- The Federal Housing Administration (FHA) has announced relaxed requirements, effective immediately, for condominium project approval. The move is intended to increase options for affordable housing for 1st time and low income homebuyers. Among the changes are streamlining project recertification, expanding the definition of owner occupancy, and expansion of the eligible condominium project insurance coverage.
- The Federal Housing Finance Agency (FHFA) has released its 2015 Annual Performance and Accountability Report which describes its regulatory activities with regard to the Federal Home Loan Bank and as conservator of Fannie Mae and Freddie Mac
Tag Archives: FHFA
Fannie, Freddie & The Affordable Housing Feint
Robert J. Shapiro
Elaine C. Kamarck
Robert J. Shapiro and Elaine C. Kamarck have posted A Strategy to Promote Affordable Housing for All Americans By Recapitalizing Fannie Mae and Freddie Mac. While it presents as a plan to fund affordable housing, the biggest winners would be speculators who bought up shares of Fannie and Freddie stock and who may end up with nothing if a plan like this is not adopted. The Executive Summary states that
This study presents a strategy for ending the current conservatorship and majority government ownership of Fannie and Freddie in a way that will enable them, once again, to effectively promote greater homeownership by average Americans and greater access to affordable housing by low-income households. This strategy includes regulation of both enterprises to prevent a recurrence of their effective insolvency in 2008 and the associated bailouts, including 4.0% capital reserves, regular financial monitoring, examinations and risk assessments by the Federal Housing Finance Agency (FHFA), as dictated by HERA. Notably, an internal Treasury analysis in 2011 recommended capital requirements, consistent with the Basel III accords, of 3.0% to 4.0%. In addition, the President should name a substantial share of the boards of both enterprises, to act as public interest directors. The strategy has four basic elements to ensure that Fannie and Freddie can rebuild the capital required to responsibly carry out their basic missions, absorb losses from future housing downturns, and expand their efforts to support access to affordable housing for all households:
- In recognition of Fannie and Freddie’s repayments to the Treasury of $239 billion, some $50 billion more than they received in bailout payments, the Treasury would write off any remaining balance owed by the enterprises under the “Preferred Stock Purchase Agreements” (PSPAs).
- The Treasury also would end its quarterly claim or “sweep” of the profits earned by Fannie and Freddie, so their future retained earnings can be used to build their capital reserves.
- Fannie and Freddie also should raise roughly $100 billion in additional capital through several rounds of new common stock sales into the market.
- The Treasury should transfer its warrants for 79.9% of Fannie and Freddie’s current common shares to the HTF [Housing Trust Fund] and the CMF [Capital Magnet Fund], which could sell the shares in a series of secondary stock offerings and use the proceeds, estimated at $100 billion, to endow their efforts to expand access to affordable housing for even very low-income households.
Under this strategy, Fannie and Freddie could once again ensure the liquidity and stability of U.S. housing markets, under prudent financial constraints and less exposure to the risks of mortgage defaults. The strategy would dilute the common shares holdings of current private investors from 20% to 10%, while increasing their value as Fannie and Freddie restore and claim their profitability. Finally, the strategy would establish very substantial support through the HTF and CPM for state programs that increase access to affordable rental housing by very low-income American and affordable home ownership by low-to-moderate income households.
Wow — there is a lot that is very bad about this plan. Where to begin? First, we would return to the same public/private hybrid model for Fannie and Freddie that got us into so much trouble to begin with.
Second, it would it would reward speculators in Fannie and Freddie stock. That is not terrible in itself, but the question would be — why would you want to? The reason given here would be to put a massive amount of money into affordable housing. That seems like a good rationale, until you realize that that money would just be an accounting move from one federal government account to another. It does not expand the pie, it just makes one slice bigger and one slice smaller. This is a good way to get buy-in from some constituencies in the housing industry, but from a broader public policy perspective, it is just a shuffling around of resources.
There’s more to say, but this blog post has gone on long enough. Fannie and Freddie need to be reformed, but this is not the way to do it.
Friday’s Government Reports
- The Federal Housing Finance Agency (FHFA) announced that it plans to expand the Neighborhood Stabilization Initiative into 18 additional Metropolitan areas -the program gives community organizations an “advanced first look” opportunity to purchase foreclosed Fannie Mae and Freddie Mac properties, before they are offered to the general public. This interactive map provides more detail about the 18 Metropolitan areas targeted by the program.
- FHFA has also released it’s Annual Housing Report for the 2014 activities of Fannie Mae & Freddie Mac – in 2014 they acquired $584 billion of loans on single-family owner-occupied housing and provided funding for 738,466 multifamily rental units in 2014.
- U.S. Department of Housing and Urban Development (HUD) releases it’s 50th Anniversary Commemorative Book, in which NYU’s Furman Center Contributes a chapter, Race, Poverty & Federal Rental Housing Policy discussing the key goals of the agency, evaluating its progress and identifying “key tensions running through its work.” In another Chapter, Housing Finance in Retrospective authors Wachter & Acolin trace the impact of HUD on the U.S. market.
Friday’s Government Reports Roundup
- HUD’s Office of Policy Development & Research released its most recent issue of Cityscape, featuring research from a symposium about affordable housing and neighborhood qualities.
