The National Association of Realtors (NAR) has developed a new vision for the secondary mortgage market: replacing Fannie Mae and Freddie Mac.
The recommended change, to replace Fannie Mae and Freddie Mac with a new private entity that’s regulated like a utility, is something that the organization believes would ensure longevity in the mortgage industry.
The reforms that they unveiled last week are designed to “promote a reliable and affordable source of mortgage capital for American consumers,” according to a statement from NAR.
They include a few different recommendations, but the most important one here is the idea that Fannie and Freddie need to be replaced with a new government-chartered entity.
Fannie and Freddie Still in Conservatorship
After the housing bubble burst and the financial crisis in the American housing market left Fannie Mae and Freddie Mac in financial trouble, the Federal Housing Finance Agency placed them into conservatorship, which is supposed to be temporary. Even though the financial crisis is long over, they remain in conservatorship over a decade later.
The government is basically providing the capital to keep it running. Though the current status might still be working fine in the short term, it could possibly lead to instability when there is another financial downturn.
NAR Proposing a New Entity
The NAR is attempting to remedy this by establishing a permanent solution for the secondary mortgage market, which is what Fannie and Freddie serve. The proposed entity would operate like a government-chartered private utility. that means that it would be regulated like a public utility, but receive private capital.
It’s in the best interest of NAR and all of the real estate professionals it serves to make sure that the secondary mortgage market continues to work. It is the backbone of the mortgage industry and ensures that homebuyers have access to capital to purchase homes. It also prevents rate spikes during crises.
Housing finance reform remains the single largest unfinished business of the financial crisis. At the end of the day, NAR’s recommendations really are just recommendations, but they are hoping to get the ball rolling toward actual results.
It will take time to create a permanent solution for Fannie Mae and Freddie Mac. Here’s to hoping that their ideas will take hold, and reform can ensure financial stability moving forward.
