Commentary: Treasury and the Future of Fannie and Freddie

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Commentary

August 16, 2010

Greetings!

Tomorrow, the Treasury will host a Conference on the Future of Housing Finance in Washington D.C. I have been given the opportunity to participate in this conference, so in due course I will offer my observations to you in a forthcoming commentary.

We notified you of this event in our July 28, 2010 update, entitled "Treasury: Housing Finance Conference." For further information and documentation, please read that update.

This event brings together leading academic experts, consumer and community organizations, industry groups, market participants, and other stakeholders for an open discussion about housing finance reform. In my opinion, one of the most important subjects for discussion will be the future of Fannie Mae and Freddie Mac.

Jonathan Foxx - Portrait

Jonathan Foxx
President and
Managing Director

Lenders
Compliance
Group

Future of Fannie and Freddie

Perhaps some of you take the same position held by Jim Rogers, CEO of Rogers Holdings, the American investor who co-founded the Quantum Fund with George Soros. Back in July 2008, he said that Fannie and Freddie "have failed and are being bailed out by the United States government." On the brink of collapse in 2008, the Treasury seized them in September of that year and has spent $145 billion so far to keep them solvent.

The housing finance conference is already generating controversy due to the alleged exclusion of non-profit community groups that will be affected by decision makers at the conference. There is a sense that the "elitists" are again having their way at the expense of those directly affected by policy. The nonprofit National Community Reinvestment Coalition (NCRC) said consumer and community groups had been "muscled out" by financial companies, economists and academics without a sense of how housing policy plays out in communities. They have a case: there really is no affordable banking advocate included among the 12 panelists to speak at the conference. The voice of affordable banking should be included in this venue.

It is my understanding that the conference will undertake discussions regarding Fannie Mae, Freddie Mac, the Federal Housing Administration, Ginnie Mae, the Federal Home Loan Bank, and other market participants, public and private.

A series of smaller breakout sessions will identify key players in both the private and government sectors, address credit access and affordability, different methods with which housing can be funded, private market incentives and how to manage the processes of proposed transitions.

The reform of Fannie Mae and Freddie Mac will surely will get addressed at some point on some level. What will be interesting to see and hear under these moderated formats is the nature of the questions, even more than the responses. Oftentimes, the questions asked determine the outcome derived.

Here's just a few critical questions:

What risks do Fannie Mae and Freddie Mac face in today's economic environment?

What are some possible market-based solutions?

What risks do Fannie Mae and Freddie Mac create for the U.S. government?

What risks do Fannie Mae's and Freddie Mac's financial problems create for homeowners and those planning to become homeowners?

What is Fannie Mae's and Freddie Mac's financial position?

What are some things that Congress might consider to improve the financial condition of the GSEs?

What are some actions that the federal government can do to address the financial condition of the GSEs?

We'll know soon enough if this forum will be more of a "show and tell" than a way to find real world solutions.

Why do I feel this way at this point? Because most of the panelists are long time Washington insiders. Some of them represent very powerful entities and stakeholders. Indeed, many of these panelists were enablers of the housing bubble. Where's the new faces and ideas we need now to move forward?

Honestly, how can there be a conference panel on which the American Enterprise Institute, the Conservative think-tank, is represented - but not the NCRC? Apparently, Treasury Secretary Geithner and HUD Secretary Donovan seem to expect from this conference the kinds of clear, unambiguous, and bold reforms that are supposed to be delivered to Congress in January 2011.

Let's keep an open mind and see what comes.

This event will also be streamed live by the Treasury, if you want to watch it.

So, What Do You Think?

I would welcome your questions and comments.

Please feel free to email me at any time.

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