Watt Lays Out FHFA Plans For GSEs
Housing giants Fannie Mae and Freddie Mac could do an about-face in a renewed effort to nurture the U.S. housing market and better serve consumers seeking mortgage loans. But this time the move appears to offer greater benefits to lenders and borrowers than it does to Fannie's and Freddie's shareholders and the mortgage giants’ bottom lines.
Mel Watt, the new director of the Federal Housing Finance Agency, which oversees Fannie and Freddie, outlined on May 13 a three-part strategy designed to make more credit available to borrowers.
Watt's approach, offered during his first public appearance since taking office in January, reversed the agencies’ previous mandates to reduce their roles in the mortgage market.
Speaking at The Brookings Institution Forum on the Future of Fannie Mae and Freddie Mac, Watt addressed the FHFA's twin obligations of preserving Fannie's and Freddie's assets while working to “ensure a liquid and efficient national housing market.”
When it comes to homeownership, consumers desire financing options that are flexible and create financial stability.
Watt, a former North Carolina congressman, also cited the need for Fannie and Freddie to focus on needs of the present, including their eventual emergence from government conservatorship, and elected not to address housing finance reform legislation.
FHFA's first strategy, Watt said, is to maintain foreclosure prevention activities and credit availability for new and refinanced mortgages to “foster liquid, efficient, competitive and resilient national housing finance markets.”
The second strategy would involve efforts to reduce taxpayer risk by scaling back mortgage portfolios for both Fannie and Freddie, and increase the role of private capital in the mortgage market, Watt said. The 2014 plan called for $30 billion in risk transfers, an amount that would triple to $90 billion under Watt's new strategy.
The third strategy seeks to build a new single-family securitization infrastructure for use by Fannie and Freddie and other participants in the secondary markets. This would involve a common securitization platform and moving Fannie and Freddie to a single common security as a means to improve liquidity and leverage current systems and resources.
Watt said, “The FHFA will proceed with these steps in a transparent way that incorporates the feedback of the public and stakeholder groups whenever possible.”
Watt's speech came at what could be a critical time. Reform measures for the two enterprises seem to have stalled in Congress, while naysayers have said they worry looser standards could lead the $14.4 trillion mortgage market into another housing bubble-and-burst cycle.