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No Big Bang Fix for Fannie, Freddie Reform

Stocks in this article: FNMA FMCC

NEW YORK ( TheStreet) -- The longer policymakers delay addressing the future of housing giants Fannie Mae (FNMA) and Freddie Mac (FMCC), the more shareholders and investors seem to be taking matters into their own hands.

According to a report by the Financial Times, a group of hedge funds are proposing to buy out large parts of the agencies' existing platform in an effort to bring back private capital to the housing market and speed up housing reform.

But policymakers are unlikely to seriously tackle housing finance reform until 2015, a panel of experts concluded at the SIFMA annual conference in New York on Tuesday afternoon.

Investors have been touting Fannie and Freddie re-privatization plans since at least 2011 and pressure has been steadily mounting on Congress.

"There is tremendous desire in Congress to get something done. But 2014 being an election year, it looks like it will only take place in 2015," said Barbara Novick, vice chairman of Blackrock (BLK), who heads the firm's efforts on public policy issues.

Henry Cisneros, co-chair of the Bipartisan Policy Center for Housing, said that although there have been two serious proposals for GSE reform in Congress -- the Senate's Corker-Warner Bill and the House's PATH Act, the prospect of comprehensive housing finance reform looked increasingly unlikely.

"My instinct tells me this stuff is so complex, it is going to take a long time for this to be worked out," said Cisneros.

Cisneros, who served as the Secretary of the Department of Housing and Urban Development during the Clinton Administration, said the challenges the Obama Administration has had in implementing the Affordable Care program suggested that the government will not be able to pull off a dramatic overhaul of housing finance.

Instead, he believes that policymakers will have to approach this in a piecemeal manner. "I can't imagine a big bang fix. This is so important to the economy, so complex, the only way we can get there is incremental, phased reform," he said.

Kevin Watters, chief executive officer of JPMorgan Chase's (JPM) mortgage banking division also cautioned against making changes too quickly.

"We have finally got housing to a stable place. We can't rip this whole thing out overnight," he said.

Still, panelists said that while there was a need for long phase-in period, Congress needed to provide some clarity on what the future of housing finance was going to look like. "There are lot of ideas on the table. Congress just needs to find a design that has bipartisan support," said Joseph Tracy, executive vice president of the Federal Reserve Bank of New York. "There is no argument for waiting."

-- Written by Shanthi Bharatwaj in New York.

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Disclosure: TheStreet's editorial policy prohibits staff editors and reporters from holding positions in any individual stocks.

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