U.S. Senate Banking Chair Releases Outline for GSE Reform

Senator  Mike Crapo (R-ID), Chairman of the Senate Banking, Housing, and Urban Affairs Committee, released an outline for reform of the housing finance system that would convert Fannie Mae and Freddie Mac into private guarantors of mortgage-backed securities to be sold through a platform operated by Ginnie Mae. This outline represents the first step in debate and negotiation over the future of GSE reform, a topic that has alluded congressional leaders and advocates for over a decade.

Fannie Mae and Freddie Mac, also known as Government Sponsored Enterprises (GSEs), are federally charted companies that provide a secondary market for residential mortgages. The GSEs have been in conservatorship since the 2008 foreclosure crisis. The GSEs also provide a dedicated source of funding for the National Housing Trust Fund.

The GSEs do not provide mortgage loans directly to individual borrowers. Instead, they purchase loans from banks and other mortgage originators and lenders then use the sale proceeds to make additional loans, reaching more borrowers. The GSEs also purchase mortgages on multifamily properties, that can then be securitized and sold to investors as well.

Prior to the financial crisis, GSEs had never received any federal funds to support their operations. Today, the Federal Housing Finance Agency has complete authority over the GSEs and during this period of conservatorship, the GSEs have been critical to the housing finance system by providing liquidity for new mortgages, helping to protect against the mortgage crisis, and supporting the multifamily market. The GSEs returned to profitability in 2012.