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Fed's Quarles: 30-year fixed-rate mortgage 'probably' doesn't need government backstop
BY MARKETWATCH — 23 MINUTES AGO
Senator says housing market reform is likely next on the table for Banking Committee, which has failed to find a way forward in the past

The 30-year fixed-rate mortgage could probably survive without a government guarantee, a senior Federal Reserve official said as Congress contemplates yet another round of housing finance reform.

At a Senate Banking Committee hearing, Fed Vice Chairman for Supervision Randal Quarles was asked by Sen. Heidi Heitkamp, Democrat for North Dakota, whether a government guarantee was "essential" for "retaining" the 30-year mortgage instruments. Quarles replied: "My belief today is probably not."

Also read:Mortgage rates roar to a fresh 2018 high (http://www.marketwatch.com/story/mortgage-rates-roar-to-a-fresh- 2018-high-2018-04-19)

Heitkamp indicated she disagreed strongly.

"There are a number of people in smaller or mid-sized institutions who believe it would be difficult to take a 30-year interest-rate risk without some kind of assurance they could offset that risk," Heitkamp said.

The North Dakota Democrat suggested that reform of the market for housing finance would soon become the No.1 focus of the Senate Banking panel.

Fannie Mae (FNMA) and Freddie Mac (FMCC) were rushed into government control during the financial crisis of 2008. The question for Congress is whether and how to get them out.

Leaving the GSEs in government control would just create uncertainty that would ultimately harm the economy, Quarles said.

Housing finance should be "as private-sector driven as possible," he said.

Some analysts believe the current system works.

"It is not fixed but it's not broken," Moody's Analytics Chief Economist Mark Zandi told MarketWatch earlier this year.

Read:Fannie and Freddie aren't broken, so stop tinkering, Pimco tells Congress (http://www.marketwatch.com/story/ fannie-and-freddie-arent-broken-so-stop-tinkering-pimco-tells-congress-2018-02-21).

Congress has struggled to reform the housing finance system and several attempts have ended in failure.

Zandi sees the future Fannie and Freddie as almost utilities, guaranteeing mortgages through a common platform of standardized, homogenized securities that allows them to share the risk with the private sector.

See: Congress wouldn't do it, so Fannie and Freddie reformed themselves (http://www.marketwatch.com/story/congress- wouldnt-do-it-so-fannie-and-freddie-reformed-themselves-2017-08-03).

-Greg Robb; 415-439-6400; [e-mail]


(END) Dow Jones Newswires
04-19-18 1308ET
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