs) between the Treasury and Fannie Mae and Freddie Mac. The changes allow Fannie Mae and Freddie Mac to retain more of their earnings as important capital rather than passing them directly to the Treasury.

Since the Great Recession, much of the mortgage profit generated by the GSEs was returned to U.S. taxpayers. The change allows more of those profits to go to Fannie Mae and Freddie Mac’s shareholders.

NAR issued a response to the Treasury and FHFA announcement.

“NAR is glad to see (Fannie Mae and Freddie Mac) continuing to strengthen and stabilize as they fulfill their mission both in times of crises and prosperity,” said Oppler – but he voiced some concerns about the change.

“The (GSEs) buy loans from lenders and bundle them into securities, which they sell to investors with a guarantee,” Oppler said. “But in order to back these guarantees, they need loss-taking capital. Any considerations to limit financing on second homes, investor properties or entry-level borrowers will have a negative impact on borrowing costs and a broader impact on the rental market.”

Oppler said any new limit on that financing “would only undermine the GSEs’ ability to fund many of their charter duties and appropriately serve U.S. taxpayers and consumers.”

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