- The HOME Coalition released “Building HOME: The HOME Investment Partnerships Program’s Impact on America’s Families and Communities”, analyzing the program’s impact. The report analyzes the economic impact on leveraged investments, jobs supported, and local income generated.
- The FHFA released its Annual Housing Report for 2014 Fannie Mae and Freddie Mac.
Obama Administration on Frannie
Michael Stegman, a White House Senior Policy Advisor, offered up the Obama Administration’s “perspective on critical housing issues” recently. (1) I found the remarks on the future of Fannie and Freddie to be of particular interest:
Before discussing what we would like to see happen in this Congress on GSE reform, you should be aware that last week the Administration made clear its opposition to taking any action in support of what has become known as “recap and release.” We believe that recapitalizing the GSEs with taxpayer funds and administratively- or legislatively-releasing them from conservatorship with a business model that conflicts with their public mission— in essence turning back the clock to the run up to the crisis~ would be both bad policy and poor stewardship of the taxpayers’ interest; willfully recreating the very system that helped do this nation so much harm.
ln remarks I presented two weeks ago at the Mortgage Bankers Association conference, I cautioned that no one should be misled by the increasingly noisy chorus of the advocates of recap and release, many of whom have placed big bets against reform so they can make a‘profit, and are doing everything they can to make sure that those bets pay off.
Nor, I said, should their promise that recap and release would generate a pot of money for affordable housing be taken seriously.
Despite claims to the contrary, recapitalizing the GSEs would not itself provide any resources for affordable housing. Nor can a related — or even unrelated — sale of Treasury’s investment in the GSEs provide any resources for affordable housing. The proceeds of the sale of any GSE obligations acquired by Treasury must by law be “dedicated for the sole purpose of deficit reduction.”
Rather than freeing recapitalized GSEs from conservatorship with their flawed charters intact, we should pursue more comprehensive approaches to reform such as those that members of Congress have introduced over the past two years including mutualizing Fannie and Freddie, or build upon bipartisan agreements on the features of a future secondary market system that were hammered out in the Senate Banking Committee last year:
Preservation of the TBA market; an explicit, paid for government guarantee of catastrophic losses for investors in qualifying MBS; maintaining a clear separation of the primary and secondary markets; ensuring the flow of mortgage credit in both good times and bad; separating the securitization plumbing from private credit risk taking; ensuring that community lenders have the same access to the secondary market as big banks; and making the benefits of government guaranteed MBS available to all households — both those who choose to rent and those with the ability and desire to own.
Members in Congress also reached bipartisan consensus on a transparent way to serve those the private market cannot serve without subsidy, through an annual 10 basis point assessment on the outstanding balance of government-guaranteed MES—which once fully implemented, would generate about 15 times more resources a year for affordable housing than FHFA is expected to raise through the GSEs’ current affordable housing levy–though we were pleased to see the Director begin collections on the affordability fee and look forward to effectively implementing the dollars through the Housing Trust Fund and the Capital Magnet Fund that should become available for the first time in the early months of 2016.
But there is much more work to be done on ensuring a level playing field in the new system, including a robust role for community banks and credit unions who know how best to serve their customers, and ensuring that all communities are served fairly, which can be most effectively achieved through a statutory duty to serve. Regrettably, the Committee could not agree upon such a provision during last year’s negotiations, and we will continue to fight for it. (3-4)
Much of these remarks are eminently reasonable but I have to say that the Obama Administration has not deployed much political capital on reforming the housing finance system. This has left the whole system in limbo and the longer it stays in limbo, the more likely it is that special interests will make inroads into the reform of the system, inroads that will not be in the public interest.
While the likelihood of reform coming out of the current Congress is incredibly small, the Administration should take all of the administrative steps it can to sketch out an outline of a housing finance system that can work for a broad range of borrowers through the credit cycle without putting excessive risk on taxpayers.
The Administration has taken some steps in the right direction, like off-loadling some risk from Fannie and Freddie to private investors. But there is a lot more work to be done if we are to have a system that provides the optimal amount of credit through the 21st century.
Friday’s Government Reports Roundup
- The FHFA releases it 2015-2017 Housing Goals for Fannie Mae & Freddie Mac.
- The US Department of Agriculture released its 20th Annual Food Security Report. The reports shows that 1 in 7 people live in food insecure households, but there has been a slight decline over the past few years.
Better to Be a Banker or a Non-Banker?
The Community Home Lenders Association (CHLA) has prepared an interesting chart, Comparison of Consumer and Financial Regulation of Non-bank Mortgage Lenders vs. Banks. The CHLA is a trade association that represents non-bank lenders, so the chart has to be read in that context. The side-by side-chart compares the regulation of non-banks to banks under a variety of statutes and regulations. By way of example, the chart leads off with the following (click on the chart to see it better):
The chart emphasizes all the ways that non-banks are regulated where banks are exempt as well as all of the ways that they are regulated in the identical manner. Given that this is an advocacy document, it only mentions in passing the ways that banks are governed by various little things like “generic bank capital standards” and safety and soundness regulators. That being said, it is still good to look through the chart to see how non-bank regulation has been increasing since the passage of Dodd-Frank.
