Milken Institute says GSE conservatorship should continue for now
Reform and strengthening of the housing financing system should take place now rather than waiting for federal legislation according to a new report.
The housing team of the Milken Institute says that there are things that the FHFA, Treasury Department, CFPB, and other agencies can do to reform the housing finance landscape ahead of legislation to correct the flaws in the charter of the GSEs.
It says that the conservatorship of Freddie Mac and Fannie Mae should continue in the interim.
“Ending the conservatorship without further reforms would preserve flaws that allow the GSEs to privatize profits and socialize losses,” said co-author Eric Kaplan, director of housing finance policy at the Milken Institute Center for Financial Markets. “We need to end the too-big-to-fail GSE duopoly. Implementing our recommendations would help strengthen the housing finance system and pave the way for bipartisan legislation putting in place the last piece of the housing finance reform puzzle.”
What are the recommendations?
The report – ‘A Blueprint for Administrative Reform of the Housing Finance System’ – makes several recommendations including greater transparency into and FHFA oversight of GSE activities, more risk-based pricing combined with explicit affordable housing subsidies, and finalizing a GSE capital rule that supports a housing finance system driven by private capital that can survive future downturns and maintain liquidity for creditworthy borrowers throughout the economic cycle.
Other recommendations include providing Ginnie Mae and FHA with resources to improve technology and operations.
“These recommendations are drawn from deep expertise in our housing finance policy team, who bring decades of government and industry experience along with a commitment to crafting bipartisan solutions by focusing on substantive policy goals and the tools available to achieve them,” explains Michael Piwowar, executive director of the Milken Institute Center for Financial Markets and a former commissioner and acting chairman of the Securities and Exchange Commission.
The full report can be found at www.milkeninstitute.org.