One civil rights leader has fired back at a letter written to FHFA Director Mel Watt by five influential industry organizations on Wednesday, among them the National Association of Realtors and the National Association of Home Builders, asking Watt to leave the GSEs and the conservatorships as is and let Congress handle housing finance reform.
President and CEO of The Leadership Conference on Civil and Human Rights Wade Henderson said on Thursday in his response to the letter that advocating for the status quo is “irresponsible.”
“We were hoping that the June 8 letter to FHFA Director Mel Watt by five trade associations might shed some light on the Treasury Department’s 2012 decision to eliminate the capital ‘buffers’ of Fannie Mae and Freddie Mac,” Henderson said. “One of the most important financial reforms after 2008 was to require companies to hold greater levels of capital, yet Treasury inexplicably decided to go completely in the opposite direction with two of the largest financial companies in the world—which is why we have joined with other civil rights advocates, trade associations, dozens of members of Congress, and FHFA Director Mel Watt himself in expressing concerns.”
The five groups wrote in their letter that “Our collective push for comprehensive reform is to ensure that any changes maintain the ongoing sustainability of the housing finance system and directly benefits consumers, rather than the balance sheets of private companies. A piecemeal approach to reform through further amendments to the Preferred Stock Purchase Agreements (PSPAs) will not resolve these issues.”
“The fact that Treasury and these organizations support playing chicken with our economy is nothing short of frightening.”
The groups also mentioned in their letter that the PSPAs—which were amended in 2012 to require the sweeping of all GSE profits into Treasury and reduce the GSEs capital buffer to zero by the end of next year—“provide an adequate backstop to allow Congress to complete the last piece of unfinished business from the financial crisis. Detours from this long-term goal would be counterproductive.”
Henderson responded, “The only justification this letter offers for the policy is that it will ‘provide an adequate backstop to allow Congress to complete’ legislation. In other words, the goal is to allow a financial crisis for the first time since 2008 in the hope that Congress—yes, this Congress—will somehow manage to pass bipartisan, highly-complicated legislation to create a brand new and untested mortgage finance system. The fact that Treasury and these organizations support playing chicken with our economy is nothing short of frightening—and the fact that they would publicly admit to this is truly astonishing.”
Henderson continued, “Meanwhile, large numbers of low- and middle-income families continue to be shut out of the housing market, unable to rebuild the wealth and financial security that the Great Recession decimated. There is still time to heed Director Watt's warning and to act to strengthen the pathway to homeownership.”