The cross-subsidization baked into current GSE guarantee-fee pricing could be made to work better, according to Urban Institute researchers. Current GSE pricing under guidelines from the Federal Housing Finance Agency are not fully adjusted to risk: low-risk borrowers pay a little more than they should and higher-risk borrowers pay a little less. Urban Institute researchers Jim Parrott and Laurie Goodman in a new paper say there are shortcomings in the existing cross-subsidy system that result in support going to borrowers who may not need it. “First, it does not effectively target those who need the help,” they said, adding that close to one of four beneficiaries of the subsidy are not in the low- to moderate-income category.

In the latest proposal for reforming the GSEs, the American Enterprise Institute this week recommended winding down Fannie Mae and Freddie Mac by way of “administrative action” to make room for the private market. The conservative think tank said a government guarantee for mortgage-backed securities is not necessary for an effective housing-finance system. Noting that the term of Federal Housing Finance Agency Director Mel Watt expires in January 2019, AEI said many of its recommendations could be implemented by whomever President Trump taps to take over the agency. “This is important since Congress has been unable to develop or agree on a workable housing-finance system since the financial crisis nine and a half years ago,” said AEI.

Although Federal Housing Finance Agency Director Mel Watt has nearly 11 months left on his term, that isn’t stopping the mortgage rumor mill from talking about who might succeed him. At the very least, no one in the industry has predicted that Watt, a former Democratic Congressman from North Carolina, would be offered a second, five-year term. Two names that are being actively discussed in the industry are Mark Calabria, chief economist to Vice President Mike Pence, and Craig Phillips, who currently serves as counselor to Treasury Secretary Steven Mnuchin. Of course, just because the industry is talking about them, doesn’t necessarily mean the White House is. Both men are quite familiar with the...

Concerns have begun to mount for the Senate housing-finance reform draft proposal being developed by Sen. Bob Corker, R-TN, as the Center for Responsible Lending and National Urban League warned the plan would cost more and deliver less. The groups published a new research paper on March 1 outlining how the proposed legislation would be a blow to affordable housing by replacing current public interest mandates with “weak incentives.”“A doubtful structure of guarantors awarded unenforceable duties is simply not in our nation’s best interest. Nor is supporting systemic changes that omit community banks, credit unions, and other small lenders,” said Mike Calhoun, CRL’s president.

Economists and real estate executives warn that getting rid of the GSEs’ affordable housing goals, as suggested in some housing-finance reform proposals, will most likely lead to fewer options for underserved borrowers. Currently, Fannie Mae and Freddie Mac have affordable housing goals that work in tandem to their duty-to-serve underserved markets mandates. But a draft reform proposal by Sen. Bob Corker, R-TN, would replace the affordable housing goals with a new fee-based incentive system.“A potential reduction in federal backing for home loans issued to underserved borrowers as a result of ongoing GSE reform efforts is likely to decrease lending in these communities,” said...

CRT Market Better Able to Warn of Downturn. The credit-risk transfer market created in recent years by Fannie Mae and Freddie Mac is better poised to warn of systemic risk than the MBS market was prior to the financial crisis, according to new research by Susan Wachter of the University of Pennsylvania’s Wharton School. The Wharton professor noted that the future structure of the housing-finance market, in particular the number of issuers of government-backed MBS, may change how the CRT market functions.A multiple-guarantor model, with each offering its own CRT deals, may be less liquid than the current market with just two issuers, Wachter suggested. Fannie Hires New Communications VP. Fannie Mae has hired Duncan Burns as vice president of...

Republicans in Congress are using the potential for administrative reform of the government-sponsored enterprises as leverage in negotiations on housing-finance reform legislation, according to industry observers. Passage of reform legislation involving Fannie Mae and Freddie Mac appears unlikely this year and some investors in the secondary market would prefer to keep things as is.

The American Enterprise Institute this week released a proposal to gradually eliminate Fannie Mae and Freddie Mac through administrative action and reform the FHA program. Many of its recommendations could be implemented by the Federal Housing Finance Agency director that President Trump can nominate early next year.

The Internal Revenue Service said that interest payments on home-equity loans can still be deductible under the Tax Cuts and Jobs Act that went into effect at the end of 2017 if it’s used for home improvements.

The Trump administration is seeking additional budget allocations in FY 2019 for FHA and Ginnie Mae to pay technology upgrades, additional staffing, and increased issuer oversight. The budget request seeks an additional $20 million above the 2017 enacted level of $130 million for FHA to upgrade its aging information technology – some still based on the antiquated COBOL programming language – and contract support. The additional funding would be offset by charging lenders an IT fee of no more than $25 per loan, according to the proposed budget for the Department of Housing and Urban Development. In addition, the 2019 HUD budget requests $400 billion in new loan guarantees under the Mutual Mortgage Insurance Fund for forward single-family mortgages Home Equity Conversion Mortgages, multifamily housing, and manufactured housing. The requested $400 billion would remain available ...