Bipartisan Policy Center on Housing Finance Reform
Bipartisan Policy Center
“Housing Finance Reform: A Status Report”
Thursday, July 16, 2015
Key Topics & Takeaways
- GSE Reform in Smaller Pieces: Rep. Neugebauer (R-Texas) said that GSE Reform is still achievable during the current administration but the most likely path to success would be through smaller pieces instead of one large bill.
- Need to Change the Status Quo: Neugebauer stated that GSE initiatives, such as 97 percent LTV loans and decreased guarantee fees, send the message to the market place that current GSE practices are sustainable when in fact the status quo should be challenged.
- Revitalizing Investor Interest: Neugebauer said that regulatory reform should be used to revitalize investor interest in the housing market.
- Liquidity vs. Pricing Risk: Rep. Delaney (D-Md.) said that separating the government’s role into two pieces is crucial and that there are favorable views on the government providing liquidly, but unfavorable views on the government’s ability to price risk.
Speakers
- Representative Randy Neugebauer (R-Texas)
- Representative John Delaney (D-Md.)
- Nick Timiraos, National Economic correspondent, The Wall Street Journal
GSE Reform
Nick Timiraos, National Economic correspondent for the Wall Street Journal, began the event by asking Rep. John Delaney (D-Md.) and Rep. Randy Neugebauer (R-Texas) for their thoughts on reform of the government sponsored enterprises (GSE) of Fannie Mae and Freddie Mac.
Delaney replied that “the situation as of now is unsustainable” and said he agreed with Neugebauer that the White House has not made this a top priority. He added “it’s a very complicated lift to get this done.”
When Neugebauer was asked about the probability that GSE reform happens during the current administration, he stated that there is a possibility, but it is unlikely. He added that getting support for a big bill is very difficult, but said there is possibility for reform in smaller pieces.
Timiraos then asked what the incremental steps are for housing reform to happen. Delaney explained that housing finance is controlled by the federal government, which is a problem, but said that this “gives us an opportunity for a new model.” Delaney said he believes Congress needs to take the government’s role and break it into two discrete markets: providing liquidity and pricing of the risk. Delaney said those two roles have been mixed in the past and need to be separated such that the government provides liquidity but not by pricing risk.
Neugebauer agreed that government cannot price risk accordingly and stated that Congress needs to separate housing finance from housing policy. According to Neugebauer, the government is trying to drive home-ownership up, but at a faster rate than the market can absorb. This action hurts people buying houses, he said, as well as those who currently live in these neighborhoods. He said Congress should let the market determine how many houses should be built.
When asked about big bank’s having an advantage and the lack of ability to cross-subsidize pools: Delaney said that Congress should deal with these issues in a transparent way. On Small bank access, he said there are “a lot of ways to do this,” but the goal of reforming is not the “Small Bank Employment Act.” He added that Ginnie Mae does not need price discovery on every single securitization, because it can continue to pool securities, adding that cross subsidies need to be handled carefully.
Timiraos asked if GSE reform will become more difficult as more time continues to pass. Neugebauer stated that the government needs to be careful to not signal to the market that everything is okay. He stated that making 97 percent loan to value (LTV) ratio loans and decreasing guarantee fees are two examples of the wrong signal being sent to the marketplace, since those actions reinforce the status quo.
GSE Shareholders
Timiraos asked about the recent court cases involving Fannie Mae and Freddie Mac shareholders. Neugebauer stated that had the government not stepped in; there would have been a catastrophic impact. Neugebauer said he did not support the bailout because he believes no one learns anything when you bail people out. Delaney stated that the matter is for the courts to decide and that he does not see a basis for cutting a deal with those preferred shareholders.
Question and Answer
Multifamily Housing
Neugebauer and Delaney were asked about multifamily housing. Neugebauer stated that multifamily housing is an integral part of the housing market and that his opinion is that it is a healthy market and has attracted private capital. Delaney stated that multifamily should have same market pricing as single family and that the government needs to focus more on affordable housing. He added “we don’t need government sponsors for high-end multifamily housing.”
A member of the audience asked how investor interest is taken into account regarding housing policy. Neugebauer stated that there is a need for regulatory reform to give the market place some certainty regarding investor interest. He added that if community banks exit the business of making mortgages it is unlikely that investors from different localities will have an appetite for that market.
