- House Appropriations Subcommittee on Transportation, Housing and Urban Development (THUD) approved its fiscal year (FY) 2016 appropriations bill.
- Federal Housing Finance Agency (FHFA) has adopted a final rule requiring the Federal Home Loan Banks (Banks) and the Office of Finance to include demographic data related to their boards of directors in their annual minority and women inclusion reports to FHFA. The final rule also requires that the Banks and the Office of Finance include a description of their outreach activities and strategies to promote diversity in nominating or soliciting nominees for positions on boards of directors.
- Six federal financial regulatory agencies today issued a final rule that implements minimum requirements for state registration and supervision of appraisal management companies (AMCs). An AMC is an entity that provides appraisal management services to lenders or underwriters or other principals in the secondary mortgage markets.
Tag Archives: Federal Housing Finance Agency
Fannie & Freddie and Multifamily
The Urban Institute has posted a Housing Finance Policy Center Brief, The GSEs’ Shrinking Role in the Multifamily Market. It opens,
Though the two government-sponsored enterprises (GSEs)—Fannie Mae and Freddie Mac—are best known for their dominant role in the single-family mortgage market, they have also been major providers of multifamily housing financing for more than 25 years. Their role in the multifamily market, however, has declined substantially since the housing crisis and has reverted to more normalized levels. In addition, even as the GSEs continue to meet or exceed their multifamily affordable housing goals, their financing for certain underserved segments of the market has fallen steeply in recent years.
Given recent declines, policymakers and regulators should consider maintaining or increasing the GSEs’ footprint in the multifamily market, especially in underserved segments. The scorecard cap increases and exemptions recently employed by the Federal Housing Finance Agency (FHFA) to slow the decline in GSE multifamily volume have been somewhat effective, but they may not be enough to prevent the GSEs’ role from shrinking further. (1)
The policy brief’s main takeaway is that “policymakers and regulators should consider maintaining or increasing GSEs’ role in the multifamily market.” (8) I was struck by the fact that this policy brief pretty much took for granted that it is good for the GSEs to have such a big (and increasing) role in the multifamily market:
Though the multifamily market continues to remain strong and private financing is readily available today, it is also poised to grow significantly because of rising property prices and higher future demand. This raises the question of whether the GSEs should continue to shrink their multifamily footprint even further below the level of early 2000s, a period of relatively stable housing market. (8)
Government intervention in markets is usually called for when there is a market failure. The policy brief indicates the opposite — “private financing is readily available today.” The brief does argue that financing “backed by pure private capital is likely to be concentrated within the more profitable mid-to-high end of the market.” (9) That does not indicate that there is a market failure, just that borrowing costs should be cheaper for such projects. If the federal government is going to effectively subsidize a functioning credit market through the GSEs, it should make sure that it is getting something concrete in return, like affordable housing. Just supporting a credit market generally because it tends to support affordable housing is an inefficient way to achieve public goods like affordable housing. It also is a recipe for special interest capture and a future housing finance crisis. To the extent that this private credit market can function on its own, the government should limit its role to safety and soundness regulation and affordable housing creation.
Friday’s Government Reports Roundup
- The Federal Housing Finance Agency (FHFA) released its results to the Fannie Mae and Freddie Mac Guarantee Fee Review. Following the release, the FHFA announced that the fees would remain the same with modest adjustments.
- HUD released the 2009-2011 National Rental Dynamics Reports, which tracks changes in rental housing affordability.
Reiss on Mortgage Lingo
MainStreet.com quoted me in 10 Terms of Mortgage Industry Lingo for Potential Homeowners to Learn. It reads, in part,
The mortgage industry is no different from the rest of the financial or tech world and is fraught with odd terminology, tons of acronyms and other confusing jargon.
While it appears to be a great deal of inaccessible blather, learning what these terms really mean can save homeowners thousands of dollars as they are negotiating the terms of their mortgage.
Unpacking the lingo is the first step as you sink your hard-earned money into a house for the next 30 years. Pretty soon you can banter about points and closings just like the rest of the experts.
Here are ten terms that we demystify as you prepare you as you embark on one of the largest commitments in your lifetime.
Freddie Mac, Fannie Mae and Ginnie Mae – Is There a Family Connection?
