Research Paper

Mortgage Securitization in the Covid-19 Era: Commentary (Layton)

December 21, 2020

Authors Don Layton

Current Themes

Commentary GSE Reform - The Path Forward, Layton -- title page

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Overview

This commentary by Don Layton, former CEO of Freddie Mac, addresses the challenges and potential paths forward for Government-Sponsored Enterprises (GSEs) in the context of the COVID-19 pandemic. The focus is on the reform of Fannie Mae and Freddie Mac, which have been under conservatorship for over a decade. Layton discusses the complexity and political intricacies of GSE reform and proposes two potential paths for the Biden administration to consider.

Key Message

Layton's commentary suggests two possible paths for the future of Fannie Mae and Freddie Mac. The first path is to maintain the GSEs in long-term conservatorship, which has been surprisingly effective, including during the pandemic. This approach allows for continued operational reforms and improvements while postponing the decision on conservatorship exit. The second path is to transition the GSEs to the "utility model," where they would be reformed and recapitalized, with the Federal Housing Finance Agency regulating their guarantee fees to prevent anti-competitive behavior. Layton argues that this model preserves the benefits of the current system, such as the availability of 30-year fixed-rate mortgages, while protecting taxpayers and ensuring stability in the housing finance system.

These proposals aim to address the complex and politically charged issue of GSE reform by building on existing structures and gradually implementing necessary changes. The commentary emphasizes the importance of practical, incremental approaches to reform, avoiding the risks associated with more radical proposals.