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Mortgage Market Reforms Continue On Difficult Path
WASHINGTON (4/5/13)--While Congress continues to wade through a myriad of possible housing finance system models, financial regulators and housing agencies are working on their own to address the future of the housing finance system.

A range of housing policy changes have been discussed by the U.S. House, the Senate, and the Obama administration in recent months, including full market privatization, limiting government market intervention, and several stops in-between. (See Part 1 of this two-part series, detailing legislative work to address housing finance issues, in an April 1 News Now story: GSE Reform Will Remain Hot Topic As Congress Returns)

Engaging in housing finance reform is one of the Credit Union National Association's top 2013 legislative priorities.

Fannie Mae this week reported a record $17.2 billion in annual profits and $7.6 billion in fourth quarter profits for 2012, and said it "expects to remain profitable for the foreseeable future." However, many, including Sens. Bob Corker (R-Tenn.) and Mark Warner (D-Va.), have expressed the need for long-term housing finance system reforms, and said these record profits should not become an excuse for inaction.

So, profitable or not, Fannie Mae and fellow government-sponsored enterprise (GSE) Freddie Mac seem set for reforms.

The GSEs have been held under government conservatorship since 2008, and they continue to repay more than $150 billion in taxpayer funds that were used to prop them up. Fannie Mae paid $11.6 billion in dividends to the U.S. Treasury under the terms of a senior preferred stock purchase agreement unveiled last year, and the Treasury last year said the gradual winding down of mortgage investment portfolios held by the GSEs will be accelerated. Fannie and Freddie's investment portfolios are being wound down at an annual rate of 15%, with the goal of reducing the amount of mortgage assets held by the GSEs to $250 billion by 2018.

The Treasury also requires the GSEs to submit plans detailing how they will reduce taxpayer exposure to mortgage credit risk on an annual basis.

Other government agencies are also acting to address housing financing issues. Acting Federal Housing Administration (FHA) Commissioner Carol Galante last year said she would consider down payment requirement and insurance pricing changes to protect the FHA against losses on high-balance loans that are outside Fannie Mae and Freddie Mac conforming loan limits. This change could also help to scale back the government's footprint in the housing market.

Fannie and Freddie themselves are preparing for change. Federal Housing Finance Agency Acting Director Edward DeMarco early last month said the GSEs would begin to build a new securitization infrastructure, including a joint venture to handle mortgage securitization, and contract Fannie Mae and Freddie Mac's dominant presence in the marketplace while simplifying and shrinking some of those firms' operations.

"The overarching goal is to create something of value that could either be sold or used by policy makers as a foundational element of the mortgage market of the future," DeMarco added.

CUNA has repeatedly said that any changes to secondary mortgage market structure must allow credit unions and other small issuers to maintain full and unrestricted access to that market. CUNA has also highlighted the importance of preserving 30-year, fixed-rate mortgages and ensuring that the secondary market is strong enough to weather economic adversity.

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