- Combat the potential “systemic risk” associated with the GSEs while acknowledging that Fannie Mae and Freddie Mac have “managed these risks well and we have seen nothing on the immediate horizon that is likely to create a systemic problem.”
- Promote the concept of privatizing the GSEs.
- Dismiss studies by government agencies and prominent economists that have concluded that the GSEs have helped to lower mortgage interest rates by a quarter of a percentage point or more.
- Tout a report on the topic by his staff economist, Wayne Passmore, as sound and credible. The Passmore paper, which has generated controversy over its findings, concluded that the funding advantage enjoyed by the GSEs has lowered mortgage rates by only seven basis points and done little to assist homeownership or housing activity in the U.S.
A new study released last week by William Greene, a professor of economics at New York University’s Stern School of Business, concluded that the results of the Passmore paper “may well be seriously flawed, and should be subjected to extensive scrutiny before used as a guide to the magnitude of Fannie Mae’s and Freddie Mac’s impact on conforming mortgage rates.”
Noting that the GSEs ensure that Americans have a stable and reliable supply of low-cost mortgage money at all times, in all economic conditions and in all areas of the country, Howard bristled at the notion that Fannie Mae’s and Freddie Mac’s contributions to the housing market have been marginal at best.
“Attempts to minimize the invaluable contributions of Fannie Mae and Freddie Mac to the nation’s housing finance system, as suggested by Chairman Greenspan and some other policy makers, is merely a red herring designed to weaken or destroy their GSE status and divert capital away from housing,” said Howard. “Obviously, the GSEs have a central role in promoting housing affordability. The true crux of this issue centers on finding a solution that preserves the vital housing mission of the GSEs while strengthening and safeguarding their financial health.”
“NAHB looks forward to working with Chairman Shelby, Ranking Member Sarbanes and other members of the Senate Banking Committee to help enact meaningful regulatory restructuring of the GSEs that ensures their continued financial safety and soundness and protects their ability to carry out their federal charter to house America’s families,” added Howard.
An Unsettling View of the Fixed-Rate Mortgage
The day prior to his congressional appearance, in a speech to the Credit Union National Association in Washington, Greenspan questioned whether the financial certainty provided by fixed-rate mortgages was worth the cost. The activities of Fannie Mae and Freddie Mac have been centered on the fixed-rate mortgage.
In his address, the Fed chairman lobbied for adjustable-rate mortgages, arguing that they could save consumers more than fixed-rate loans over the long-run.
"I find it particularly unsettling and inappropriate that the Federal Reserve Chairman went beyond his role as head of the nation's banking system to tout one mortgage product over another," said Howard.
"Unfortunately, one can reasonably conclude that his statement to discourage fixed-rate loans, the mainstay of the nation's mortgage system, is just a ruse to encourage the housing system to rely more heavily on banks and thrift institutions — which, unlike the GSEs, do not have a federal charter requiring them to expand homeownership and provide home mortgage products at the lowest possible cost."
Greenspan Position Disputed Before Senate Banking Committee
Rebutting many of Chairman Greenspan’s charges, Franklin Raines, chairman and CEO of Fannie Mae; Richard Syron, his counterpart at Freddie Mac; and Norman Rice, president and CEO of the Federal Home Loan Bank of Seattle, testified on Feb. 25 before the Senate Banking Committee.
They told lawmakers that the GSEs broadly support regulatory reform, but the leaders of Fannie Mae and Freddie Mac warned the committee that Greenspan’s call to restrain their portfolio growth would lead to higher and more volatile mortgage rates for home owners and increase the risk to taxpayers, because it would force the housing system to rely more heavily on commercial banks, which fund themselves with government-insured deposits.
Senator Richard Shelby (R-AL) lent qualified support for that position, stating: "If an institution is well-capitalized, well-regulated and well-run, let 'em grow."
Shelby plans to introduce legislation to change the regulatory framework for the housing GSEs later this month.
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