Could the Administration’s Housing Finance Plan Restart the GSE Reform Conversation?

America’s housing finance system desperately needs comprehensive reform. After eleven years since the federal government seized control of the two government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, these mortgage giants remain mired in conservatorship with taxpayers still on the hook for another future bailout. In some respects, the GSEs are in a more entrenched and precarious position today than they were during the financial crisis. 
 
For the past decade (and in the years preceding conservatorship), National Taxpayers Union has called for structural changes to the government’s outsized role in the housing market. Given the fact that the GSEs guarantee $7 trillion in mortgages, all the while holding very little in reserve capital, we believe the status quo to be untenable. Combined with recent developments on potentially risky alternative credit scoring models, expansive pilot programs, and questionable oversight, we estimate the prospect for a future taxpayer-funded bailout to be significant. 
 
Thankfully, the Trump administration last week unveiled their much anticipated plans to transform Fannie and Freddie. NTU commends the administration for highlighting the importance of this long-overdue conversation. As NTU digs through the specifics of this plan, we strongly support the underlying goals of the administration's plan of ending Fannie and Freddie’s conservatorships, promoting competition, and mitigating systemic risk. We approve of the sentiment that this plan will bring “reforms to enhance taxpayer protections against future bailouts. Central to this objective will be ensuring that the GSEs and their successors are appropriately capitalized to remain viable as going concerns after a severe economic downturn and also to ensure that shareholders and unsecured creditors, rather than taxpayers, bear losses.”
 
NTU hopes that a final plan will focus on addressing both the implicit and explicit government guarantee, prioritizing private capital, increasing transparency in the GSEs’ operations, and encouraging genuine competition among housing stakeholders. We look forward to working with Congress, the administration, and all interested parties to ensure a liquid housing finance system without taxpayers bearing the lion’s share of the risk.