Lawmakers Expected to Look at Fannie, Freddie Reform This Spring

Since the market downturn several years ago lawmakers in Washington have been talking about reforming the secondary mortgage market but nothing has come out of Congress yet. This year, though, a lot of progress is expected to be made toward reform, so it will be especially important for real estate brokers and sales associates to stay engaged in what’s happening, particularly this spring.

Although we’re still waiting for legislation to come out, lawmakers have been working on the issue quite a bit. Four bills have been introduced that would take a comprehensive approach to reform, including a bill by Rep. Gary Miller (R-Calif.) that very closely matches up with NAR’s priority, which is to encourage private investors to return to the secondary market while replacing Fannie Mae and Freddie Mac with an entity that continues to back conforming loans but as a nonprofit, not as a for-profit company.

NAR wants the federal government to keep a presence in the market out of a concern that mortgages remain available and affordable even in bad markets, when it’s too risky or not profitable enough for purely private participants to be counted on.

Sen. Johnny Isakson (R-Ga.) also has a bill out that matches up with NAR aims in many respects, and the association is working with the senator and his staff to refine his approach this spring. In a key point about his bill, it would define conforming loans as those that are based on sound underwriting, not on the amount of downpayment.

That’s important, because banking regulators have drafted Wall Street reform rules that would define conforming loans—what they call qualified residential mortgages (QRM)—as those that meet minimum downpayment requirements and other standards. NAR and others have been vocal about how bad that would be for the market, and the Isakson bill would address that.

In addition to these and a couple of other comprehensive reform bills, lawmakers have introduced 19 other bills that look at specific aspects of reform. NAR has never come out in support of any of these single-issue bills because it wants reform to be comprehensive, not piecemeal. All of the aims of these many bills will get looked at and, as NAR would like to see it, folded into a comprehensive bill where that makes sense.

So, a lot will be going on in the next few months, and NAR members can expct to hear more shortly. But whether all of this activity results in a single bill for a vote this year is uncertain. For one thing, starting around summer lawmakers will begin focusing on the upcoming national elections, so that could mean putting off a big vote like this until 2013, when the dust from the elections has settled.

But that’s all the more reason NAR members have to be engaged now. Because even if legislation takes until 2013 to pass, key decisions could be made in the next few months.

You can learn more about what to expect on reform in the 6-minute video with NAR analyst Tony Hutchinson.

More on the Miller GSE reform bill.

More on GSE reform.

Robert Freedman

Robert Freedman is director of multimedia communications for the NATIONAL ASSOCIATION OF REALTORS®. He can be reached at

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  1. Mortgage market killed me this year. Ended up selling off everything from my broker firm to my used lockboxes. Good luck in 2012 everyone!

  2. I would like to see the federal government get totally out of the mortgage business and leave it to the private market place.

    I think your comment that, “NAR wants the federal government to keep a presence in the market out of a concern that mortgages remain available and affordable even in bad markets, when it’s too risky or not profitable enough for purely private participants to be counted on.” really misses the point.

    People/organizations with particular motives always want to have government intervene when the “Free Marketplace” produces a result with which they disagree. I think we need to remember and reflect upon what a “Free Marketplace” represents. It is the sum total of tens of thousands of people making independent buy and sell decisions. That collective wisdom is a lot more reliable that a few dozen bureaucrats in Washington (or NAR headquarters) dictating what the mortgage lending rules are.

    Imagine the different results ifvthat kind of distributed decision making had been in place in the mortgage markets over the last 30 years. We would not be in the dumper that we are now.

    To ensure the highest probability of a long term healthy real estate industry in the United States, we need make sure we listen to the market place and not the politically driven desires of a few dozen people who do not like a particular result at a particular time. Painful in the short term, maybe but a lot healthier long term.

  3. Donald K. Lentz

    The ‘best’ reform for both Fannie & Freddie would be to dismantle both organizations and let the private investors take-over the mortgage business. Fannie with the help of our ‘law makers’ ruined the American economy and now we still have the ‘Fox’ (Fannie) in charge of the chicken house (mortage lndustry)…………….what a farse!!! Oh, I almost forgot to mention that Fannie is trading at .23 cents a share down from a high of $64.00 a share……………can we all say “what a bunch of losers”.

  4. Dan

    Wish I knew before investing so many years in the brokerage end.I too had to close down my RE corp declining market and income since 2005!

