An Obama administration official on Wednesday said that efforts to expand support for a bipartisan housing finance reform bill will continue even after it gains approval in the Senate Banking Committee.
Michael Stegman, counselor to Treasury Secretary Jack Lew for housing finance policy, said Wednesday that without an overhaul of the mortgage finance market, government-controlled Fannie Mae and Freddie Mac could face the same financial trouble they did more than five years ago during the credit crisis.
{mosads}“Whatever the outcome of tomorrow’s vote, we will keep working to improve the bill and broaden support for full senate consideration in an effort to complete the last piece of unfinished business of financial reform,” he said at the Federal Reserve Bank of Richmond’s credit markets symposium in Charlotte, N.C.
“Going forward, the conversation now turns to more a nuanced policy debate around the most effective structure of a post-GSE [government-sponsored enterprises] world.”
On Thursday, the Senate Banking Committee will mark up bipartisan legislation co-authored by Chairman Tim Johnson (D-S.D.) and ranking member Mike Crapo (R-Idaho) that is expected to gain approval from about 12 of the panel’s 22 members.
The measure would wind down Fannie Mae and Freddie Mac over five years and shift the burden of mortgage risk to the private sector and away from the government where the majority of it rests now.
Fannie and Freddie back about 90 percent of all new mortgages and have a portfolio worth about $5 trillion, nearly half of all loans.
“The case for passing housing finance reform centers on the undeniable fact that at its very core, the GSE [government-sponsored enterprise] business model — through bad times and good — continues to depend upon the support of the American taxpayer,” Stegman said.
He said that an important need is to design “a safer, more competitive and accessible mortgage market while helping to ensure that taxpayers are protected from future losses.”
But recent stress tests on Fannie and Freddie showed that under an economic scenario similar to the 2008 crisis, the firms could need upward of an additional $190 billion in support from the Treasury over a two-year period.
“Absent reform, we could, quite literally, end up with history repeating itself,” Stegman said.
Although Fannie and Freddie have each returned to the Treasury more than the $188 billion they borrowed during the last crisis, there is growing concern that the legal settlements and tax adjustments fueling their streak of profits will end soon and put them into a more precarious financial position.
Even with the added sense of urgency to move a bill this year, the Senate measure lost steam in the past week after six Banking panel Democrats said they weren’t prepared to support the measure.
But housing industry experts argue that there is an abundance of willingness from the bill’s backers to make the changes needed to attract more support and give the measure a better chance of passing the Senate.
A week ago, Lew said that despite an improving housing market, “access to mortgage credit remains unnecessarily tight for all but the most pristine borrowers.”
He said that while the lack of available credit is one problem, that rules governing the housing industry need to be finalized to create more certainty and a stronger recovery.
“We need to move forward on housing reform now and we need legislation to achieve the fundamental reforms that protect both consumers and taxpayers.”