WASHINGTON -- The takeover of Fannie Mae and Freddie Mac is already showing positive signs, such as a substantial decline in mortgage interest rates, James B. Lockhart, director of the Federal Housing Finance Agency said on Capitol Hill recently.
"A lack of confidence had resulted in continued widening of the spread between yields of their MBS and yields of Treasury securities meant that virtually none of the large drop in Treasury interest rates over the past year had been passed on to the mortgage markets," Lockhart said. "On top of that, Freddie Mac and Fannie Mae, in order to try to build capital, may have raised prices and tightened credit standards beyond what was necessary for sound underwriting. I am pleased to say that the enterprises' funding costs and the spreads on MBS have declined," Lockhart told the House Committee on Financial Services.
Some credit unions had stopped selling their loans to Fannie and Freddie because the spread was not favorable.
Yields on Freddie Mac guaranteed mortgage securities have declined relative to Treasury debt yields by one-third of a percentage point since the Friday before the conservatorship, Lockhart said. This lower cost has been passed on to homebuyers, with 30-year, fixed-rate mortgage rates below 6% for the first time since January.
FHFA also appointed new boards and management for the mortgage giants. Both Fannie and Freddie have new CEOs. Herb Allison, president/chief operating officer of Merrill Lynch, will be the CEO for Fannie Mae. David Moffett will preside over Freddie Mac. Moffett previously served as the vice chairman/chief financial officer of US Bancorp.
New boards are being formed and new nonexecutive chairman have already been appointed.
As part of the conservatorship, the former CEOs were asked to leave and not given golden parachutes. Lobbying and all political activities have been halted and stock dividends have been cut, Lockhart said.
Looking forward, Lockhart said FHFA has challenged Fannie Mae and Freddie Mac to be more creative on foreclosure prevention and will work with the new CEOs to modify business practices such as the lengthy delay before pulling delinquent loans from securitized pools.
FHFA was created as the regulator of the two government-sponsored enterprises under the Housing and Economic Recovery Act of 2008, the massive housing bill signed into law in July. On Sept. 7, FHFA placed the GSEs into a conservatorship.