Government & Industry Relations Update
Mel Watt Announces FHFA’s Vision for the GSEs
June 9, 2014
Community lenders were able to express a sigh of relief in mid-May when the director of the Federal Housing Finance Agency (FHFA) announced his 2014 scorecard for Freddie Mac and Fannie Mae. Mel Watt addressed their primary concerns that the GSEs continue to promote a competitive marketplace for originators of all sizes in his first public statement since being sworn into office in January.
The new director sent a clear message that he was tweaking the agency's previous vision for the GSEs to "maintain, reduce and build," while using the same terminology.
Responding to concerns from lenders regarding buybacks, Watt announced that representations and warranties guidelines will be relaxed going forward to allow two delinquent payments in the first 36 months. In addition, the GSEs will no longer automatically require a repurchase if mortgage insurance (MI) is rescinded on a loan. The expectation is that the changes will enable lenders to broaden their underwriting guidelines on loans sold to the GSEs.
The GSEs will no longer be expected to reduce their presence in the market because that could have an adverse impact on liquidity. In that regard, conforming loan limits will not be reduced in the foreseeable future. The directive to "reduce" will instead focus on reducing taxpayer exposure. As a result, Freddie and Fannie are required to significantly increase their credit-risk transfers into the private capital markets.
Finally, Watt emphasized that the creation of a new common securitization platform should be executed so it that facilitates securitization by Fannie Mae and Freddie Mac as opposed to private investors. One new goal of the platform is the eventual creation of a common agency security that would increase liquidity, reduce costs to the borrowers, and lower barriers to entry for additional competitors in the secondary market.