A new report issued by the Kroll Bond Rating Agency (KBRA) contends that GSE reform will not occur until at least 2016 and that lenders and investors should operate as if they do not expect a change in the current regulatory climate in the near term.
Since the U.S. financial market collapsed in 2008, Congress and other policy makers have pushed for reform in Fannie Mae and Freddie Mac. Members of the Senate and the House of Representatives have proposals on the table to eliminate the GSEs. In general, House members focus more on creating a "free enterprise" market by terminating government control of the mortgage finance system and creating competition, while Senate proposals center on private mortgage insurance and creating a single government entity through the Federal Mortgage Insurance Corporation (FMIC) to provide insurance for mortgage-backed securities that are qualified.
The KBRA believes that the differences between the House and the Senate will prevent GSE reform from taking place in the foreseeable future. The agency also stated they believe that changes that have been made since 2008 that had nothing to do with GSE reform have had a damaging effect on the housing and financial markets, hindering their ability to rebound from the 2008 collapse.
The report specifically highlighted the passage of the Dodd-Frank Wall Street Reform Act by Congress in 2010, which was intended for consumer protection as an example of regulation impeding growth. The subsequent creation of the powerful Consumer Financial Protection Board (CFPB) hit mortgage lenders and loan servicers hard with a flurry of regulations, negatively affecting the industry it was meant to protect.
The KBRA stated in the study they believe the strict regulations put forth since 2010 have harmed housing finance and mortgage lending, and that a better balance between consumer protection and credit availability is necessary if the housing finance and mortgage lending industries are to recover from the financial crisis. They predict that if such a balance is not achieved, mortgage lending volumes and allocation of credit will continue to fall in the coming year and beyond.