Tag Archives: Fannie Mae

Republicans Ready for GSE Reform?

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Richard_Shelby,_official_portrait,_112th_Congress

Senator Richard Shelby (R-AL)

Senator Shelby (R-AL), the Chair of the Senate Committee on Banking, Housing and Urban Affairs, sent a letter to the U.S. Government Accountability Office regarding the future of Fannie Mae and Freddie Mac, sometimes known as the “enterprises.” It provides an interesting roadmap of Republican thinking about the appropriate role of the federal government in the mortgage market:

the FHFA [Federal Housing Finance Agency] has taken steps that appear to encourage a more active, rather than a reduced, role in the mortgage market for the enterprises. These steps include issuing proposed rules regarding the enterprises’ duty to serve, creating principle [sic] write-down requirements, lowering down-payment requirements, allowing allocation of revenues to the national housing trust fund despite the enterprise having no capital, and other actions. Moreover, the development of the common securitization platform, a joint venture established by the enterprises at the FHFA’s direction, raises a number of questions about the FHFA’s stated goal to gradually contract the enterprises’ dominant presence in the marketplace.

Initially, the purpose of the FHFA’s efforts, such as the common securitization platform, was to facilitate greater competition in the secondary mortgage market, but now it appears that the FHFA is no longer taking steps to enable the platform to be used by entities other than the enterprises.  Likewise, lowering the down-payment requirement for mortgages guaranteed by the enterprises will make the enterprises more competitive with others in the mortgage market, not less. Overall, these FHFA actions raise questions about the goals of the conservatorship and whether its ultimate purpose has changed.

To better understand the impact of these changes, I ask that the GAO study and report the extent to which the FHFA’s actions described above could influence:

  • The enterprises’ dominance in residential mortgage markets;
  • A potential increase in the cost of entry for future competitors to the enterprises;
  • Current and future financial demands on the Treasury;
  • Possible options for modifying the enterprises’ structures (1)

As I have stated previously, Congress and the Obama Administration have allowed the FHFA to reform Fannie and Freddie on its own, with very little oversight. Indeed, the only example of oversight one could really point to would be the replacement of Acting Director DeMarco with Director Watt, a former Democratic member of Congress. It is notable that Watt has continued many of the policies started by DeMarco, a Republican favorite. That being said, Shelby is right to point out that Watt has begun taking some modest steps that Democrats have favored, such as funding the housing trust fund and implementing a small principal-forgiveness program.

Housing finance reform is the one component of the post-financial crisis reform agenda that Congress and the Executive have utterly failed to address. It is unlikely that it will be addressed in the near future. But perhaps the FHFA’s independent steps to create a federal housing finance infrastructure for the 21st century will galvanize the political branches to finally act and implement their own vision, instead of ceding all of their power to the unelected leaders of an administrative agency.

 

Know How to Get a Mortgage?

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"Einstein blackboard" by decltype

Fannie Mae’s Economic & Strategy Research Group posted research findings titled What Do Consumers Know About The Mortgage Qualification Criteria. The findings are sobering:

When asked to identify accurate key mortgage qualification criteria (down payment, credit score, and DTI ratio), about one half of consumers were unable to provide an answer.

o The lack of understanding is more pronounced among those with less education and lower income as well as among renters (as opposed to homeowners with mortgages), African-Americans, and Hispanics.

o Regression analysis shows that education, income, and age are most highly associated with mortgage qualification understanding. Lower-income consumers, less-educated consumers, and seniors are more likely to say “don’t know.” Ethnicity accounts for 2 to 9 percent of model explanation.

o Only 23 percent are aware of the 3 percent and 5 percent down payment programs.

o Although more than eight in 10 consumers (81 percent) indicate that they have seen their credit score, when asked what their score is, nearly half consumers (49 percent) say “don’t know” or provide a number outside of the score range (300-850).

And, among those who did provide an answer, only 5 to 16 percent of them chose an answer with the correct range.

o The “over-estimate” is more pronounced among less-educated and lower-income consumers, African-Americans, and Hispanics. When asked about the maximum DTI ratio, these consumer groups are more likely to “under-estimate” the ratio.

o Their mean responses about the minimum down payment and credit score requirements are higher than Fannie Mae requirements.

Lenders are cited as the most influential source of information for getting mortgage advice (33 percent most influential; 64 percent top three most influential), followed by family and friends (20 percent most influential; 47 percent top three most influential).

Regression analysis shows that ethnicity and age are most highly associated with differences in the influence of various information sources. For example:

o Older and Caucasian consumers are more likely to cite lenders as the most influential source of information.

o African-Americans and Hispanics are more likely to cite real estate agents, government agencies, and non-profit housing counselors.

o Younger consumers and Asian-Americans are more likely to cite family and friends as the most influential source of information. (5, emphasis in the original)

The authors identify a lot of important implications that arise from this study, the main one being — “Do not take consumer confidence at face value — there is a need and opening for educational efforts surrounding primary underwriting principles (credit score, down payment/LTV, DTI ratos, and low down payment mortgage programs.” (6)

The big open question is, however, does financial education really work?

Friday’s Government Reports Roundup

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  • The Federal Housing Finance Agency released its 2016 Scorecard outlining conservatorship priorities for Fannie Mae and Freddie Mac, and Common Securitization Solutions.
  • The Joint Center for Housing Studies released its Rental Housing Report and created an interactive map series that shows where renters are experiencing housing cost burdens.
  • The Labor Department’s latest report finds that there were 292,000 jobs created in December, particularly in temporary-help services, health care, transportation and construction.

Tuesday’s Regulatory & Legislative Round-Up

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Friday’s Government Reports Roundup

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Friday’s Government Reports

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  • The U.S. Census Bureau/HUD has released the New Residential Construction Statistics which show new building permits down slightly since August but 4.5% higher than Sept. 2014. Housing completions are up both month over month and year to year.
  • The New York Federal Reserve has released a paper: The Rescue of Fannie Mae and Freddie Mac and a related blog post: Evaluating the Rescue of  Fannie Mae and Freddie Mac in which the authors evaluate the now seven years and running government conservatorship which injected $187.5 billion into the two entities.  The authors conclude that the short term intervention was necessary “because of the central role of Fannie Mae and Freddie Mac in the U.S. mortgage market, and the GSEs’ interconnections with the rest of the global financial system.”  They go on to argue that the conservatorship was meant to be a temporary “time out” and characterize the lack of mortgage finance reform a “striking failure” and cite broad consensus that the GSEs should be replaced with a private system.

Monday’s Adjudication Roundup

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  • New York federal judge dismisses suit against Bank of America Corp. over “hustle” high-speed mortgage approval process for allegedly defrauding Fannie Mae and Freddie Mac.
  • Midtown TDR Ventures LLC and Midtown GCT Ventures LLC, real estate developers that currently own Grand Central Terminal, file a complaint against the City of New York and SL Green, another developer, claiming that they were robbed of potential profits from air rights when the City and SL Green worked to rezone the area in which Grand Central sits and devalued the property.