FHFA Director Testifies Before Senate Banking Committee on State of U.S. Housing System

On Thursday, May 11th, the Senate Banking Committee heard testimony from Federal Housing Finance Agency Director Mel Watt on the status of the American housing finance system. Much of the discussion during the hearing focused on how best to address reforming Fannie Mae and Freddie Mac which have lingered in government conservatorship since 2008.

During his opening statement, committee Chairman Mike Crapo noted concerns that the Common Securitization Platform (CSP), originally intended to be used for issuing PLS and Agency MBS, "has instead been developed specifically for securities issued by Fannie Mae and Freddie Mac." This led the Chairman to raise the question of "whether we should utilize the CSP, or consider other alternatives, such as expanding the Ginnie Mae platform."

In his written statement, FHFA Director Mel Watt reiterated a previously announced concern that the GSEs shrinking capital buffer could put the housing finance market at risk. Despite the fact that both GSEs could draw from Treasury in the event of a quarterly loss, he stated that "the Enterprises need some kind of buffer to shield against short-term operating losses." Additionally, he warned that such a draw "could erode investor confidence," which could "stifle liquidity in the mortgage-backed securities market and could increase the cost of mortgage credit for borrowers."

SFIG will continue to monitor the housing reform debate on Capitol Hill, with particular focus on concerns related to the setting of conforming loan limits as well as transparency around CSP, GSE capital requirements, the target rate of return and the g fee calculation process.

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