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35 ยป VISIT US ONLINE @ DSNEWS.COM IS GSE REFORM IN THE CARDS? e Financial Services Committee (FSC) held a hearing titled "A Failure to Act: How a Decade without GSE Reform Has Once Again Put Taxpayers at Risk." e purpose of the hearing was to examine the implications of the ongoing conservatorship of Fannie Mae and Freddie Mac 10 years after the financial crisis and the GSEs were put into conservatorship. Ahead of the hearing, trade groups such as the Credit Union National Association (CUNA) urged policymakers to hasten GSE reform in a letter to the administration. "Together, we urge policymakers to lock in recent reforms to GSEs and complete the necessary additional reforms to protect taxpayers, provide liquidity, and promote stability while taking care not to roll back aspects of GSEs' operations that are supporting the foundation of the housing market," the CUNA letter read. "Only through such efforts can we ensure an affordable, accessible housing finance market that works for American homeowners and renters alike." In his opening statement, FSC Chairman Jeb Hensarling (R-Texas) stated that the "GSEs' anti-competitive government charters and ever-increasing 'affordable housing' mandates created a toxic mess of systemic risk" and were quietly returning to prerecession level dominance. Hensarling explained that a plan to permanently repeal the GSEs' charters would begin a transition to a system that allows qualified mortgages backed by an approved private credit enhancer with regulated, diversified capital resources to access the explicit, full government securitization guarantee provided by Ginnie Mae. "While by no means perfect, we offer this proposal as a grand bargain on how to move past an increasingly dangerous status quo: codify an explicit government MBS guarantee into law, coupled with an accountable and effective affordability program in exchange for placing the taxpayer in a catastrophic-loss position only, diffusing the credit risk beyond two GSEs, and creating market competition," Hensarling said. In her testimony before the FSC, Nikkitra Bailey, EVP of the Center for Responsible Lending, said that the GSEs and Ginnie Mae provide valuable resources to homebuyers in underserved communities. "Congress has a unique opportunity to reform the secondary mortgage market in a more equitable manner," Bailey said. She argued that such action would allow far more American citizens the opportunity to thrive and would keep smaller lenders on equal footing with large national banks. Edward DeMarco, President of the Housing Policy Council, said that the GSEs should not receive preferential treatment. He stated that mortgages approved by the GSEs get preferential treatment under the qualified mortgage rule. "If we are to wean the system from its dependency on the GSEs, a systematic review of these preferences is needed and regulators, starting with FHFA, should be seeking pathways to end preferential treatment," DeMarco said. "Such a systematic review also should identify those preferences that are worth preserving because they enhance market efficiency." He added, "In the end, the goal should be achieving a more open and competitive market, not an unstructured market." "Prompt administrative action is advisable now," said Edward J. Pinto, Resident Fellow and Co-Director of the American Enterprise Institute Center on Housing Markets and Finance. "We are in the midst of a strong home-price boom that is unsustainable and fueled by leverage. While we do not know when real house prices will revert to their trend growth path, what is certain is that when such a reversion occurs, low-income and minority homebuyers will again be unduly subjected to volatile home prices, loss of equity, and attendant loan defaults. As a nation, we can and must do better."