Remaking Housing Finance

The Obama administration released its long-awaited report, "Reforming America's Housing Finance Market," to Congress on February 11. It was encouraging to see the White House recognize that smaller lenders and community banks serve their communities more effectively than larger lenders. It's become increasingly clear that whatever replaces Fannie Mae and Freddie Mac will be a radical departure from the old model. When the administration signaled that it was not willing to defend the pre-crisis government footprint in housing finance, the parameters of the debate shifted. Government's historical role in housing is off the table. ICBA recommends that Fannie and Freddie be replaced by cooperatives that are owned by lenders that purchase stock commensurate with their loan sales. The ICBA co-op model would protect the interests of community banks and protect taxpayers from another government bailout. Mortgage-backed securities issued by the co-ops would be guaranteed by a fund capitalized by co-op members as well as third-party guarantors.