As predicted, per the Tax Cuts and Jobs Act, the GSEs’ fourth-quarter earnings took a big hit with Fannie Mae and Freddie Mac posting losses of $6.5 billion and $2.9 billion, respectively. This is a far cry from their combined net income of $7.7 billion in the third quarter. But this likely one-time event was prompted by the GSEs having to reduce the value of their deferred tax assets by $15.3 billion after the tax act became law in December 2017. As a result, Fannie will need a $3.7 billion draw from Treasury and Freddie will have to request a $312 million draw.
This week, 127 mortgage banking executives attached their names to an open letter to members of Congress, urging federally elected politicians not to cede the work of housing-finance reform to the White House and the institutions it controls.The correspondence asks lawmakers to back draft legislation that creates a new “guarantor-based” system that builds on the current infrastructure created and maintained by Fannie Mae and Freddie Mac.The executives, members of the Mortgage Bankers Association, favor improving the system by having “two or more” guarantors. The group believes a guarantor-based system – as opposed to an “issuer-based” system – is the best way to meet the nation’s housing-finance needs.
The draft of the housing-finance reform proposal from Sen. Bob Corker, R-TN, appears to have morphed out of both the Mortgage Bankers Association plan and a proposal put forth by Michael Bright and Ed DeMarco. A recent analysis by the Structured Finance Industry Group compared the Senate discussion draft with the other two proposals. SFIG noted that all three proposals advocate an explicit mortgage-backed securities guarantee, preserving the to-be-announced market and the 30-year fixed-rate mortgage. But when it comes to the cash window, the Senate draft deviates from the MBA and Bright/DeMarco plans, which suggested maintaining the cash window operations through the GSEs. Corker’s draft would maintain the cash window through the guarantors
Small lenders and affordable housing groups are not fans of the draft of housing-finance reform from Sen. Bob Corker, R-TN. Corker’s plan calls for having five or more guarantors to promote competition in the marketplace, but some worry about the big banks becoming the primary benefactors of this plan.With several private companies purchasing and securitizing mortgages, advocates of the 80-page draft said it would help end the duopoly of Fannie Mae and Freddie Mac. The proposal includes winding down the GSEs to establish the new guarantors of which none would be able to control more than 20 to 25 percent of the market.
Rep. Jeb Hensarling, R-TX, sounded off on what may happen if Congress doesn’t act on housing- finance reform this year and implied that it doesn’t look good for affordable housing efforts. During a House Financial Services Committee hearing last week, the committee chair fired off a series of questions to Treasury Secretary Steve Mnuchin asking for confirmation on the Federal Housing Finance Agency’s powers. With FHFA Director Mel Watt’s term expiring in January 2019, Hensarling’s concern was that the Trump administration will name a replacement that could do away with some of the GSEs’ affordable housing initiatives.
Fannie Mae will now allow rental payments from Airbnb properties to be used as income when refinancing a home. In a new initiative with Airbnb and three financial institutions, lenders can consider home-sharing income earned on borrowers’ properties when applying to refinance their primary residence mortgage. Prior to this initiative, lenders usually wouldn’t consider income from renting out a home or rooms in a home as a part of a borrower’s regular income stream. Airbnb hosts can apply to refinance their mortgages with Quicken Loans, Citizen Bank or Better Mortgage and have that earnings counted.
Freddie Mac CEO Donald Layton said that home prices have been reasonably strong over the past five years or so, but a new construction lag is what’s really contributing to the lack of affordable housing.He also said there’s been a noticeably higher rate of home price growth than in average or median family income. Layton said, in the long-term, the U.S. has produced 1.5 million housing units a year, both multifamily and single-family. And with a small population growth adjustment, Layton said it should be about 1.6 million a year now. “I believe it has noticeably declined in the financial crisis and it has never returned to that level again,” he said in a phone interview.
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