CMLA Refocuses Attention on Recapitalization

Amid the recent flurry of articles and discussions on the Federal Housing Finance Agency’s decision Friday on g-fees, we were pleased to see Community Mortgage Lenders of America Chair Paulina McGrath again weigh in on what we agree is the overarching issue in U.S. housing finance policy; the risky foundation of Fannie Mae and Freddie Mac because of the Third Amendment Sweep.

In op-ed in Housing Wire, Is This Any Way to Run A Mortgage Market? , she raises salient issues before policymakers:

“Fannie Mae and Freddie Mac are especially vulnerable to losses from financial market volatility today because their existing capital cushions are extremely low.  These Government Sponsored Enterprises or GSEs were the focus of the largest housing Federal bailout in history. Ironically, their lack of capital is a direct result of the Federal bailout deal and leaves them – yet, again – at risk for needing a second government bailout.

“… Managing my own mortgage banking company, I am well aware of the impact market volatility can have on income from quarter to quarter for even the most well managed and conservatively run company. That is the precise reason having a well-capitalized company is so important – to give you a cushion to absorb unexpected losses. Thus, you can have some bad quarters financially and still be able to carry on with your business.

“… Do we really want to risk a repeat of those times by allowing such shortsighted policies to continue?

“We should all be demanding an amendment to the PSPA that would:

1. Stop the forced depletion of GSE capital cushions; and

2. Allow the GSEs to retain a portion of their earnings to build a sufficient capital to absorb future losses from unexpected market volatility and do without the need for a second Federal government bailout.”

We wholeheartedly agree.