“Am I suggesting that reform is not really needed? To the contrary, Freddie Mac looks forward to working with the Administration and the Congress to make sure that our regulator has all that it takes and all that it needs to do the job right. And we are committed to working closely with the home builders throughout this process.”
As Mudd and Syron each outlined their vision of a broad framework to enact housing finance reform, they reiterated that it is imperative for policy makers to ensure that housing remains a national priority.
“As interim CEO, I have made a pledge,” said Mudd. “We need to create a safer, sounder Fannie Mae by carrying out the remedies set forth by our financial regulator. We need to restate our earnings; restore our capital; reinforce our internal controls and our corporate values; reexamine our corporate culture; redouble our commitment to our mission; and return to the road of constant improvement. And that means to listen; to learn; and to let our actions speak louder than our words.”
“We would respectfully suggest that any resulting new (regulatory) regime should maintain the GSEs’ ability to innovate and tap emerging markets. It should maintain the confidence of domestic and global markets. It ought to strengthen our regulator instead of weakening our charter. Bottom line, it should reinforce rather than weaken our nation’s commitment to housing,” said Syron.
Moving beyond those general principles, Syron added three key elements that he said would advance the cause of GSE reform: “a strong regulator that values housing, capital requirements tied to risk and receivership provisions that maintain our GSE status.”
Syron rejected the naysayers who claim that the GSEs’ housing mission can be absorbed by private entities and should no longer be a government concern.
Over the years, he said, the secondary market institutions have attracted global capital, created new mortgage tools and served as a shock absorber when the broader financial markets locked up following such episodes as the Russian financial crisis of 1998, when the spread between conventional and jumbo mortgages roughly tripled, and after Sept. 11, 2001, when the bond markets closed and the GSEs kept money flowing uninterrupted into the housing sector.
“The GSEs perform an invaluable role in dispersing risk from the household sector to the global financial markets. And that is good for home owners, for housing and the economy as a whole,” said Syron.
On the issue of receivership, Syron said that the situation must be resolved to reflect the unique role and status of the GSEs.
“This nation will need roughly $1 trillion per year in mortgage funding over the coming decade to house our next generation of home owners. If reform is handled badly, there’s a real Catch-22 here. The GSEs can’t be expected to meet ambitious mission goals if we have stripped away what makes us unique and are treated as if we were simply two more private-sector financial institutions. That’s one of the unintended consequences I worry about.”
Sounding a similar theme, Mudd said that the core purpose of Fannie Mae is to “provide a reliable supply of mortgage funds to all communities, at all times, at low rates and fixed rates to make owning a home more affordable and less risky for the average American.”
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