WASHINGTON — More than a decade after Fannie Mae and Freddie Mac were placed under government control, another senior lawmaker has come forward willing to craft a bipartisan deal on housing finance reform. Yet once again, legislative progress may be elusive.
Sen. Pat Toomey of Pennsylvania, the top Republican on the Banking Committee, has adopted an optimistic tone on reforming the government-sponsored enterprises. He has remarked at recent industry conferences and hearings that he thinks the two parties aren't that far apart, and released GSE reform principles in March that echo ideas supported by Democrats.
But many say Toomey may be an outlier in his focus on GSE reform and that Democratic leadership in the House and Senate appear to be focused on other things. Whereas Democrats had gotten behind reform frameworks in the years following the financial crisis, today they sound less interested in changing the status quo.
"The reality is [Democrats] have other housing priorities that they consider more important" than GSE reform, said a financial services lobbyist who spoke on the condition of anonymity.
Some said Democrats might have been motivated to focus on a comprehensive GSE overhaul had the Trump administration made more progress on its plan to release Fannie and Freddie from their government conservatorships. The Supreme Court is expected to rule soon in a case deciding whether President Biden can fire Federal Housing Finance Director Mark Calabria, who was appointed by then-President Donald Trump.
“If you’ve got Calabria in place, then maybe the need for legislative GSE reform from a Democratic perspective is more pressing,” said Jim Parrott, a fellow at the Urban Institute. “But if you've got a progressive FHFA director in place, then I think you're going to want to give them some time to figure out what a progressive FHFA and thus a progressive GSE channel looks like.”
As the economy recovers from the coronavirus pandemic, Senate Banking Committee Chairman Sherrod Brown of Ohio and House Financial Services Committee Chairwoman Maxine Waters of California have advocated for expanding access to affordable housing.
Issues like emergency rental assistance and a broader infrastructure plan "are clearly much higher on their housing priority list than GSE reform,” the lobbyist said.
Former Rep. Jeb Hensarling, R-Texas, who chaired the House Financial Services Committee from 2013 until 2019, said at a Mortgage Bankers Association conference in May that he wouldn’t expect any changes to the conservatorships of the GSEs with Brown at Waters atop the banking committees in the Senate and House.
“In at least the last discussion I had with now-Chairman Brown at the Senate Banking Committee, I guess he used the Ohio equivalent of what we say in Texas, and that is, ‘If it ain't broke, don't fix it,’” said Hensarling. “I personally think it's broken. I don't think [Brown] thinks it's broken. I think Maxine [Waters] has other priorities. So I'm not holding my breath to see reform anytime soon.”
Toomey’s push for GSE reform comes at a time when Republicans and Democrats have been at odds over the Biden administration’s focus on
“It's no secret that Chairman Brown and I have very significant differences about the role of government in our economy, and we have a different worldview,” Toomey said. “But I do think compromise is possible. And it's possible in this space.”
Robert Broeksmit, CEO of the Mortgage Bankers Association, said he recognizes the difficulty of enacting legislative GSE reforms as the economy continues to recover from the pandemic.
“I’m not sure that the climate in 2021 will lend itself to legislation, but we do believe that there are opportunities to improve the function of Fannie and Freddie as the country comes out of the pandemic and the economic crisis that it spawned,” Broeksmit said.
Toomey would not be the first senator to attempt a bipartisan deal on comprehensive GSE reform. Both Democrats and Republicans have spearheaded past proposals — none of which succeeded — that would have either eliminated or overhauled the role of Fannie and Freddie while preserving some type of government guarantee.
Toomey’s principles for housing finance reform have some overlapping goals with principles Brown addressed at a 2019 hearing. Both senators support a housing finance system that serves lenders of all types and sizes, and they support a system that continues to protect access to affordable 30-year fixed-rate mortgages.
Democrats for years have advocated for an
But some analysts say that the GSEs' operations during the coronavirus pandemic demonstrate that the conservatorships, which have lasted since 2008, have benefited the housing market.
“The GSEs have been I think very much a leader in dealing with the pandemic and providing unprecedented amounts of relief ... to struggling homeowners impacted by the pandemic,” said Ron Haynie, senior vice president of mortgage finance policy at the Independent Community Bankers of America. “Why would you risk disrupting the mortgage market at the time when it's like the bright spot in the economy?”
Haynie said in conversations with Brown's staff, "I don't sense there's a big impetus to do" GSE reform.
"The mortgage market is doing really well," he said. "Rates are low, people are getting mortgages.”
Isaac Boltansky, director of policy research at Compass Point Research & Trading, said that it doesn’t make sense for lawmakers to prioritize GSE reform if they think the current system is working.
“I think Washington struggles to fix the things that are actually broke, and this ain't broke,” Boltansky said.
Still, Toomey said he believes that Congress should prepare for a future downturn in the housing market and reform the GSEs.
“It’s a question of when — not if — there will be another housing downturn, and the GSEs and the housing finance system are not prepared,” Toomey said in a statement to American Banker. “I believe compromise is possible and there is much that can be productively done on a bipartisan basis this Congress.”
Brown said in a statement that treating Fannie and Freddie as if they were public utilities would be the best way to promote housing affordability.
“Reforming something as large and complex as the GSEs is far from easy, as we’ve seen,” he said. “But the Banking and Housing Committee has heard consensus around the fact that we need to regulate the GSEs as utilities to make sure the GSEs are serving all borrowers and all markets — and that they’re looking out for the housing system and supporting affordable housing, not just chasing their own profits.”
Ed DeMarco, president of the Housing Policy Council and former acting director of the FHFA, said the GSEs’ pandemic operations don’t preclude the need for legislative reforms to enable more competition in the mortgage market.
“I think that the management and the staff at Fannie and Freddie have done a really good job through all of this, but one can't lose sight of the fact of how much of this activity of theirs, over the last 15 months, has been directed by the government and has been backstopped by the government,” DeMarco said. “So I think it's a story of how Fannie, Freddie, and FHFA, and Treasury, and the Fed, basically together provided that kind of support to the market. … Effectively what we’ve got is a government-directed duopoly.”
