The Unassuming Economist

The IMF’s latest report on the United States says that:

“Housing finance and the U.S. housing market have not been reformed comprehensively. To date, no legislative or executive action has been taken to reduce substantially the footprint of Fannie Mae and Freddie Mac (“Enterprises”). However, as conservator, the Federal Housing Finance Agency (FHFA) has required market-based credit risk transfers from the Enterprises to the private sector at an increasing level since 2013. The Enterprises have also jointly developed a common securitization platform and have announced that they will issue a new uniform mortgage backed security starting June 2019. These Enterprise reforms have been accomplished administratively and have not reformed the entire housing finance system, which would require legislative action.

Since 2015, the FHFA has directed the Enterprises to fund the Housing Trust Fund and Capital Magnet Funds (as required by the 2008 Housing and Economic Recovery Act) by transferring a portion of total new acquisitions to these funds, which are administered by the Department of Housing and Urban Development and Treasury Department, respectively.
FHFA has the discretion to suspend the Enterprise allocations to the affordable housing funds, including the Housing Trust Fund, if the allocations are contributing to the Enterprise’s financial instability. Moreover, the Senior Preferred Stock Purchase Agreements (PSPA’s) are sources of strength for the Enterprises. Indeed, the PSPA’s between the Treasury and each Enterprise both ensure the ability of each Enterprise to meet its financial obligations and to ensure that they will have minimal net worth as all profits above the capital reserve amount are transferred to Treasury each quarter. The capital reserve amount had been declining by $600 million per year and was scheduled to decline to $0 on January 1, 2018. However, on December 21, 2017, FHFA and the Department of the Treasury agreed to reinstate a $3 billion capital reserve amount for each Enterprise to prevent draws on the PSPA due to fluctuations in the Enterprises’ income due to the normal course of business. Despite the new capital reserve, the December 2017 tax cuts caused the Enterprises to draw a combined total of $4 billion at the end of that quarter. Policymakers have been evaluating and developing a potential comprehensive overhaul of the mortgage finance system over ten years after the federal government took control of Fannie Mae and Freddie Mac that could shrink or eventually close the two entities and create a system with more private capital. The Congressional Budget Office (CBO) has provided analyses on these issues. One such analysis prepared at the request of the Chairman of the House Committee on Financial Services, analyzed alternatives for attracting more private capital to the secondary mortgage market and alternative structures for that market, including a fully federal agency, a hybrid, public-private market, a market with a government guarantor of last resort, and a largely private secondary market.

In 2018, the U.S. Senate passed The Economic Grown, Regulatory Relief and Consumer Protection Act (S. 2155), which has emphasized providing regulatory relief for small banks and credit unions and amending the Dodd-Frank Act. Moreover, on June 12, 2017, the Department of the Treasury published a comprehensive report containing recommendations for the financial regulation of banks and credit unions (“A Financial System that Creates Economic Opportunities: Banks and Credit Unions”).”