The new federal housing bill taking shape at press time early last week appeared to be a net positive for the mortgageindustry and welcome news given the tough times the business has seen recently.
But we hope the often-unpredictable market agrees that it increases the stability of Fannie and Freddie as intendedrather than the opposite, given its extension of government support and ties to the two entities.
In addition, we wish it avoided some of the inefficiencies it seemed likely to contain and that may make it lesseffective than it otherwise might be.
What we like about the bill we saw last week is that it was aimed at addressing key issues for both the industryand the economy. In other words, it addressed both the need to rescue more borrowers from problematic loans andthe need to bolster faith in Fannie Mae and Freddie Mac through a combination of expanded
| What we like about the bill we saw last week is that it was aimed at addressing key issues for both the industry |
support and oversight.We are also happy to see in the bill more resources given to the Federal Housing Administration, which has beenplaying an increasingly influential role in the mortgage and financial markets. But we wish this could have beenaccomplished without conflicting with other initiatives already in the works, namely risk-based pricing and theexpanded FHA Secure program. Tearing down programs that have just gotten under way without clear and valid reasonstied to the actual functioning of these programs, particularly during a financial crisis, is counterproductive.
That being said, we do think that some of what this bill lays out should be evaluated and possibly tweaked or changedover time, albeit only if there prove to be good reasons for doing so. In particular, we think it is importantto keep an eye on the bill's effectiveness in practice when it comes to the increased ties between Fannie, Freddie,and the government that the bill sets out as a liquidity backstop.
While we agree support needs to be given to Fannie Mae and Freddie Mac at this critical juncture in an effort tostabilize the market, we hope that the watchdog the bill sets up to ensure Fannie and Freddie continue to playa constructive role rather than a destabilizing one does its job, does it well, and, importantly, is perceivedas doing so by the market.
There already has been evidence of this concern. Some observers were saying that if Treasury ever acts on its liquidityplan for the two, it could increase certain investors' exposure to subordination risk. True or not, such perceptionsand their market influence should be monitored.
