We can only guess at what the new director of the Federal Housing Finance Agency (FHFA) told members of the National Association of Realtors® (NAR) last month, but it certainly provoked a response.  The Association sent a letter to Mark Calabria on Monday urging him basically not to make changes to the system for the sake of making them.

The letter, signed by current NAR President John Smaby, thanked the director, who was sworn in on April 15, for "sharing your thoughts on your new role," apparently in a speech to the group in mid-May.  However, it took issue with some potential reforms of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac, primarily those that might prematurely shrink the GSE footprint.

Smaby said the NAR believes FHFA must allow Freddie Mac and Fannie Mae to meet their public mission of supporting liquidity and broad access, and that the FHFA is correct to respond to potential risks to them.  However, he adds that "reforms must be well designed and thoroughly vetted before implementation. Private capital has returned to the market in large volumes through bank portfolios and investment in the GSE's credit risk sharing programs, yet more remains to be done."

He urged Calabria to avoid any changes such as to fees or other factors that would curtail the GSEs' market share in order to create space for private mortgage money.  These "should only be done with actual participants in mind, rather than in an aspirational attempt to generate a private market for mortgage products," he said.

In other words, if you build it they might not come.

He adds that it is equally important that such reforms are tempered with the public mission of the GSEs in mind.   "If not, the consequences will be higher costs and/or limited access for many otherwise credit worthy homebuyers." He referenced a letter sent to Calabria's predecessor in March by 30 housing organizations including NAR.  It said in part, "Efforts to reduce the GSEs' footprint should not move forward unless there is compelling evidence that the private market is able to assume an expanded role. Furthermore, administrative reforms should not impede the GSEs' ability to grow particular business segments in response to an unmet need or a crisis."

That letter suggested that any changes to the companies' footprint should come after only the most robust, multidimensional, data-driven analysis of the potential impacts, especially to mortgage pricing/costs, access to affordable housing, especially for middle income and underserved borrowers/markets and on the broader economy.

Smaby said that the director's comments in recent weeks questioning the need for an explicit government guarantee, which NAR strongly supports, are also concerning.  "A curtailed or eliminated guarantee could raise costs and threaten access to credit in small and mid-sized towns when recessions or natural disasters hit. Dilution of the mission will also affect middle income homebuyers and underserved markets, exacerbating the lingering impacts of the subprime crisis on inequalities in homeownership."

Finally, the letter asks FHFA to create a Mortgage Market Liquidity Fund (MMLF).  This would be held by the Treasury and designated to receive funds sent to the Treasury from the GSEs.  It would take credit and accounting losses while the GSEs remain under conservatorship then be transformed to seed a fund to protect taxpayers against any catastrophic losses by the GSEs post-reform.