The Community Home Lenders Association released its plan to reform GSE in September, stating that a government guarantee is needed to maintain an affordable 30-year mortgage and sustain housing markets. Administration officials recently said they have no plans to end the GSE Profit Sweep or recapitalize them. So HousingWire explores what should happen to Fannie Mae and Freddie Mac.
CHLA’s plan is to: (1) ends the Profit Sweep that prevents the GSEs from building up reserves, (2) requires FHFA to develop a recapitalization plan for the GSEs, (3) provides protections under “up-front” risk sharing to prevent concentration of mortgage markets among the big banks, and (4) requires completion of the Common Securitization Platform.
CHLA was disappointed that that the administration said actions like ending the Profit Sweep should wait for comprehensive Congressional legislation. CHLA believes the GSEs should be allowed to keep profits to build capital, to maintain their role as a cash window. They should also build up reserves as a buffer against losses. Freddie Mac reported a $3.9 billion profit in the second quarter. But when they lost $501 million in the third quarter, instead of using second quarter profits to cover the loss, their reserves were depleted because those profits had been swept.