The Federal Housing Finance Agency, the federal regulator and conservator of government-sponsored mortgage giants Fannie Mae and Freddie Mac, has delivered a strategic plan for the two that envisions them becoming smaller and less relevant to the secondary mortgage market.
“With the conservatorships operating for more than three years and no near-term resolution in sight, it is time to update and extend the goals and directions of the conservatorships,” wrote FHFA acting director Edward DeMarco in a Feb. 21 letter accompanying the plan. “FHFA is contemplating the next steps to build an infrastructure for the secondary mortgage market that is consistent with existing policy proposals and will support any outcome of the leading legislative proposals,” DeMarco added.
The goals of the agency's plan include building new infrastructure for the secondary mortgage market of the future along with taking steps to move more of the mortgage business away from the GSEs. The plan also envisions the agency continuing its efforts at foreclosure mitigation.
But the plan is also short on specifics, a fact that NAFCU picked up on in a Feb. 21 letter to FHFA about the plan.
“The FHFA strategic plan raises more questions than it answers in the ongoing debate of GSE reform,” NAFCU wrote. “Whether a government guarantee will be part of the future of any reform plan is a key issue for our members, and one FHFA has not answered. NAFCU strongly supports a viable secondary market to which credit unions have equitable access.”
“The impact of a single securitization platform, the role of pricing and the degree of private market control in the secondary market are all areas where the fine print determines whether the outcome will be positive or negative for our members,” the association observed. “We look forward to a continued debate on these issues and appreciate that FHFA has acknowledged the necessity to keep Fannie and Freddie viable until an appropriate transition is in place.”
But while the plan left the largest questions for federal lawmakers to answer, the agency clearly sought to do what it could with the less politically sensitive issues of how a secondary mortgage market might function.
A key element of the agency's plan for a future secondary mortgage market includes a platform that would bundle mortgages into securities and provide operational support to process and track the payments from borrowers to investors, the agency wrote in the plan.
The goal of such a platform would be to reassure investors about the secondary mortgage market and, the agency hopes, return more of them to a market they largely abandoned in the wake of the housing bubble collapse.
The agency also seeks to develop an open, public servicing agreement to protect investors and facilitate transparent mortgage servicing.
“Developing these standards will not only correct past problems, it will make the existing system better,” the agency wrote. “We know how past shortcomings have harmed borrowers and investors. Since the point of a secondary mortgage market is to operate an infrastructure that most efficiently brings investor capital to individual families seeking to finance a home, standards must be more transparent and accessible for both of these end-users.”
But as NAFCU reiterated in a subsequent letter to the Senate Committee on Banking and Urban Affairs prior to a Feb. 28 hearing on the state of the U.S. housing market, the plan does not discuss a government guarantee.
“In short, NAFCU remains concerned about any housing finance reform proposal that lacks a government guarantee,” NAFCU wrote in its Feb. 27 letter. “It is unclear how a private market would attract investors as the housing market struggles to recover from the worst recession since the Great Depression. Furthermore, privatization could freeze out community-based lenders by leaving the secondary market dominated and controlled by a handful of large banks. Undoubtedly, this is the worst-case scenario for credit unions and their members.”
For its part, the Mortgage Bankers Association, which includes credit union members, sidestepped the more contentious GSE reform issues in favor of praising the agency's efforts.
“We greatly appreciate the constructive nature of the proposals outlined by FHFA Acting Director Ed DeMarco to wind down Fannie and Freddie, only after taking steps to create a new infrastructure for the secondary mortgage market,” the MBA said in a statement about the plan. “Moving toward a single security, aligning servicing requirements and reducing the retained portfolios while avoiding a fire sale are all moves that we have supported. We look forward to working with policymakers, including FHFA, to refine the roles of the GSEs and to bring private capital back to the market.”