-
Lost in the debate so far over Shelby's regulatory relief bill are the significant changes it makes to the housing finance system. It essentially takes consensus elements from multiple past stabs at reform, leaving out the most controversial parts and making future reform far easier.
May 19 -
Michael Stegman, a top housing policy adviser, urged regulators on Thursday to bring more private capital into the market, even in the absence of legislative momentum.
March 5 -
Rep. Edward Royce, R-Calif., urged fellow House members Wednesday to support a Senate proposal that would make significant reforms to Fannie Mae and Freddie Mac.
June 3
WASHINGTON A coalition of labor unions, civil rights, religious and progressive groups is urging the Obama Administration to reconsider its approach to housing finance reform and shore up the affordable housing trust fund before it leaves office in January 2017.
The Leadership Conference on Civil and Human Rights floated a proposal in June that would recapitalize Fannie Mae and Freddie Mac as well as provide permanent financing for the affordable housing trust fund.
The plan calls on the Treasury Department to negotiate a settlement with Fannie and Freddie shareholders who claim they were harmed by the government's takeover of the two government-sponsored enterprises and the sweep of all the GSEs' profits into U.S. coffers.
"We believe a settlement could be reached in a way that a) would involve no payment to shareholders or harmful admissions by the government, b) could deliver substantial value to communities in need of support, and c) could be structured, packaged and announced in a way that makes it a political win for this administration rather than a problem left for the next one," the coalition wrote in a paper entitled "Housing Finance Recommendations."
Under the group's plan, the GSEs' shareholders and Treasury would make stock contributions to the housing trust fund, thus ensuring it receives a source of money.
"If the administration were to contribute a portion or all of the warrants to affordable housing that would ensure funding assistance to our communities for a generation," according to the proposal. The GSEs' profits "above capped rates of return" would also go toward affordable housing.
The Leadership Conference is a coalition of more than 200 national organizations that promote and protect civil and human rights.
The coalition sent its plan to the White House economic council on June 4. But it is unlikely to prevail on the Obama administration.
Rewarding GSE shareholders remains repugnant to many members of Congress from both political parties. The Treasury Department also appears unwilling to give up revenues it currently receives from the GSEs, according to several observers.
The settlement proposal surfaced at a time when legislative efforts to restructure the GSEs are stalled and Washington insiders are becoming increasingly skeptical about Congress' ability to pass housing finance reform legislation.
The Obama administration remains committed to a legislative solution to GSE reform, however, and keeping Fannie and Freddie in conservatorship until that process is completed. At a recent congressional hearing, Treasury Secretary Jack Lew poured cold water on the idea of ending the conservatorships or returning the GSEs to the control of the shareholders.
"I think the right thing to do is GSE reform and get on with a new restructured system. But it is not the right time to be talking about ending the conservatorships and paying dividends," Lew said on June 17.
Lew did not suggest, however, the Obama administration is planning to advance any proposal to resolve the deadlock over GSE reform. It backed bipartisan efforts in the Senate last year, which ultimately failed after several progressives suggested it didn't do enough to boost affordable housing.
Some question whether the White House will make another attempt at GSE reform.
"Are they are they going to do anything or will they just ride it out?" one source said.
One lobbyist supportive of the Leadership Conference's plan said the administration could fall back on the idea as Obama's term comes to a close.
The coalition's proposal points out that Treasury controls warrants on 80% of Fannie and Freddie common stock and the value of the warrants could exceed $100 billion. And it appears of the interests of GSE shareholders and affordable housing advocates are also converging.
But GSE shareholders have been frustrated in getting federal judges to recognize their claims against the U.S. government.
For its part, the Leadership Conference is alarmed by the falling homeownership rates and the small percentage of African-Americans and Hispanics currently qualifying for loans guaranteed by Fannie and Freddie.
The Leadership Conference is not surprised the proposal has run into resistance since it would involve settlements of ongoing lawsuits with GSE shareholders, according to the conference's senior counsel Rob Randhava.
"We're going to continue making the case that this is the best option," he said.
Investors Unite Chairman Tim Pagliara, who represents shareholders in their suit against the government, said he views the Leadership Conference's proposal as a way to start a dialogue.
"This proposal provides a framework for a dialogue to resolve the issue," he said in an interview. "Any resolution outside of litigation is preferable for the parties. It is better for them to come to an agreement. No one gets what they want typically in a court outcome."
Pagliara also said the Leadership Conference's proposal recognizes the "tremendous value" of the warrants. "This is a huge taxpayer asset that could be used to bolster affordable housing and many other things," he said.
However, the warrants are worthless until Fannie and Freddie are recapitalized and profitable.
Congress authorized the creation of an Affordable Housing Trust Fund in 2008. So far it has gone unfunded, but Fannie and Freddie are set to make their first contributions to the trust fund in January. It could equal between $300 million and $400 million, analysts say.
But there are doubts about Fannie and Freddie's earnings power over the longer term. The two GSEs might have to fall back on U.S. Treasury again for additional draws because they are not allowed to build capital. The conference warns an earnings shortfall would give Republican lawmakers an opportunity to shut down the housing trust fund.
"Our communities will be at risk from this eventuality, so Fannie and Freddie should be allowed to rebuild capital to protect both our people and the Administration," according to the conference's GSE proposal.
The coalition claims that most of its plan could be implemented without further legislation from Congress.
However, they want the settlement agreement to include a cap on the GSEs' profits. All profits "above capped rates of return" would go to affordable housing, they said.
"I don't see how Treasury can do that without legislation," said Jim Carr, senior fellow at the Center for American Progress, and a former executive at Fannie.
Carr also warned that the proposal "opens the door for Fannie and Freddie to regain market dominance, which the Leadership Conference's says it doesn't want."
