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DeMarco Delivers Remarks on Housing Finance Reform


Washington, D.C. – Ed DeMarco addressed the Exchequer Club of Washington D.C. today to discuss the current state of housing finance reform and its role in the economy. Below are excerpts from DeMarco’s speech, as prepared for delivery:


DeMarco on the Subsidization of Fannie Mae and Freddie Mac

“Fannie and Freddie aren’t special because of their own competitive prowess or mortgage finance ingenuity; they are special because Congress gave them advantages not enjoyed by other firms. They have not been subject to the checks and balances inherent in the risk-taking structures of private capital markets. They have not been subject to all the regulatory guardrails embedded in our securities laws that govern fully private market participants and market transactions. And they have not been subject to capital and liquidity standards and other prudential rules comparable to other private companies that perform similar functions.”


DeMarco on 30-year Fixed Rate Mortgages and Government Guarantees

“Today, a government guarantee for the 30-year fixed-rate mortgage exists based upon Treasury’s support to the GSEs while in conservatorship. That guarantee, however, has a dollar limit, and any event that produces significant future losses to Fannie or Freddie could be a source of concern for markets. To remove this uncertainty and ensure a stable, lasting system favorable to long-term, fixed rate mortgages requires Congress enacting an explicit guarantee. Yet any such guarantee should be implemented in a way that maintains market discipline in the pricing and accumulation of mortgage credit risk. That requires a competitive market in which individual credit risk takers can, and are allowed, to fail.”


DeMarco on a Competitive Housing Finance System

“Congress needs to authorize a system in which both the government and private market participants are called upon to do what they each do best. The government needs to set guardrails, ensure market transparency, address market failure, and focus subsidies where

Congress determines they are needed. Private market participants should compete to serve customers, and price and manage risks, thereby allocating capital more efficiently, expanding consumer choice, and incentivizing innovation.”


DeMarco on Affordable Housing

“We have a great opportunity in housing finance reform to not just raise a considerable revenue stream to help solve these problems, but we have the chance to improve our approach to the problems. We should focus on measuring outcomes and we should judge our efforts on whether they produce more sustainable mortgage loans to households facing the biggest difficulty obtaining home ownership.”


Read the full text of his speech here.

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