CHLA Releases Comprehensive GSE Reform Plan
Plan Based on Continuing Reforms Already in Place; FHFA as Conservator Developing a Capital Restoration Plan; and Treasury and Congressional Approval of Such Plan
Contact: Scott Olson For Immediate Release 571-527-2601 March 29, 2017
The Community Home Lenders Association (CHLA) today released a comprehensive GSE Reform Plan that would propose to recapitalize and re-privatize Fannie Mae and Freddie Mac under a Utility Model, pursuant to a Capital Restoration Plan to be developed by FHFA and later affirmed by the Treasury Department and Congress. The CHLA plan is built on primary objectives which include consumer access to credit, equitable small lender access, taxpayer protections, and minimization of transition risk to the housing market and the broader economy.
“While Congress must continue to play a strong oversight and advisory role, comprehensive legislation is not needed at this time,” CHLA argues in its Plan.
“This CHLA GSE Reform Plan would recapitalize and re-privatize Fannie and Freddie using a Utility Model under a plan to be developed by FHFA as conservator, and then agreed to by the Treasury Department and Congress. Taxpayers would be protected by private GSE capital, risk sharing, strong FHFA regulation, and sound underwriting. Other provisions in the Plan protect small lender access and consumer access to mortgage credit.”
The document CHLA released points out that significant reforms to Fannie Mae and Freddie Mac have already taken place and are irreversible, such as the end to no doc loans, credit risk sharing, winding down of the GSEs’ portfolios (interest rate risk), a strong FHFA regulator, and compensation for a taxpayer backstop.
CHLA argues for a continuation of these reforms in the context of a broader GSE Reform Plan. The key components of the CHLA plan include the following:
* FHFA, with support of Treasury, immediately suspends Fannie, Freddie dividends, to build a Capital Buffer in the amount of .5% [one half of one percent] – to avoid a contrived Treasury Advance under the Sweep Agreement.
* FHFA, as conservator, develops a capital Restoration Plan showing how Fannie and Freddie could be re-capitalized and taken out of conservatorship.
* FHFA and Treasury (and ultimately Congress through legislation) agree on a Capital Restoration Plan, and then make appropriate changes to the Preferred Stock Agreement, including elimination or reduction of the financial interests of private common and preferred shareholders, as appropriate and consistent with the Plan.
* Small Lender protections – including no up-front securitization risk sharing, full G Fee parity, and preventing turning over the Common Securitization Platform (CSP) to the Wall Street Banks – should be formalized both under FHFA rules and under GSE Reform legislation that Congress ultimately adopts.
* While comprehensive legislation is not needed at this time, ultimately Congressional action is needed for areas such as providing an explicit guarantee and requiring the GSEs to serve a broad range of qualified borrowers, geographic areas, and product types.
The CHLA plan is a modification of a detailed GSE Reform plan it previously released in September 2015.