U.S. housing reform is taking a baby step uphill. A much-needed overhaul of mortgage giants Fannie Mae and Freddie Mac has proven to be a Sisyphean task. At least their regulator, Edward DeMarco, keeps pushing. He’s set to streamline duplicative securitization businesses. It’s time for lawmakers to get things seriously rolling.
The acting chief of the Federal Housing Finance Agency said on Monday a new joint venture will take over Fannie and Freddie’s back-office duties related to pooling home loans into bonds. DeMarco, who is charged with overseeing the two failed companies, reckons the new entity could eventually replace Fannie and Freddie as their $1.4 trillion investment portfolios and guarantee businesses are wound down.
The simple consolidation is long overdue. After all, Fannie and Freddie do the same thing: wrap mortgage bonds with Uncle Sam’s imprimatur. Unfortunately, DeMarco is one of the few in Washington seriously trying to advance any sort of agenda. The White House copped out two years ago when it presented several options to kill off Fannie and Freddie instead of championing just one. Over five years since America’s housing bust, legislators still won’t give the matter the attention it deserves.
Expanding the JV could risk delaying reform of the government-controlled mortgage giants even longer. Newfangled, U.S.-backed mortgage bonds could upset the market for older ones. More broadly, the vast home-loan industry that has grown comfortable with the status quo would inevitably push back if reforms proved too radical. Of course, such dust-ups are preferable, and almost necessary, if the government is ever to extricate itself from the housing market.
At least DeMarco is up for the fight. He cemented his resolve last year by squaring off with the White House on mortgage principal reductions. Even so, the much-maligned technocrat can push reform only so far by himself. Congress still must decide what role the government will have. Once they can find the courage to do that, it should be easier terrain from there.