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July 25, 2014

FHFA: 2 Ways Forward on Housing Finance Reform

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FHFA: 2 Ways Forward on Housing Finance Reform

Federal Housing Finance Agency (FHFA) acting director Edward DeMarco on May 9 outlined a couple of strategies to help attract private capital to the housing market and replace Fannie Mae and Freddie Mac.

In a speech to the Federal Reserve Bank of Chicago's annual banking conference, DeMarco stated that one option would be to re-create a model similar to that used by the two government-sponsored enterprises before their collapse, but with an explicit guarantee from the federal government instead of an implicit one.

A second approach would rely on “standardization and transparency” in the securitization market to attract private capital.

DeMarco noted that each of the two strategies faces challenges. He went on to underscore that Capitol Hill lawmakers should outline a concrete way forward with regards to housing finance reform.

“Deciding what part of that market should be served by traditional government credit program is essential to framing the debate for the government's role in the rest of the market,” DeMarco said. “Most people are referring to private capital absorbing the credit risk that is supported by the federal government through the financial support currently provided to Fannie Mae and Freddie Mac.”

Source: “FHFA’s DeMarco Offers Two Ways Forward on Housing Finance Reform,” American Banker (May 10, 2013)

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