HUD and Treasury Department Publish Reports on the Future of GSEs

As a response to the President’s Memorandum issued in March, both HUD and the Department of the Treasury (Treasury) recently issued reports with recommendations for the future of the Government-Sponsored Enterprises (GSEs).

The President’s Memorandum specifically requested HUD and the Treasury to develop a plan for administrative and legislative reform to achieve the following housing reform goals: (1) ending the conservatorships of the GSEs upon the completion of specified reforms; (2) facilitating competition in the housing finance market; (3) establishing regulation of the GSEs that safeguards their safety and soundness and minimizes the risks they pose to the financial stability of the United States; and (4) providing that the federal government is properly compensated for any explicit or implicit support it provides to the GSEs or the secondary housing finance market.

HUD’s report makes, among others, the following recommendations:

• FHA should transform its data analytics and risk management capabilities to prudently serve its core mission and to protect taxpayers;
• To modernize FHA, Congress should re-charter it as an autonomous government corporation within HUD, which, according to the report, would provide the agency tools and resources necessary to make appropriate risk decisions to respond to changing markets;
• FHA’s servicing policies, processes, and technology should be reformed to improve efficiency and reduce cost;
• FHA should continue to work with DOJ to provide more clarity on how the agencies will consult on the appropriate use of the False Claims Act; and
• Ginnie Mae should continue to facilitate adequate liquidity in the housing finance system (including implementing reforms for the financing of and investment in MSRs) and should develop and implement policies, technology, and operational capabilities necessary to accept digital promissory notes.

The Treasury’s report makes, among others, the following recommendations:

• Existing support of the GSEs under the Senior Preferred Stock Purchase Agreement (PSPA) should be replaced with an explicit, paid-for guarantee backed by the full faith and credit of the federal government that is limited to the timely payment of principal and interest on qualifying mortgage-backed securities;
• Single-family guarantors should be required to maintain a nationwide cash window through which small lenders can sell loans for cash, and also should be prohibited from offering volume-based pricing discounts or other incentives to their lender clients;
• Congress should authorize FHFA to charter competitor guarantors to the GSEs, should direct FHFA to re-charter each GSE on the same charter available to these potential competitors, and should give FHFA appropriate authorities to foster competition with the re-chartered GSEs; and
• The GSEs should continue to support affordable housing for low- and moderate-income, rural, and other similar borrowers.

Both reports recommend that FHFA and HUD develop and implement a specific understanding of their appropriate roles and overlap between the GSEs and FHA, so as to avoid duplication of government support.