Housing execs warn against Fannie, Freddie investors' take-over plan

by Francis Monfort17 Dec 2018

A group of housing executives, including former FHFA Acting Director Edward DeMarco, has issued a warning against a plan by Wall Street investors in Fannie Mae and Freddie Mac to take over the GSEs, saying the investors “want us to forget about the housing crisis.”

In an opinion piece published by The Hill, the executives made a call to “roll up our sleeves and get on with the difficult but important work of real reform.”

Investors in Fannie and Freddie made a bet during the financial crisis that lawmakers would be unable to reform housing finance system, and they are poised to reap billions of dollars following a decade of several failed attempts to legislate change, the executives said.

“Taking advantage of this congressional impasse, several of Fannie and Freddie’s largest investors have banded together to advocate a path out of this state of limbo. Remarkably, however, the path does not lead to a new system as policymakers had intended, but back to the very system we had before the crisis. Yes, the one that nearly took down the economy,” the executives wrote.

While the executives acknowledged that the investors’ plan retains certain reforms, they said a takeover fails to fix the system’s fundamental flaw: "the dominance of a duopoly that is too big and too important for the nation ever to let fail.”

While the GSEs’ market power will bring their investors more profits, the system if absurd from the nation’s point of view, the executive said. Taxpayers once again standing behind Fannie and Freddie’s solvency would again give the institutions incentive to take outsized risks.

“After all, the investors would get the upside if their riskiest bets pay off, and taxpayers would get the downside if they don’t — again. As the saying goes, fool us once, shame on you. Fool us twice, shame on us,” the executives wrote.

DeMarco, now president of the Housing Policy Council, contributed to the opinion, along with Douglas Holtz-Eakin, president of the American Action Forum; Jim Parrott, a nonresident fellow at the Urban Institute and the owner of Falling Creek Advisors; Lew Ranieri, chairman and CEO of Ranieri Strategies; Dave Stevens, former president and CEO of the Mortgage Bankers Association; and Mark Zandi, chief economist for Moody’s Analytics.

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