Last rites - again
All credit to Ed DeMarco for keeping the reform of money-losing Fannie Mae and Freddie Mac on the agenda. The acting director of the Federal Housing Finance Agency on Tuesday sent to Congress proposals – essentially a living will – for winding down the nation’s reliance on the two mortgage giants. The FHFA’s plan makes good sense. But until lawmakers share the same sense of urgency, DeMarco’s just shooting more good ideas into the wind.
Granted, the report contains no earth-shatteringly brilliant new ideas. It’s more of a compendium of some of the better ones already in circulation. But at its core is the laudable goal of reducing Fannie and Freddie’s distorting influence and bringing in more private capital.
Some are initiatives DeMarco himself has championed, such as coming up with new ways for private capital to provide loan loss insurance, or reforming servicing standards. The plan to consolidate Fannie and Freddie’s operations and even create a single mortgage securitization platform for multiple issuers to use melds several competing ideas together. And others build on improvements the market is already making, such as improving loan-level data and safeguards that allow mortgage investors to get their money back on any dud loans banks sell them.
And the plan includes virtually everyone’s number one call: increase the guarantee fee borrowers have to pay. Currently it’s so below market rates that it makes private capital uncompetitive – even after Congress’s recent 0.1 percentage-point hike to pay for a two-month payroll tax cut.
These won’t kick-start the private mortgage market on their own, as the FHFA acknowledges. Plenty of other challenges remain that are outside the watchdog’s remit, such as sorting out risk retention criteria. But at least DeMarco is making an effort – and it’s wise to ensure preparations are in hand for the funeral of two entities that have already cost taxpayers $180 billion.
But he may be one of the few making such noises. No lawmaker wants to be seen as threatening the American Dream of homeownership in an election year. Sadly, that means most of Washington is allowing a good crisis to go to waste.