The official platform of the Republican Party has softened language calling for the end of Fannie Mae and Freddie Mac, while continuing to demand reform.
The platform that party officials approved at this week's Republican National Convention in Cleveland states that, "The utility of both agencies should be reconsidered." That contrasts with the 2012 version of the platform, which stated, "Both Fannie Mae and Freddie Mac should be wound down in size and scope."
It's unclear what the significance of the change is or why it was made. Top Republican leaders, including House Financial Services Committee Chairman Jeb Hensarling, haverepeatedly called for the end of the government-sponsored enterprises. There is no sign that they have eased up on that view. Additionally, Indiana Gov. Mike Pence, the Republican vice presidential nominee, is a close ally to Hensarling and has previously endorsed privatizing Fannie and Freddie.
Still, because Republican presidential nominee Donald Trump has not weighed in on the issue, the change in the platform has opened the door to speculation.
"I think they wanted to set a marker out that there are some things that need to be changed [with the GSEs] but they're not necessarily shutting them down," said Brian Montgomery, a former Federal Housing Administration commissioner during the George W. Bush administration and the current vice chairman of Washington, D.C., consulting firm The Collingwood Group. "I'm just thinking or speculating that they realize that it's much easier said than done."
Montgomery added historically, party platforms don't necessarily have much impact on voters' decisions, "but maybe they should."
A Republican administration and Congress would do away with "the jumble of subsidies and controls that complicate and distort home-buying" at the two GSEs, according to the 2016 platform.
The change in stance could reflect acknowledgement of and frustration with ongoing difficulties in removing agencies from the market due to their continuing outsized presence in it, even as their regulator and conservator has taken steps to try to reduce taxpayers' exposure.
"For nine years, Fannie Mae and Freddie Mac have been in conservatorship and the current administration and Democrats have prevented any effort to reform them," the platform states.
The Federal Housing Finance Agency has mandated the agencies scale back their loan portfolios and, to some extent, the credit risk of loans they securitize; but the GSEs still buy and guarantee the bulk of the single-family loans in today's market.
"Nobody has come close to replacing what they do, and so I think that it [the change in the Republican platform's wording] is just an acknowledgement that the mortgage market would come pretty close to coming to a halt and Fannie and Freddie no longer existed," said Brent Nyitray, director of capital markets at iServe Residential Lending in Stamford, Conn. "The private-label market has just been largely dormant. That's what I take it to mean."
While the Republican Party may be acknowledging that winding down the GSEs is a tall order given how they've become entrenched in the market during the last four year, it has been consistent in signaling that is plans to reduce the range of loans that they and the FHA guarantee.
"I would assume from the Republican standpoint they're sick and tired of affordable housing mandates and all that sort of stuff. I certainly would imagine if Trump wins, that aspect of it will probably be de-emphasized," said Nyitray.
Lawmakers from lower-cost areas where homes generally cost less than $200,000 traditionally have questioned higher-cost FHA loans, said Montgomery. "They used to say, 'What are you doing lending to rich people to buy $725,000 homes?' There aren't many markets where they can do that and that can be the median price in some of those markets, and now they [the high-cost loan limits] are down to $625,000, but that still sounds high to some of them. So it doesn't sound like that view has changed a whole lot."
The 2016 platform states the party would ensure FHA lending does not support high-income individuals, as opposed to saying it would limit it to helping first-time home buyers and low- and moderate-income borrowers in 2012. It also says in 2016 that, "We will end the government mandates that required Fannie Mae, Freddie Mac, and federally-insured banks to satisfy lending quotas to specific groups."
The Republicans also said they would "scale back the federal role in the housing market, promote responsibility on the part of borrowers and lenders, and avoid future taxpayer bailouts."
With efforts to cultivate private securitization alternative slow to grow, some believe this could mean a Republican administration would be more open to a public sector alternative for reducing GSE risk to taxpayers, such as removing their role as issuers and having them operate more like Ginnie Mae. Ginnie insures bond payments while lenders act as approved issuers for it. Separate government agencies insure the credit risk of loans in securitized Ginnie pools.
"I think that the right side of the aisle would be more willing to look at a model like that that is more palatable and minimizes taxpayer exposure than having the GSEs continue to issue bonds on their own and have the credit risk associated with the bonds. I think it's something that should be evaluated," said Joseph Murin, a former Ginnie chairman who headed the agency between January 2008 and August 2009. Murin is currently chairman of the investment advisory firm JJAM Financial LLC in Pittsburgh.