Association of Local Housing Finance Agencies Lawrence H. Parks Senior Vice President, Legislative and Regulatory Affairs May 19, 2011

3 Major Actions to date HERA – Takeover of Fannie/Freddie 2.Abolish OFEHO & Finance Board 3.Create Federal Housing Finance Agency to regulate Fannie/Freddie, FHLBs ( 1 person, off budget no oversight by OMB or Treasury) The State of Play for GSEs

Dodd/Frank Leaves Fannie & Freddie out Puts Restrictions on securitization (5%) Establishes framework for systemically significant institutions Authorizes QRM Promises post-conference to address covered bonds in the near future

The State of Play for GSEs Treasury Paper February 11, 2011 Release of white paper on GSEs Abolish Fannie and Freddie (3 options) Guarantee on No GuaranteeGuarantee in times Multiple delivery of Crisis Agents

Suggests advance cap Raises investment activity questions Encourage activity with smaller lenders rather than larger lenders Discusses covered bonds Limits multi-district membership FHLBS The State of Play for GSEs

For Consumers Higher interest rates for mortgage Two-tiered lending system through covered bonds Higher down payment requirements

The State of Play for Mortgage Finance Today Fannie, Freddie & FHA up to 90% of Market FHLBanks primary source of liquidity for lenders large & small in height of crisis Over 60% of mortgage lending occurring through large members Nearly 40% of advances are to large members

The State of Play for Mortgage Finance Today Vs. Policies Under Consideration A. Government sponsored enterprises and the FHA were established in the 1930’s and are the primary vehicles for mortgage credit today. Policymakers in the Administration & Congress champion severe restrictions or elimination of the entities, as to reduce government risk exposure in the housing finance sector. B. In the past, Farmer Mac (mid 80’s) and the FHLBs (late 80’s) were part of the problem in credit/mortgage crisis. However, the government reaction was different. In the case of the FHLBs government, seized retained earnings; forced the FHLBs to pay 20% of income on Refcorp bonds (bonds issued to clean up the S&L meltdown); created the AHP – 10% of income of Banks for affordable housing; changed Banks membership from generally S&Ls to include commercial banks & credit unions; and took away regulatory authority over S&Ls, then had banks get back to the business of providing low cost advances to primarily meet mortgage needs.

The State of Play for Mortgage Finance Today Vs. Policies Under Consideration C.In the current Financial crisis there is little talk about cleaning up the excesses of Fannie/Freddie (e.g. shareholder ownership or portfolio growth) while retaining what has work for the consumer (standardization in the securitization prices, universal low cost mortgage credit and housing as a counter cyclical force that stimulates economic recovery). D.All is not lost, disarray among House Republicans, Senate Banking Committee questioning of Administration approach on GSE Reform and the continuing price deflation and high foreclosure rates provide opportunity for policy changes.

What’s Needed Change the Narrative 1.GSE’s did not cause the crisis. 2.GSEs are the market currently. 3.Raising interest rates and downpayments to get the PLMBS market or covered bond market going is not pro consumer. 4.Homeownership is critical to wealth accumulation for lower, moderate and middle income families. 5.Change Fannie/Freddie into cooperative ownership. 6.Put public interest directors on Fannie/Freddie boards. 7.Allow regulated depository institutions of all sizes to use FHLBanks, Fannie & Freddie going forward. 8.Maintain the implied government guarantee so as to facilitate low cost mortgage credit and not crowd out appropriated dollars for direct subsidies for affordable housing. 9.In sum, fix what is broken with the current intermediaries; ensure continued access to low cost, universal credit; push for housing finance to have transparent open regulatory structure that balances consumer needs, risk mitigation and broad credit access.