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Two leading Democrats raises doubts over acting Acting Federal Housing Finance Agency Director Ed DeMarco's refusal to allow principal reductions for loans backed by Fannie Mae and Freddie Mac.
February 8 -
"I'm not sitting here being cautious awaiting some confirmation hearing," the acting director says. "I'm going ahead and doing this the way I think the law frames it."
December 22
WASHINGTON — The Federal Housing Finance Agency offered further plans Tuesday for how to create a new infrastructure for the secondary mortgage market and gradually reduce the government-sponsored enterprises' role.
The agency is hopeful its 21-page white paper will help spur lawmakers to act, noting that Fannie Mae and Freddie Mac have been in conservatorship for more than three years. It's a point driven home by the paper's title, "The next chapter in a story that needs an ending."
"We're offering this in part to help foster using this year as an important opportunity to try push some policy thinking forward about what the options are and to start maybe making moving toward deriving some consensus on the future," Edward DeMacro, acting director of FHFA, said in an interview. "What we're hoping this plan does is provide some sense of what we can do now to start creating that infrastructure without the infrastructure itself constraining which direction policy makers ultimately decide to take."
The future of the two firms or what a new housing finance system will be ultimately rests in the hand of Congress — a fact that's made crystal clear in the agency's paper.
"Fannie Mae and Freddie Mac were chartered by Congress and by law, only Congress can abolish or modify those charters and set forth a vision for a new secondary market structure," the papers says.
Still, the paper, which is not meant as a "step-by-step guide," is intended to help policymakers move forward and meshes with any of the frameworks suggested by the Obama administration last year. The Treasury Department has not committed to a course of action in how it plans to unwind Fannie and Freddie, but Secretary Tim Geithner has pledged more details soon.
DeMarco again urged lawmakers to move expeditiously on a plan.
"I really hope the Congress and the administration begin work now on this," said DeMarco. "The whole theme has been coming from FHFA is 'We gotta get going.' That doesn't mean we need to legislate this year, but let's not lose a whole year here when we can at least be having some deep and thoughtful discussion about what the future should look like, what the policy trade-offs are, and to start really engaging on these tough questions."
The agency has already taken steps in this direction by putting into place a uniform mortgage data program in order to help decrease costs for originators and appraisers and reduce repurchase risk, as well as a joint servicing compensation initiative to weigh alternatives for future mortgage servicing compensation for single-family mortgage loans.
The latest paper follows a letter sent two years ago to Congress, and sets out three goals for the agency during its next phase of conservatorship: building an infrastructure for a secondary mortgage market, shrinking the presence of the government-sponsored enterprises in the market place, and pressing ahead with current activities to prevent foreclosures and ensure available credit for new and refinanced mortgages.
"Although that future may not include Fannie Mae and Freddie Mac, at least as they are known today, this important work in conservatorship can be a lasting, positive legacy for the country and its housing system," the report says.
The challenge for policymakers is the fact that no private sector infrastructure exists today that is capable of securitizing the $100 billion per month in new mortgages being originated.
"Unlike the banking industry, there are not thousands of potential firms ready to step into the business of mortgage securitization," the report says.
As part of its plan, the agency envisions an infrastructure, which would include a securitization platform and national standards for mortgage securitization that lawmakers and the market could use to develop a future mortgage market at a later date.
One of the areas policymakers have wrestled with is whether a government guarantee is essential to a functioning mortgage market. But the FHFA said progress can be made before a decision is reached.
"The elements for rebuilding the market system are known and work on them can begin without knowing whether there will be a government guarantee part," the agency's report says.
The agency laid out several criteria that would be required of any new infrastructure. It would need to connect capital markets investors to homeowners; a standardized pooling and servicing agreement; and transparent servicing requirements. It would also need to have a servicing compensation structure that promotes competition; detailed, timely and reliable loan-level data for mortgage investors when a security is issued; an efficient system for document custody and electronic registration of mortgages; and an open architecture for all of these elements.
FHFA said it will determine how Fannie and Freddie can work together to build a single securitization platform that would replace their current separate proprietary systems, and said that accomplishing this objective will take time.
To help shrink Fannie's and Freddie's presence in the market and shift mortgage credit risk to private investors, the agency has already taken some steps by raising the guarantee fee. Separately, there could be a greater reliance on mortgage insurance or creating loss-sharing arrangements, the paper says.
The agency's third goal is in ensuring stability and liquidity in the market place for new mortgages and mortgage refinancing, and continuing the critical task of foreclosure prevention.
Much of that will be consistent with programs already in place, including the administration's Home Affordable Refinance Program, which was expanded in the fall to reach more borrowers and the agency's servicing alignment initiative.
There is also a renewed effort on short sales, deeds-in-lieu, and deeds-for-lease options to help homeowners and the GSEs avoid foreclosure, and the agency's initiative to convert REO to rentals.
"Achieving the third strategic goal will require FHFA and the enterprises to work harder to resolve certain long-standing concerns in the market place that may be suppressing a more robust recovery and limiting credit availability," the report says.
Separately, the agency said it would release a new compensation structure for the GSEs soon, responding to congressional criticism over multibillion executive compensation packages. The new structure would likely require a large portion of executives' salary to consist of deferred payments.
