For years, lawmakers in Washington have been debating how to restructure the two firms, which were placed into conservatorship during the 2008 financial crisis. Now, some experts are suggesting that reform of these firms could happen without congressional action.
There is consensus among many analysts that Fannie Mae and Freddie Mac need to be restructured in order to make the American housing finance system more resilient against future economic crises. However, there is disagreement on how to go about accomplishing this goal. Some suggest that the two firms should be privatized, while others argue that they should remain in government control. Lawmakers in Washington have been unable to agree on a plan of action, with Congress deadlocked on the issue for years.
Despite this stalemate, there may still be hope for reform. Analysts suggest that the path forward could be for the Federal Housing Finance Agency (FHFA), the regulatory agency that oversees the two firms, to use its existing powers to make changes and overhaul the firms, without additional congressional legislation. This approach would be significant because it has the potential to bring much needed reforms in a relatively short time period, compared to the years of deadlock that could occur if the issue had to be decided by Congress.
The FHFA has several tools at its disposal in order to enact change. It could issue new guidance documents that provide a clearer roadmap for the firms’ operations and provide new requirements for them to abide by. It could also engage with stakeholders, including consumer advocacy groups, lenders, investors, housing industry groups, and other interested parties, to develop an industry-wide framework for reform. Additionally, the FHFA could increase funding for affordable housing initiatives, such as those designed to help low-income borrowers obtain mortgages.
This approach is not without risks. Critics argue that without clear congressional approval, there is greater risk to taxpayers if something goes wrong, as Fannie Mae and Freddie Mac are currently backed by the federal government. They also caution that a do-it-yourself approach could create confusion over who is in charge of oversight in the absence of any clear guidance from lawmakers.
The discussion over how to reform Fannie Mae and Freddie Mac remains ongoing, and it is not yet clear if the FHFA will move forward with its own plan or allow Congress to step in. Despite the potential for controversy, many analysts agree that reform of the two firms is urgently needed and that the FHFA has the power to enact meaningful change.
Summary:
For years, lawmakers in Washington have been debating how to restructure the two government-sponsored mortgage finance companies, Fannie Mae and Freddie Mac. The two firms were placed into conservatorship during the 2008 financial crisis and the consensus among many analysts is that they need to be restructured in order to make the American housing finance system more resilient against future economic crises. While there is disagreement on how to go about accomplishing this goal, some experts suggest that the Federal Housing Finance Agency (FHFA), the regulatory agency that oversees the two firms, may have the power to enact meaningful change without additional congressional legislation. The FHFA could utilize various tools, such as issuing new guidance documents, engaging with stakeholders to develop an industry-wide framework, and increasing funding for affordable housing initiatives, in order to make changes and overhaul the firms. Critics argue that without clear congressional approval, there is greater risk to taxpayers if something goes wrong, as well as confusion over who is in charge of oversight. Ultimately, it remains to be seen if the FHFA will choose to move forward with their own ideas or allow Congress to step in.
This article was contributed on Nov 25, 2023
