September 16, 2021
FHFA Reverses Previous Housing Market Reform Progress
The Federal Housing Finance Agency (FHFA) announced that the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac will once again be able to purchase “high-risk” mortgages. The agency also announced a proposal to reduce the amount of regulatory capital the GSEs would be required to hold. In a new insight, Director of Financial Services Policy Thomas Wade analyzes these actions, and concludes that the agency’s policy about-face not only reverses critical reforms, but exacerbates existing problems—all while failing to address the greatest obstacles to home ownership.
While clearly in line with the Biden Administration’s goals of expanding home ownership, mortgage availability does not represent the greatest threat to home ownership—house prices and housing inventory do.
Expanding the GSE footprint and increasing the risk held in their portfolios would undo the rare progress made by the previous administration in the direction of housing market reform,
Moreover, the actions come at the worst possible time, in an overheated housing market, amid the effects of the pandemic, and while the GSEs remain in conservatorship.