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Donald Layton, who stepped down as the CEO of Freddie Mac a month ago, is providing some insight into the Trump administration’s view on GSE reform from his new perch at Harvard University’s Joint Center for Housing Studies.
In a 17-page paper published on Monday – titled “GSE Reform: None or Mostly Done?” – Layton reveals a conversation he had a few months ago in a meeting with an unnamed senior official in the Department of the Treasury who told him: “GSE reform has already mostly happened.”
Layton described the comment this way: “One senior Treasury official said this, almost off-handedly as something fairly obvious, in a meeting I attended just before I retired from Freddie Mac.”
Layton’s paper supports the idea that the incremental changes over the last 11 years enacted by the Federal Housing Finance Agency have restored the so-called government-sponsored enterprises, or GSEs, to a condition where they could be privatized without legislative input from a Congress that appears to be gridlocked.
Layton wrote: “In 2012, when I joined Freddie Mac, I was told, `legislation is imminent.’ So much for the predictability of congressional action!”
Layton lists all the Congressional efforts, including what came to be known as the “Crapo Plan” and the “Johnson-Crapo Bill,” before concluding:
“What has been the result of all the efforts at comprehensive reform listed above, with the two GSEs now in their eleventh year of conservatorship? The unadorned, no-spin, fully candid answer: nothing. There has been no comprehensive reform of the GSEs.”
But meanwhile, beginning with the 2008 creation of the FHFA, the new GSE regulator, reforms were underway, Layton said.
“Starting at the very beginning of conservatorship, even as debates about comprehensive reform requiring legislation took almost all of the public spotlight, the U.S. Treasury and the FHFA undertook incremental reforms that produced real improvement in the GSEs and the housing finance system, even if not revolutionary change,” Layton said.
Layton said he supports releasing the GSEs from conservatorship without input from Congress.
“While there are a number of technical and legal issues to be resolved for this exit to happen, especially those relating to raising capital and dealing with the outstanding preconservatorship common and preferred shares, there is no reason that the administration cannot put the GSEs on a path to be released from government control over the next several years,” Layton said. “On a pragmatic basis of actually getting something done, that would be my vote.”
