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FHFA GSE reform needs careful consideration
WASHINGTON (9/16/10)--Federal Housing Finance Authority (FHFA) Acting Director Edward DeMarco on Wednesday called for “careful consideration” of how mortgage subsidies are distributed in any future nationwide housing finance system. Speaking during a House Financial Services capital markets subcommittee hearing on the future of housing finance, DeMarco generally agreed that legislation to “restructure and strengthen” the existing housing finance system and to resolve the dual conservatorships of Fannie Mae and Freddie Mac is needed. DeMarco added that it is “reasonable to question whether all conventional mortgages warrant a government guarantee.” “To put it simply, replacing the (government-sponsored enterprises’) implicit guarantee with an explicit one does not resolve all the shortcomings and inherent conflicts in that model, and it may produce its own problems,” he said. DeMarco added that providing an explicit federal guarantee on mortgages could potentially distort the pricing of credit risk or result in taxpayers again being called on to bail out Fannie and Freddie. Panelists speaking at a U.S. Treasury Department meeting on the housing finance system held earlier this year suggested a number of options, including providing limited guarantees for only certain types of mortgages and securities and bringing the entire housing finance industry under the control of a single government agency. Treasury Secretary Tim Geithner during that meeting also called for a new system that eliminates the conflict between Freddie Mac's and Fannie Mae's public policy role and the need to enhance shareholder returns. Going forward, DeMarco said that Fannie and Freddie should “maintain their focus on mitigating credit losses and remediating internal operational weaknesses while employing prudent underwriting standards and guaranteeing proven mortgage products.” Developing and offering new products should be tabled for the time being, he added. For DeMarco’s full testimony, use the resource link.
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