A former head of Freddie Mac said in a webcast earlier this year that it and fellow GSE, Fannie Mae, are poorly suited to solve the housing shortage at the heart of the nation’s affordability crisis.
Ex-Freddie Mac CEO Donald Layton was speaking with Mark Willis, a senior policy fellow with the NYU Furman Center. Layton, who led Freddie Mac from 2012 until 2019, made his assessment in an online forum for the NYU Furman Center. when he offered a critique of the Trump administration’s main proposals to lower mortgage rates via policy changes at the GSEs.
Layton addressed the Trump administration’s plans for using Fannie and Freddie to cut mortgage costs, including by buying up mortgage bonds, cutting guarantee fees, backing assumable or portable mortgages, and offering 50-year mortgages.
“If you’re in the administration, [and] you want to do things at the federal level about supply, the GSEs better not be at the heart of your effort, because they’re not well positioned,” said Layton, who led Freddie Mac from 2012 until 2019. “The optics is good, but real impact, it’s going to have to be elsewhere. It’s going to have to be more supply side oriented, either at the state and local level or the federal level.”
Steady Supply of Loans
Layton noted that by buying and packaging mortgages for investors, Fannie and Freddie ensure a steady supply of loans and they offer additional firepower to homebuyers via better mortgage terms.
Layton said, though, that the current housing affordability crisis is caused mostly by insufficient housing supply, not just borrowing costs.
“If you look at the charts of how many homes have been built in the last 50 years, it’s completely obvious that this is a supply-side problem,” Layton said. “GSEs are not supply-side entities, so they’re kind of not at the core of the problem.”
Starting with President Donald Trump’s plan to have the two GSEs purchase $200 billion in mortgage-backed securities to drive mortgage rates down, Layton acknowledged that move might reduce mortgage rates somewhat while the purchases are being made, but he estimated the likely reduction in rates at 10 to 25 basis points.
Layton was critical of proposals to cut the fees Fannie and Freddie charge investors to guarantee the timely payment of principal and interest on mortgage-backed securities. Those fees already are structured to subsidize first-time buyers, he said, and that any cuts mainly would benefit wealthy second-home buyers or investors.
He dismissed proposals to make GSE-backed mortgage rates assumable or portable.
Minimal Impact
Layton said such changes would only apply to new mortgages, not existing loans, he said.
Even if the administration was able to retrofit assumability to existing loans, Layton said, evidence suggests the impact on affordability would be minimal.
“So this is one of these things where there’s a lot of discussion, but when you peel down, there’s not much there there,” Layton said.
Layton said the idea for 50-year mortgages already has been quietly discarded by the administration.