  5. Lee Goade

    Sound lending practices (legal, ethical and equitable) from lending institutions and sound Gov. regulation (involvement) is simply taking too long. Sound lending combined with new tax incentives, would jump start the U.S. economy in every sector. Unfortunetely, (after 3 more yrs.) this is still the missing Keystone in our economic recovery…

  6. Linda

    I heard late last year that Obama was going to introduce a program where home mortgages from the big banks, Wells Fargo, B of A, Chase, etc. would allow their customers whom have these mortgages to refi to get a lower interest rate even though their homes were underwater. When will this happen? I have a lot of customers that are in this area of not being able to do anything because they have a “big bank” loan……thanks

  7. Barb

    Close down Fanny and Freddy and prosecute Maxine Waters, Chris Dodd and Barney Frank for fraud. I was in Washington when John McCain tried to get an audit of Fanny and Freddy and was admonished by professional bureaucrat Maxine Waters and told that “these entities are perfectly solvent, with no financial problems”. Chris Dodd and Barney Frank both stated that everything is fine with Fanny and Freddy. They knew that Fanny and Freddy were going off a cliff, but milked it for personal gain. Get the government out of the mortgage business and off our backs so we can get our businesses going again.

  8. I Large investors or investment pools are given incentives to buy up forclosed properties in bulk, the small Real Estate firms will be forced out of the market.

    Right now we pay our bills by selling cheap foreclosures to families and small investors. Since lenders almost stopped releasing foreclosures to the market,
    we have little inventory to offer our entry level buyers.

    The sad part of that “great plan” is that it will not solve the low appraisal problems we currently have, because the bulk buyer will be unequipped to manage repairs and rentals effectively. This vacant and neglected inventory will contribute to continued decline in property values.

  9. For the past 15 years I made a decent living specializing in the sale of bank foreclosures. The new assignments have dried up in central upstate NY when my business is located. It is a struggle to keep the doors open when you have devoted 100% of your business to the listing and sale of REO property. Does anyone see an increase of new business???

  10. Edward Nuttall

    Does NAR understand that America is founded on and has prospered best on Free Enterprise principles? All government entitiies by nature are anti-freemarket, police-power-enforced, tax payer subsidized, market-distorting, without-competitive-risk, freemarket-killing Monopolies.

    Hypocritally when government couples itself with any free enterpise endevors it creates its own politically motivated monopoly while otherwise declaring monopolies unlawful.

    Similar to the role of referee in any team sport the only acceptable function of government is to enforce the rules and regulations. Government should never be a player in the game. To do so is to pervert the game and bring it to ruination.

  11. Donna

    Unfortunately what a lot of us forget is the greed on behalf of the consumer. It isn’t all the lenders fault. Borrowers kept refinancing to buy bigger cars, put in pools, send kids to college. You had to be blind to not see this coming. Wall Street greed, consumer greed and wanting to keep up with the Jones got to become the American Way. Everyone got hurt with loosing equity in their homes because of this. I work with distressed homeowners and a lot of them have sad stories about health problems, divorce, loss of jobs, etc; but a lot of it was that they just over-extended themselves also. Most of the local bankers weren’t involved in this. But, they did make a lot of money originating loans and selling on secondary market. I have been involved in banking and mortgage lending, plus real estate for years.

  12. Richard

    I agree with the posts that recommend abolishing both Fannie and Freddie, and I don’t agree with NAR’s position on keeping them, for-profit or not. Bad government decisions motivated by politics laid the foundation for the excessive rise in real estate values over the last decade. By purchasing any and all mortgages, the private sector was rewarded for making bad loans and passing them off to the government. This scenario will be repeated at some point if the government remains in the mortgage market.

  13. Darrell Stovall

    I have been in real estate brokerage and investing since 1980. I am very concerned the NAR has as much of a socialist attitude as our current federal bureaucracy. A prudent investor does not make loans that are too risky or when the potential borrower has no downpayment. I was previously president of a bank and I can tell you if people do not have the ability to save for a downpayment for a purchase, they will not have the ability to make payments. If our government continues to support these type of loan programs we will have the same problems we have now. NAR should stop encouraging this type of legislation. NAR and the Federal Government need to get out of the way and let free enterprise work.

  14. I agree with Donald on this one, Fannie and Freddie should be dismantled and let some private orgs take their place.

  15. There’s certainly be a place for a government based guarantee program with tightly defined and controlled underwriting – I was able to buy my first home with a small down payment such that I likely would not have been able to do in the private market. I made my payments, refied 6 years later and paid it off when I sold. We, even the most libertarian among us, often benefit in many ways less defined that that example from such government programs, as do our communities. Government based underwriting is a far cry from socialism.

    Blaming our current ills solely on the “Government” as D Lentz does ignores the very large hand irresponsible consumers had in this mess – wisely noted by Donna. Further, to suggest that “distributed decision making” in a purely free market (whatever that is) would have prevented our current situation, as J Harried does, is a pretty fantasy but ignores the excesses of a purely free market. Derivatives , anyone?

    And perhaps E Nuttall misses the irony in making the point he does about the mesh of government and free enterprise, here in this online forum, on the internet, which is an excellent example of the best of government/free market collaborations.

