SIFMA to Policymakers: Take Extra Care on GSE Reform

SIFMA Managing Director Chris Killian warned that poorly designed reforms for Fannie Mae and Freddie Mac (the "GSEs") could undermine the liquidity, uniformity, and affordability that define the U.S. housing finance system.

In a Pennsylvania + Wall post, Mr. Killian explained that current reform discussions about recapitalization and GSE privatization carry significant implications for the broader mortgage market’s stability and efficiency. To illustrate what is at stake, he pointed to the critical role of the To-Be-Announced ("TBA") market, which facilitates roughly $310 billion in daily mortgage-backed securities trading and stands as the second most liquid bond market in the United States, behind only Treasuries. Mr. Killian emphasized that the TBA market provides borrowers nationwide with access to consistent, low-cost, 30-year fixed-rate mortgages through all economic conditions. He also warned that changes to the market’s structure or the government’s role, if not carefully managed, could fragment mortgage access and raise costs for both lenders and consumers.

To safeguard stability and preserve the market’s core benefits, Mr. Killian outlined several guiding principles for policymakers:

1. Define a Clear Government Role and Preserve Liquidity. Mr. Killian called for legislation or policy actions that explicitly define the government’s role in maintaining uninterrupted liquidity in secondary mortgage markets and in protecting the TBA market’s function as a stabilizing force for long-term mortgage rates.
2. Encourage Realistic Private Capital Participation. Mr. Killian stated that significant private capital should continue to stand ahead in risk-bearing of the taxpayer but cautioned that expectations for private capacity must remain realistic. Mr. Killian recommended steps to expand private capital’s ability to assume mortgage credit risk responsibly.
3. Strengthen Market Oversight and Regulatory Frameworks. Mr. Killian urged policymakers to ensure that a strong regulatory framework remains in place and to consider an explicit government guarantee—through congressional authorization or comparable means—to preserve confidence and continuity in the mortgage market.
4. Revitalize Private Securitization. Mr. Killian encouraged the SEC to advance reforms under Regulation AB II to reinvigorate the registered MBS market, broaden investor participation, and reduce the system’s reliance on the GSE footprint.