Reforming the housing-finance system under the plan from Sen. Bob Corker, R-TN, includes having at least a handful of guarantors, winding down the GSEs and establishing a mortgage insurance fund with private capital, according to a leaked draft making the rounds this week. The 80-page document seeks to promote competition in the marketplace by having five or six guarantors of conventional mortgage-backed securities, with none of them getting more than 20 percent to 25 percent of the market. Those new guarantors would be expected to launch within two years. Section 809 of the legislation spells out that “as promptly as practicable” the FHFA can greenlight Fannie Mae and Freddie Mac to “sell or transfer” their assets.
In the event that Congress can’t come to an agreement on fixing Fannie Mae and Freddie Mac, Treasury Secretary Steve Mnuchin said the department can take matters into its own hands. But he would rather leave it up to the lawmakers. “There are certain administrative options that we have,” he said, adding, “These entities are very complicated, and I would just say my strong preference would be to work with Congress on a bipartisan basis to reach a long-term solution.” Mnuchin reaffirmed his commitment to reforming the housing-finance system and support for the 30-year fixed-rate mortgage while testifying at a Committee on Banking, Housing, and Urban Affairs hearing Tuesday morning.
Fannie Mae and Freddie Mac saw declines in the flow of purchase and refinance loans into single-family mortgage-backed securities last month, starting 2018 on a sour note. The two GSEs produced a total of $67.48 billion of new single-family MBS in January, according to a new Inside The GSEs analysis and ranking. That was down 8.8 percent from the previous month and off 26.4 percent from January 2017. It was the GSEs’ weakest monthly output since May 2017, and it would have been worse had Fannie not come up with $4.69 billion in mortgage securities backed by modified loans. Including those mod-backed deals, Fannie issuance was up 5.0 percent from December. Without them, the company’s new MBS issuance fell 5.7 percent in January.
With housing-finance reform gaining momentum, the Milken Institute said bringing it over the finish line requires policymakers to address the technical issues in the proposed multiple-guarantor model or one based on private insurance. Failing to address those issues would leave the housing-finance system in worse shape than keeping Fannie Mae and Freddie Mac in conservatorship, the organization said in a new analysis. The multiple-guarantor model suggests attracting new guarantors to promote competition in the market and end the GSE duopoly. But the authors of the paper, which include Erik Kaplan, Michael Stegman, Phillip Swagel and Ted Tozer, said that’s a two-fold challenge that includes determining how to provide space for new guarantors to enter the...
Although the term of GSE regulator Mel Watt doesn’t end until January of next year, the White House is reportedly already contemplating who will be the proper “conservative” choice to take over as regulator and conservator of Fannie Mae and Freddie Mac. According to industry stakeholders intimately involved in GSE issues, one candidate to be the next director of the Federal Housing Finance Agency is Mark Calabria, chief economist to Vice President Mike Pence. Calabria, a frequent GSE critic, is well-schooled on housing-finance issues – and the industry’s history. One observer said the choice would mirror the pick of conservative Mick Mulvaney to head the Consumer Financial Protection Bureau.
GSE shareholders rights group Investors Unite took issue with a recent op/ed that suggested the Trump administration is preparing to return to the same housing-finance market that purportedly caused the financial crisis. In a piece penned for the Wall Street Journal, the American Enterprise Institute’s Peter Wallison warned that the Treasury Department is going down the wrong road on GSE reform. However, IU said Wallison's fears that the Federal Housing Finance Agency and Treasury are “marching back to the 1930’s” are unfounded. The group said in a blog posting that conservatives like Wallison will always claim that “statist prescriptions to economic questions are inevitably doomed to failure and almost always make matters worse.”
Beginning Feb. 1, Freddie Mac will offer a cash benefit to sellers of low-balance loan pools in the $175,000 to $200,000 range. Prior to the announcement, $175,000 was the cut off for cash payouts through the program These benefits are reserved for loan sellers that fit into niche loans sizes used for specified MBS pools. The new category targeted for cash deliveries are 30-year fixed-rate mortgages with loan amounts ranging from $175,000 to $200,000. A spokesman for Freddie said the change was made as a benefit to its customers.
The Community Home Lenders Association wants to make sure that small lender protections like preserving the cash window and limiting the number of guarantors in the market are included in GSE reform legislation. Late last week, the trade group sent a letter to the Senate Committee on Banking, Housing and Urban Affairs about the importance of access for small lenders. “Fannie and Freddie must be preserved and recapitalized, pursuant to a utility model, with the capability to serve the entire small-lender market on fully competitive terms,” the letter said. CHLA said a utility model would work best for small lenders because it ensures their primary role of facilitating loan securitizations.
The National Association of Realtors said GSE guarantee fees are gouging homeowners and urged the Federal Housing Finance Agency to slash them. Its argument is based on the lower corporate tax rate resulting from the 2017 tax law. The trade group, which has been campaigning for lower g-fees for a while now, notes that g-fees are based in part on Fannie Mae and Freddie Mac target pre-tax rate of return. Lower tax rates change that calculation, the NAR said. “To account for the impact of tax reform on the rate of return, the FHFA should reduce g-fees to reflect the lower corporate tax rate and to preserve the current target rate of return,” said Elizabeth Mendenhall, NAR’s president.
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