GSE ReformPAGE 1BDA AdvocacyFollowing the Presidential announcement, the BDA Taxable Policy Committee drafted a white paper titled,
BDA Main Street Principles for Reforming GSE
The White Paper was produced as an outline for regulators to consult while they work towards GSE reform. While supportive of the overall effort, the BDA stated several key principles that are necessary for a successful reform initiative to ensure the soundness and efficiency of the mortgage finance system.

The BDA principles include:

  • Preservation of the “TBA” mortgage securities market
  • Uniform MBS (MBS) is a welcome advancement
  • Allow GSE to build, and maintain capital; and
  • Preserve local lending models.

While no real legislative progress has been achieved, the FHFA, led by Director Mark Calabria, has taken steps to reform the two mortgage agencies. On June 2, 2020, the
agency proposed a capital rule, which is viewed as a crucial first step of reform, and an idea that has been advocated for by the BDA Included in the BDA’s paper was the call for "Capital Building".

"While it is not inappropriate for the Treasury to earn dividends from the preferred capital it has paid into the GSEs, the “profit sweep” is an impediment to recapitalizing the GSEs and transitioning them from conservatorship. We urge the Treasury to revise the PSPAs to allow the agencies to keep a portion of their net profits, which would become a capital cushion for the companies. Once the GSEs are appropriately recapitalized, some form of privatization or release from conservatorship would be possible. Allowing Fannie Mae and Freddie Mac to retain profits to build capital means a quicker transition from conservatorship. If the reform plans do not materialize and the GSEs remain in conservatorship, Treasury could require the accumulated profit to be transferred to Treasury at that time."

Mark Calabria, Director of the Federal Housing Finance Agency announced the final capital proposal for mortgage giants Fannie and Freddie and the potential dangers they pose to the mortgage market. In a major advocacy win for the BDA, the final rule included the “capital building” a position laid out the BDA’s 2019 GSE White Paper.
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