As the Treasury releases its long-awaited GSE report on "Reforming America's Housing Finance Market" the one asset class that moved is gold. The reason: D.C. proposes, very tentatively, to decrease the role of the government in GSEs, as rumored previously, considering that the banks would love to get an ever greater piece of the securitized GSE action. Not helping is the soundbite from the administration: ""The GSE model is dead," an Obama administration official told reporters as the Treasury Department released a long-awaited report on options to revamp housing reform. " As Reuters reports: "The housing "white paper" presents three different visions for replacing mortgage finance giants Fannie Mae and Freddie Mac, which are set to be slowly wound down. The paper does not make a single recommendation, but broadly outlines alternative possibilities to reduce the government's role in the mortgage market. That strategy aims to "open a dialogue with Republicans that would lead to a consensus outcome within a couple of years," said Michael Barr, a professor at the University of Michigan and a former Treasury Department official." In other words, just like the findings of the president's commission on the deficit, this paper will be glossed over by a bunch of beltway politicians and then promptly forgotten as whatever the banking lobby wishes to happen behind the scenes, happens. As for actionable proposals, the paper core recommendation is "increased guarantee fee pricing, increased down payment requirements, and other measures – to bring private capital back into the mortgage market and reduce taxpayer risk."
More from Reuters:
Texas Representative Jeb Hensarling wants to eliminate Fannie Mae and Freddie Mac within five years, allowing the private sector to take over the government role.
The fourth highest ranking House Republican has not yet formally introduced his bill to do that, and it is unclear when he might do so.
Democrats are generally more supportive of a government role in the mortgage market and argue that removing the federal backstop for mortgages would make loans more expensive and price many middle class Americans out of home ownership.
"I want to make sure the window of opportunity for home ownership isn't closing for the next generation of homeowners," said John Taylor, chief executive of the National Community Reinvestment Coalition, an association of community-based groups that promote access to basic banking services for working families.
The housing industry, including real estate agents, homebuilders and mortgage bankers is also supportive of some government role for backstopping mortgages and have already started pushing back against some of the most aggressive privatization proposals.
And after skimming the report, the key findings are: "We recommend FHFA employ a number of policy levers – including increased guarantee fee pricing, increased down payment requirements, and other measures – to bring private capital back into the mortgage market and reduce taxpayer risk. As the market improves and Fannie Mae and Freddie Mac are wound down, it should be clear that the government is committed to ensuring that Fannie Mae and Freddie Mac have sufficient capital to perform under any guarantees issued now or in the future and the ability to meet any of their debt obligations."
It is therefore not surprising that gold has just gotten spooked: after all if this is not just more boilerplate material, the great GSE deconservatorship process has begun. But don't worry: GSE reform won't be completed for many years, and certainly not before the next major financial crisis wipes out the entire securitization market out for good. In other words - more taxpayer money spent to pretend we are changing the status quo, when doing anything but.
Gold, which is at the highs of the week:
Full report - link.