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FHFA Acting Director Edward DeMarco said that Fannie Mae and Freddie Mac would merge some of their existing operations in order to build a new securitization platform.
March 4 -
The Federal Housing Finance Agency on Thursday released a proposal to create a framework for a new secondary mortgage market.
October 4 -
Controlled by the government for the past four years, Fannie Mae and Freddie Mac are already shadows of their former, formidable selves. But what the FHFA has planned will essentially make them mirror images of each other, separate companies on paper only.
September 19
WASHINGTON — The Federal Housing Finance Agency continues to implement significant changes — albeit quietly — to the structure of Fannie Mae and Freddie Mac even while the Obama administration and Congress have yet to get serious about housing finance reform.
The latest move came late Monday, when the agency released its goals for this year and Acting Director Edward DeMarco delivered an update on the progress the FHFA has made so far.
The result was a raft of headlines that largely discussed just one aspect of DeMarco's talk — the creation of a joint securitization platform by Fannie and Freddie that will eventually become independent from the two mortgage giants.
We offer the following frequently asked questions about DeMarco's speech, and what it means for the mortgage market and the fate of housing finance reform.
What exactly did FHFA announce?
The big news was about the securitization platform, which DeMarco said will essentially combine the GSEs' back-office activity into one entity that will issue securities, provide disclosures, pay investors and disseminate data. The platform will initially be formed and funded by Fannie and Freddie, but eventually be fully independent, with its own executive and board of directors.
Why is that important?
It's a concrete sign that Fannie and Freddie, in their current form, are disappearing. Since being seized by the government four and a half years ago, FHFA has talked repeatedly about the need to wind down the entities and prepare for a future housing finance system. Creating a single securitization platform for both companies is a large step in that direction.
Was it a surprise?
No. The FHFA
Is there anyone who opposes it?
The financial services industry isn't opposed per se, but it does have reservations. In a joint letter sent in December from several different trade groups, the industry
Does this reduce the need for GSE Reform?
No. While this takes one more step in preparing for the future of the housing finance system, no one — including DeMarco — thinks it will preclude the need for actual legislation. The key point DeMarco made was that the agency was trying to be flexible here to accommodate whatever Congress eventually wants to do. "The overarching goal is to create something of value that could either be sold or used by policymakers as a foundational element of the mortgage-market of the future," he said.
Is GSE reform going to happen?
Not anytime soon. The Obama administration appears to view the issue as radioactive and has given no sign it intends to tackle it in the near future. Given that Treasury Secretary Jack Lew just stepped into office last week and already faces issues dealing with the sequestration, a concrete GSE plan doesn't appear in the offing.
House Financial Services Committee Chairman Jeb Hensarling, meanwhile, has promised to make the issue a priority. To date, however, the panel has only scheduled a subcommittee hearing related to the issue entitled "How Government Housing Policy… Led to the Financial Crisis." If the best Congress can do now is rehash a debate that has already been fought for the past four years, GSE reform is going nowhere fast.
Did DeMarco say anything else?
The FHFA chief also said the FHFA is expected to force Fannie and Freddie to raise guarantee fees shortly. The agency has been gradually hiking g-fees in order to encourage private investment back into the market. "We are not there yet, but in conversations with market participants, I think we are getting closer."
The agency has also set a target of $30 billion of unpaid principal balance in credit risk sharing transactions with Fannie and Freddie and is targeting a 10% reduction in the GSEs' multifamily business, which has been a bright spot in recent earnings reports. DeMarco also said the agency would be taking a harder look at mortgage insurers and consider a systemic approach to curbing force-placed insurance.
Didn't FHFA just kill a force-placed insurance plan at Fannie?
Yes. The agency
In his speech, DeMarco attempted to offer an explanation, saying the agency does not want Fannie to handle the situation by itself.
"We have taken a pause in pursuing an enterprise-centric approach," DeMarco said. "We plan to bring together a wide range of stakeholders to further analyze how standards can be set that could be more broadly applied to the mortgage market."
Is he serious or is this just a cover?
That depends on whom you ask. Jaret Seiberg, an analyst with Guggenheim Partners, said "FHFA seems serious about finding a long term solution," but acknowledged that other issues might take priority. A research note from Compass Point was more skeptical.
"In our view, this commitment to more broadly assess the lender-placed insurance market appears more as window dressing than a substantive shift in policy," the firm wrote.