Just who exactly are Freddie Mac and Fannie Mae? What about Ginnie Mae? This trio was created by the federal government to support a national market for mortgage credit, said David Reiss, a law professor at Brooklyn Law School in New York. None of these entities interacts directly with homebuyers. Instead, all have the goal to make it easier for mortgage lenders to sell mortgages to investors by promising “those in mortgage-backed securities that they will receive their payments of interest and principal in a timely manner in case borrowers default on their payments,” he said.
After a wave of foreclosures following the Great Depression, Ginnie Mae was created by the government to support affordable housing in the U.S. Now it provides funding for all government-insured or government-guaranteed mortgage loans.
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Points
Real estate brokers and mortgage lenders discuss points quite often, especially as you get closer to finalizing the terms of your mortgage, since they are negotiable. This refers to the percentage points of the loan amount that a lender charges to a borrower for a loan, Reiss said. For instance, if a lender charges 1 point on a $200,000 loan, the borrower will owe an additional $2,000 to the lender at the time the loan is closed.
The Future of Fannie and Freddie: The Definitive Panel!
The NYU Journal of Law & Business has published The Future of Fannie and Freddie (also on SSRN):
This is a transcript of a panel discussion titled, “The Future of Fannie and Freddie.” The panelists were Dr. Mark Calabria from the Cato Institute; Professor David Reiss from Brooklyn Law School; Professor Lawrence White from NYU Stern School of Business; Dr. Mark Willis from NYU’s Furman Center for Real Estate and Urban Policy. The panel was moderated by Professor Michael Levine from NYU School of Law. Panelists looked at economic policy and future prospects for Fannie and Freddie. My remarks focused on the goals of housing finance policy.
The actual panel occurred some time ago, but it remains current given the limbo in which housing finance reform finds itself.
Friday’s Government Reports Roundup
- CFPB releases report of KPMG audit of its operations and budget. In the report, CFPB agrees with KPMG’s findings about control deficiencies and is aiming to fix such deficiencies.
- FHFA releases report on progress of Fannie/Freddie Conservatorships in advancing access to credit and loss mitigation/foreclosure prevention, among other improvements.
- Report from NYC Department of Investigation raises concerns for health and safety of those in homeless shelters.
- Report from the National Low Income Housing Coalition (NLIHC) claims: “Affordable Housing is Nowhere to be Found for Millions.
Frannie Conservatorships: What A Long, Strange Trip It’s Been
The Federal Housing Finance Agency Office of Inspector General has posted a White Paper, FHFA’s Conservatorships of Fannie Mae and Freddie Mac: A Long and Complicated Journey. This White Paper on conservatorships updates a first one that OIG published in 2012. This one notes that over the past six years,
FHFA has administered two conservatorships of unprecedented scope and simultaneously served as the regulator for these large, complex companies that dominate the secondary mortgage market and the mortgage securitization sector of the U.S. housing finance industry. Congress granted FHFA sweeping conservatorship authority over the Enterprises. For example, as conservator, FHFA can exercise decision-making authority over the Enterprises’ multi-trillion dollar books of business; it can direct the Enterprises to increase the fees they charge to guarantee mortgage-backed securities; it can mandate changes to the Enterprises’ credit underwriting and servicing standards for single-family and multifamily mortgage products; and it can set policy governing the disposition of the Enterprises’ inventory of approximately 121,000 real estate owned properties. (2)
I was particularly interested by the foreward looking statements contained in this White Paper:
Director Watt has repeatedly asserted that conservatorship “cannot and should not be a permanent state” for the Enterprises. Director Watt has indicated that under his stewardship FHFA will continue the conservatorships and build a bridge to a new housing finance system, whenever that system is put into place by Congress. In this phase of the conservatorships, FHFA seeks to place more decision-making in the hands of the Enterprises. (3)
Those who have been hoping that the FHFA will act decisively in the face of Congressional inaction should let that dream go. And given that just about nobody believes (I still hope though) that there will be Congressional reform of Fannie and Freddie during the remainder of the Obama Administration, we must face the reality that we are stuck with the conservatorships and all of the risks that they foster for the foreseeable future. Today’s risks include historically high rates of mortgage delinquencies and exposure to defaults by counterparties like private mortgage insurers. As I have said before, the risks that Fannie and Freddie are nothing to laugh at. Let’s hope that the FHFA is up to managing them until Congress finally acts.
