The Federal Housing Finance Agency, the regulator and manager of government-owned Fannie Mae and Freddie Mac, is poised to start to restructure the secondary mortgage market whether credit unions, banks or legislators are ready or not.
FHFA Acting Director Edward DeMarco described some of the new market structure that the agency envisions to replace Fannie and Freddie in March 4 remarks before the National Association for Business Economics in Washington.
“We believe that setting up a new structure that is separate from the two companies is important for building a new secondary mortgage market infrastructure,” DeMarco outlined in his prepared remarks. “Our objective, as we stated last year, is for the platform to be able to function like a market utility, as opposed to rebuilding the proprietary infrastructures of Fannie Mae and Freddie Mac. To make this clear, I expect that the new venture will be headed by a CEO and chairman of the board that are independent from Fannie Mae and Freddie Mac. It will also be physically located separate from Fannie Mae and Freddie Mac. Importantly, we plan on instituting a formal structure to allow for input from industry participants.”
DeMarco told the economists that Fannie Mae and Freddie Mac would initially fund the new enterprise and said that some of its work would replace some of their own securitization infrastructure. But he reiterated that the focus would be on remain on the future.
“The overarching goal is to create something of value that could either be sold or used by policy makers as a foundational element of the mortgage market of the future.
We are designing this to be flexible so that the long-term ownership structure can be adjusted to meet the goals and direction that policymakers may set forth for housing finance reform,” he wrote in the speech.
DeMarco’s announcement took on particular significance in light of the lack of interest Congress has shown in the topic since completing the Dodd-Frank financial reform law in 2010 without including secondary market reform. Absent this congressional interest, the FHFA is proceeding with a reform that could have a deep and wide-ranging impact on whether and how credit unions are able to sell their mortgage loans without any legislative guidance, other than what Congress provided when it authorized the agency’s creation in 2008.
“It’s hard to criticize what DeMarco is doing since, from his perceptive, he is acting to protect the U.S. taxpayer and follow the law as he understands it,” said NAFCU CEO Fred Becker. He added that even though NAFCU didn’t entirely agree with DeMarco’s interpretation of the law, it was easy to understand his attitude since there had not been any superseding legislation since 2008. “If my board gives me instructions, I am going to do my best to carry out those instructions until I hear differently,” Becker said.
He also pointed out that DeMarco spoke at NAFCU’s 2012 Congressional Caucus and that NAFCU had found him open to credit union perspectives and concerns, although not all of them.
For example, in a March 5 letter to Rep. Scott Garrett (R-N.J.) and Rep. Carolyn Maloney (D-N.Y.), chairman and ranking member of the House Financial Services subcommittee on capital markets and GSE’s, NAFCU called for Congress to ensure at least two government-sponsored enterprises be preserved to guarantee credit union access and competition in the secondary mortgage market. But DeMarco’s proposal is for only one entity to eventually replace Fannie Mae and Freddie Mac.
CUNA General Counsel Eric Richard said the association had been anticipating DeMarco’s announcement for some time and that CUNA had been urging credit unions remain engaged with legislators on the issue. He conceded that DeMarco’s proposed structure made sense from the standpoint of efficiency and that is was hard to justify having two organizations that largely duplicated each other’s operations. But he agreed with NAFCU’s concerns about the need for credit union access and the need to maintain competition in the new structure.
Richard said that since Congress appeared unlikely to legislate secondary mortgage market reform this Congress, credit unions should keep trying to influence the structure of the new institution the FHFA will begin organizing.