For more information on this hearing, please click here.
Bipartisan Policy Center
“Housing Finance Reform: A Status Report”
Thursday, July 16, 2015
Key Topics & Takeaways
- GSE Reform in Smaller Pieces: Rep. Neugebauer (R-Texas) said that GSE Reform is still achievable during the current administration but the most likely path to success would be through smaller pieces instead of one large bill.
- Need to Change the Status Quo: Neugebauer stated that GSE initiatives, such as 97 percent LTV loans and decreased guarantee fees, send the message to the market place that current GSE practices are sustainable when in fact the status quo should be challenged.
- Revitalizing Investor Interest: Neugebauer said that regulatory reform should be used to revitalize investor interest in the housing market.
- Liquidity vs. Pricing Risk: Rep. Delaney (D-Md.) said that separating the government’s role into two pieces is crucial and that there are favorable views on the government providing liquidly, but unfavorable views on the government’s ability to price risk.
Speakers
- Representative Randy Neugebauer (R-Texas)
- Representative John Delaney (D-Md.)
- Nick Timiraos, National Economic correspondent, The Wall Street Journal
GSE Reform
Nick Timiraos, National Economic correspondent for the Wall Street Journal, began the event by asking Rep. John Delaney (D-Md.) and Rep. Randy Neugebauer (R-Texas) for their thoughts on reform of the government sponsored enterprises (GSE) of Fannie Mae and Freddie Mac.
Delaney replied that “the situation as of now is unsustainable” and said he agreed with Neugebauer that the White House has not made this a top priority. He added “it’s a very complicated lift to get this done.”
When Neugebauer was asked about the probability that GSE reform happens during the current administration, he stated that there is a possibility, but it is unlikely. He added that getting support for a big bill is very difficult, but said there is possibility for reform in smaller pieces.
Timiraos then asked what the incremental steps are for housing reform to happen. Delaney explained that housing finance is controlled by the federal government, which is a problem, but said that this “gives us an opportunity for a new model.” Delaney said he believes Congress needs to take the government’s role and break it into two discrete markets: providing liquidity and pricing of the risk. Delaney said those two roles have been mixed in the past and need to be separated such that the government provides liquidity but not by pricing risk.
Neugebauer agreed that government cannot price risk accordingly and stated that Congress needs to separate housing finance from housing policy. According to Neugebauer, the government is trying to drive home-ownership up, but at a faster rate than the market can absorb. This action hurts people buying houses, he said, as well as those who currently live in these neighborhoods. He said Congress should let the market determine how many houses should be built.
When asked about big bank’s having an advantage and the lack of ability to cross-subsidize pools: Delaney said that Congress should deal with these issues in a transparent way. On Small bank access, he said there are “a lot of ways to do this,” but the goal of reforming is not the “Small Bank Employment Act.” He added that Ginnie Mae does not need price discovery on every single securitization, because it can continue to pool securities, adding that cross subsidies need to be handled carefully.
Timiraos asked if GSE reform will become more difficult as more time continues to pass. Neugebauer stated that the government needs to be careful to not signal to the market that everything is okay. He stated that making 97 percent loan to value (LTV) ratio loans and decreasing guarantee fees are two examples of the wrong signal being sent to the marketplace, since those actions reinforce the status quo.
GSE Shareholders
Timiraos asked about the recent court cases involving Fannie Mae and Freddie Mac shareholders. Neugebauer stated that had the government not stepped in; there would have been a catastrophic impact. Neugebauer said he did not support the bailout because he believes no one learns anything when you bail people out. Delaney stated that the matter is for the courts to decide and that he does not see a basis for cutting a deal with those preferred shareholders.
Question and Answer
Multifamily Housing
Neugebauer and Delaney were asked about multifamily housing. Neugebauer stated that multifamily housing is an integral part of the housing market and that his opinion is that it is a healthy market and has attracted private capital. Delaney stated that multifamily should have same market pricing as single family and that the government needs to focus more on affordable housing. He added “we don’t need government sponsors for high-end multifamily housing.”
A member of the audience asked how investor interest is taken into account regarding housing policy. Neugebauer stated that there is a need for regulatory reform to give the market place some certainty regarding investor interest. He added that if community banks exit the business of making mortgages it is unlikely that investors from different localities will have an appetite for that market.
For more information on this hearing, please click here.