  16. Jennifer N.

    As a career originator, I’m so glad to find that I’m not the only person who sees that Fannie & Freddie effectively caused the bubble & the ensuing mess we were all left with. With the help of the Federal Government (who manipulated interest rates in the wake of 9-11 “to prevent a recession”), and the creation of credit scoring & automated underwriting programs like Desktop Underwriter & Loan Prospector, Fannie & Freddie made money easier and cheaper to borrow than any other time in American history. Since we now know they saw it coming, I allege this entire event was planned, & it is now being used by beurocrats like Chriss Dodd & Barney Frank as a tool to justify a Big Bank monopoly on mortgage lending.

    I am so tired of hearing it called “the subprime meltdown”. Subprime lenders didn’t cause this mess, but they sure paid for it. They were vilified in the press & put out of business. Mortgage brokers & originators (who were also demonized in the press) weren’t acting on greed; we were utilizing tools made available to us by FNMA & FHLMC, such as loan programs that made the process less daunting, and DU & LP (which approved loans that subprime lenders wouldn’t touch). Many of us were doing everything in our power to keep up with demand. American consumers weren’t to blame, either, as many of them bought homes at that time out of fear of being priced out of the market forever by waiting any longer. Many took Interest-only loans because it was the only way they could swing payments on the over-priced houses they bought (or they used the dreaded pay option ARMS that I never agreed with or originated). Fraud didn’t bring this house of cards down, either. Mortgage fraud has existed since the beginning of mortgage lending, and it will always be part of the business. If there was an increase in the amount of loans with fraud, it’s only because there was an increase of the total amount of loans closed. The percentage of of loans with fraud was relatively the same & likely is still the same today, even with all the additional oversight required.

    The additional compliance requirements (which have been mandated by none other than Fannie & Freddie and the Government) have only created more work & expense for lenders, making it difficult for small lenders to keep afloat – while the Dodd-Frank bill chopped profitability for everyone involved except Big Banks, who by lending their “own money” are exempt from many of the regulations everyone else must adhere to.

    When you look at the whole picture, it’s quite easy to see that THIS IS A SNOW JOB. I’m not 100% convinced that we need Fannie & Freddie to be replaced, but they do need some serious house-cleaning. Eliminate credit scoring, DU & LP. Go back to manual underwriting. These multi-million dollar computer programs have yet to achieve their purpose, which was (supposedly) to minimize the cost and amount of time it takes to get a loan to closing. Overturn the Dodd-Frank bill (which only impacts small brokers and pay for originators at Big Banks…not the Big Banks themselves).

    When you connect these dots with the sudden move of Big Banks to freeze REO sales, a very frightening picture begins to emerge. Am I the only person who fears that the Big Banks have positioned themselves to own a huge amount of American Real Estate? If they’re not selling these homes, what do they have planned for them??? When you see them beginning to rent inventory rather than sell it, it’s already too late. Support your local small business mortgage lender & credit unions. Stop feeding the monster before it eats us all.

  17. Donna

    Aren’t there any real estate bills being considered in the Senate?

  18. Robert Freedman

    Donna, thanks for your question. Yes, Sen. Johnny Isakson (R-Ga,) has introduced the Mortgage Finance Act (S. 1963), which winds down Fannie Mae and Freddie Mac and creates a transitional program to securitize high-quality mortgages. The transitional program would be turned over to the private sector after 10 years. You can learn more about this and other GSE reform bills here:

  19. Maureen Rzasa

    I just read your article on Fannie Mae and Freddie Mac. Thanks for the information. I especially liked the comments from your readers. The information contributed from the readers were very informative and diverse in their opinions.

  20. Christy Ward

    I have had the pleasure to work in the Mortgage industry and Real Estate. I chose to stay in Real Estate because of what I could see the Mortgage industry was coming too. We can blame both parties Consumers and Lenders. The Consumer of course had a want, but the Lender did not have to fulfill the desire. They have no problem with saying No now. The problem now is they are saying NO to homeowners trying to Modify and stay in their home. People due to no fault of their own have fell behind on payments. Granted there are the ones who just thought they could take advantage of the situation and chose not to pay their mortgage. The Banks have some homeowners wanting to stay and some wanting to walk away, they turn the ones wanting to stay down because of credit issues, patchy work history? The Borrower is not purchasing a Home they are trying to come to a civil agreement to benefit both parties to keep their home. When looking at refi’s and Mods they need to consider Realistic factors in underwriting. The bank needs to sell in bulk to get the homes they have and the homes that are being surrendered moving again. This will create jobs for construction, home repairs, and not to mention our sales. If the secondary market would open up maybe they would be more willing to refi with less strict underwriting requirements? The original owners deserve another shot, when the bank is to strict to lend to anyone else so then we have a vacant run down home…. Where is a Happy Medium? One can dream.