A federal court held this week that the single-director structure of the Federal Housing Finance Agency, headed by Director Mel Watt, violates the constitution. The ruling in Collins v. FHFA was handed down in Texas by a three judge-panel for the U.S. Court of Appeals for the Fifth Circuit. It represents the most recent major ruling in a number of Fannie Mae and Freddie Mac shareholder cases filed against the federal government. “We found, after an in-depth examination, that the FHFA is excessively insulated from executive branch influence and is, therefore, structured in violation of the Constitution,” the judges state in their 83-page ruling. And although Congress can create an independent agency, the court determined that elected officials cannot insulate...

The Milken Institute said the GSEs’ duty-to-serve policy is more complicated than other affordable housing reform issues because it forces the secondary market to boost lending in the primary market and assumes those private firms are underperforming. The conservative think tank published a paper this week authored by Michael Stegman and Phillip Swagel on the role of duty-to-serve in which it examined the policy and its potential impact on the mortgage market. While DTS currently encompasses manufactured housing, rural housing and affordable housing preservation, Milken said housing finance reform debates have centered on creating a DTS that includes areas beyond those three targets.

There was some discussion as to whether credit scores serve as a good mechanism to achieve cross subsidization as well as a need for better data to manage risks, during an Urban Institute panel discussion last week focused on subsidies and GSE pricing. Credit scores aren’t a good tool to achieve cross-subsidization, according to Andrew Rippert, CEO of Global Mortgage Group at Arch Capital. He said the goal should be to serve low- and moderate-income borrowers, not necessarily to subsidize people who make a lot of money but have bad credit scores and don’t manage their credit. “Our belief is that we can do a lot better if we were very explicit about the risk in the system with regards to FICO scores,” Rippert said.

The GSEs are picking winners, not helping to level the playing field and they are blurring the lines between primary and secondary market activities, according to panelists expressing concern over the mortgage giants’ growing market share. As Fannie Mae and Freddie Mac continue to introduce and test pilot programs, the industry questions why the GSEs appear to be expanding their activities instead of shrinking them. During a panel sponsored by the American Enterprise Institute late last week, six participants from several think tanks and the mortgage industry discussed some of the alleged...

The deadline for comments on the Federal Housing Finance Agency’s proposed capital rule for Fannie Mae and Freddie Mac does not close until next month and so far, there have been about 25 official written comments registered and various opinions floated around Washington. Michael Stegman, senior fellow at the Milken Institute, said he was encouraged by FHFA’s proposed capital rule for the GSEs and Ed DeMarco, president of the Financial Services Roundtable Housing Policy Center, said the proposal should compel everyone to think about the implications. “This rule is much too important and far too complex to be digested and commented on in 60-days,” he said. “A critical question in evaluating this...

Mnuchin Wants GSE Reform in Next Congress. Treasury Secretary Steven Mnuchin is worried about Fannie Mae and Freddie Mac expanding their already large role in the mortgage market and said he’s not against taking administrative action absent a legislative solution for reforming the mortgage giants.During the secretary’s annual testimony to the House Financial Services Committee late last week, Mnuchin reiterated his position in wanting lawmakers to reform the GSEs and said he expects that to happen in the next Congress. “This is something that I am determined, in the next Congress, should be a major focus of ours, hopefully on...

Twenty-two trade associations strongly urged House and Senate leadership to extend the National Flood Insurance Program before it expires at the end of the month, warning what inaction might do to home sales.

The mortgage industry this week continued to look for a fix to the VA Interest Rate Reduction Refinance Loan mess, which has imperiled roughly $500 million worth of government product that is now ineligible for Ginnie Mae securitization.

Industry experts continue to weigh in on the White House’s proposal to privatize the GSEs and introduce multiple guarantors, but don’t anticipate action anytime soon. Analysts with Keefe, Bruyette and Woods said the proposed changes are similar to the Corker-Warner and Johnson-Crapo reform bills previously introduced in the Senate.

Routine financial transactions involving mortgages could face extreme headwinds under a new consumer data privacy bill passed last week in California. So much so that it prompted the Federal Housing Finance Agency to urge state lawmakers to consider the implications of the legislation to the mortgage market. The controversial consumer data privacy bill passed on June 28. It would allow consumers to opt-out of any type of data collection and give consumers the right to have any personal information deleted.