Draft Fannie Mae, Freddie Mac Reform Bill Hammers Housing - 3/29/2004 - Mortgage Loan Refinance Debt Equity

Draft Fannie Mae, Freddie Mac Reform Bill Would Hammer Housing, Builders Charge

“No matter how well-intentioned the original idea was to draft legislation that would increase the financial safety and soundness of the GSEs, a goal we all supported, this discussion draft would do just the opposite,” said Jerry Howard, NAHB executive vice president and CEO. “This bill is very hostile to housing. It will radically alter investors’ perceptions of ‘government sponsorship,’ place housing mission in a backseat position, add an unnecessary capital drag and stymie new innovation of affordable loan products. An immediate impact will be upward pressure on housing costs for millions of working American families.

“There are four elements in this draft proposal that we find most divisive and harmful to housing — receivership, the structure of the new regulator, capital requirements and new activity approval. We are also disturbed by neglect of the critical affordable housing goals component,” he said.

“Inclusion of the proposed receivership provision would unnerve Wall Street, and some bond rating agencies have already publicly stated they would likely downgrade the debt of Fannie Mae and Freddie Mac if this were to occur. A downgraded credit rating would raise their borrowing costs and put upward pressure on interest rates.

“The proposed structure of the new regulator puts housing on an unequal footing by placing all the power in the hands of a single director while the advisory board has no real clout. We would have much preferred that the advisory board had voting rights, and a composition not dominated by Cabinet secretaries, to ensure that housing had a vote on matters affecting the nation’s housing needs.

“Unnecessarily raising the minimum capital requirements for Fannie Mae and Freddie Mac would have the effect of taking capital out of the housing market and making it harder for the two financial institutions to expand mortgage funding and provide consumer-friendly loans. Further, the discussion draft bill also handcuffs the GSEs to such an extent regarding new activity approval that it will hinder their ability to produce new mortgage innovations in the future or even continue to offer resourceful products already in the marketplace, such as interest-only loans, zero-downpayment mortgages and loans that allow borrowers to skip payments without being in default.

“The draft bill missed a great opportunity to establish a more challenging affordable housing goals system for the GSEs. Unfortunately it makes little reference to their housing affordability goals, and makes no attempt to intensify the focus of the GSEs on their housing mission.

“Congress originally designated these organizations as housing ‘government-sponsored’ enterprises because it determined that it was a national priority to promote homeownership. This draft legislation effectively does away with that national priority. We see no way in which the proposal can be repaired without starting from scratch.”