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Carroll School of Management

six_principles

Ed Haldeman, Jr.

Chief Executive Officer, Freddie Mac

Excerpt from remarks to Boston College’s Chief Executives’ Club of Boston 

October 26, 2011

TAKEAWAY: SIX GUIDING PRINCIPLES

Despite the fact that we don’t directly lobby, we don’t directly advocate, we do have a point of view with regard to some general principles that we think policymakers and the country ought to think about as they are thinking about the future of the housing finance market, and I’d like to enunciate those six principles that we think are important and need to be part of whatever decision we make with regard to the future of the housing finance system. Let me tick off those six principles.

The first principle won’t surprise you, and that is that we believe that private capital, rather than government, should represent a far greater portion of the market than today. We believe that there is a role for government, but not 90 percent. We’ve got to change that market share. We think it’s essential to the market to attract more private capital for there to be a healthy, sustainable housing finance market.

The second principle is that we need liquidity. We need a liquid residential mortgage market. Liquidity leads to a larger market, more availability, as well as lower costs. In order to have a liquid market, it requires great transparency both for investors and for borrowers.

One source of the liquidity in today’s market is the TBA market, the to-be-announced market. This is a remarkable innovation that makes our mortgage markets work and be liquid, and allows a lender to lock in a mortgage for 60 or even 90 days ahead. And we would hope that would be part of any future housing finance system.

The third principle is that we need a stable residential mortgage market. For this, we need major countercyclical influences in the market. These influences, these countercyclical influences, have been a vital part of how we as a country have dealt with the housing crisis during this recent period. They are key for a stable mortgage market that doesn’t dry up at the time it’s needed most.

The fourth principle is that we need widespread availability of sound mortgage products, including—maybe not exclusively, but including—long-term fixed rate mortgages. Widespread availability of a wide range of products, but particularly, long-term fixed rate mortgages. Families and lenders need continuous access to such products across a full range of geographic areas and communities. We also have to have this widespread availability for the multifamily market.

The fifth principle is that lenders of all types and sizes should have equal access to the secondary market. We don’t want market power concentrated in a few institutions. Abundance and diversity of choices benefit consumers. It’s important for the market to allow for innovation and new entrants.

And the sixth and final principle is that once the policymakers make their decision, the transition to the new structure must be gradual and carefully monitored. We must be careful not to do harm to borrowers or investors as we transition to that new structure.

So those are the six principles. Private capital needs to come back. It needs to be liquid. It needs to be stable. There needs to be widespread availability. There needs to be equal access. And there needs to be a gradual transition when we come up with the answer.