Tag Archives: GSE

The Duty to Serve Underserved Markets

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Riverview Homes Inc

The Federal Housing Finance Agency has issued a Notice of Proposed Rulemaking and Request for Comments regarding Enterprise Duty to Serve Underserved Markets.  The “Enterprises” are Fannie and Freddie and this duty to serve is a highly contested one, with some on the right blaming it for pretty much the whole financial crisis and some on the left arguing that it is the key rationale for keeping the government involved in the mortgage market.

This debate is complicated by the fact that Fannie and Freddie are in conservatorship for the foreseeable future. Whatever one believes the duty to serve should be for the two companies if they were operating independently, one might have a different view of it while they are operating as government instrumentalities.

The Notice provides the following summary:

The Housing and Economic Recovery Act of 2008 (HERA) amended the Federal Housing Enterprises Financial Safety and Soundness Act of 1992 (Safety and Soundness Act) to establish a duty for the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the Enterprises) to serve three specified underserved markets—manufactured housing, affordable housing preservation, and rural markets—to increase the liquidity of mortgage investments and improve the distribution of investment capital available for mortgage financing for very low-, low-, and moderate-income families in those markets. The Federal Housing Finance Agency (FHFA) is issuing and seeking comments on a proposed rule that would provide Duty to Serve credit for eligible Enterprise activities that facilitate a secondary market for mortgages related to: Manufactured homes titled as real property; blanket loans for certain categories of manufactured housing communities; preserving the affordability of housing for renters and homebuyers; and housing in rural markets. The proposed rule would establish a method for evaluating and rating the Enterprises’ compliance with the Duty to Serve each underserved market.

Written comments must be received on or before March 17, 2016, so get crackin’.

Thursday’s Advocacy & Think Tank Round-Up

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  • The National Association of Realtors (NAR)’s Existing Home Sales (EHS) (completed transactions).  EHS fell  10.5% from October and 3.8% from last November.  NAR believes this precipitous decline is not due to any decrease in demand but, rather, tight inventory and the Industry’s having to adjust to new “Know Before You Owe” mortgage disclosure rules.
  • Seeking Alpha blog’s about the evolving receivership of Fannie Mae and Freddie Mac.

Fannie/Freddie 2016 Scorecard

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Anne Madsen

The Federal Housing Finance Agency has posted the 2016 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions. The FHFA assesses the three entities using the following criteria, among others:

  • The extent to which each Enterprise conducts initiatives in a safe and sound manner consistent with FHFA’s expectations for all activities;
  • The extent to which the outcomes of their activities support a competitive and resilient secondary mortgage market to support homeowners and renters . . . (2)

The FHFA expects Fannie and Freddie to “Maintain, in a Safe and Sound Manner, Credit Availability and Foreclosure Prevention Activities for New and Refinanced Mortgages to Foster Liquid, Efficient, Competitive, and Resilient National Housing Finance Markets.” (3) The specifics are, unfortunately, not too specific when it comes to big picture issues like maintaining credit availability in a safe and sound manner, although the scorecard does discuss particular programs and policies like the Reps and Warranties Framework and the expiration of HAMP and HARP.

The FHFA also expects Fannie and Freddie to “Reduce Taxpayer Risk Through Increasing the Role of Private Capital in the Mortgage Market.” Here, the FHFA has more specifics, as it outlines particular risk transfer objects, such as requiring the Enterprises to transfer “credit risk on at least 90 percent of the unpaid principal balance of newly acquired single-family mortgages in” certain loan categories. (5)

The last goals relate to the building of the Common Securitization Platform and Single Security: Fannie and Freddie are to “Build a New Single-Family Infrastructure for Use by the Enterprises and Adaptable for Use by Other Participants in the Secondary Market in the Future.” (7) The FHFA us moving with all deliberate speed to reshape the secondary mortgage market in the face of indifference or gridlock in Congress.

The FHFA may implement the reform of Fannie and Freddie all by its lonesome. Maybe that’s the best result, given where Congress is these days.

 

Tuesday’s Regulatory & Legislative Round-Up

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  • Congress has finally passed the much awaited Tax extender’s legislation, H.R 2029 The Consolidated Appropriations Act, included is a win for affordable housing advocates – the nine percent minimum Low Income Housing Tax Credit was made permanent.
  • The Federal Housing Finance Agency (FHFA) has proposed a Duty to Serve Underserved Markets Rule, required by the Housing and Economic Recovery Act of 2008, which requires Fannie Mae and Freddie Mac (GSEs) to serve three underserved markets: Manufactured Housing, Affordable Housing Preservation and Rural Housing.  The GSEs would be required to establish and implement plans to serve each market and would receive duty to serve credits for success.  The proposal is open for comment until March 17, 2016.

Thursday’s Advocacy & Think Tank Round-Up

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  • The Federal Reserve Bank of NY’s Center for Microeconomic Data has released its 3rd quarter Household Debt and Credit Report which shows that Mortgage debt, the largest component of household debt, increased in by $144 billion since the 2nd quarter of 2015.  Balances on Home Equity Lines of Credit decreased by $7 billion.
  • The Mortgage Bankers Association (MBA) sent a letter to the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, proposing that advocating upfront risk sharing targets be set for 2016.  This proposal is prompted by FHFA’s near doubling of insurance fees, which are necessary to reduce the risks borne by the taxpayer when debtors default.  The MBA is advocating for private opportunity to compete in the insurance of these loans – which they say will lead to lower fees for borrowers as well.
  • The National Association of Realtors (NAR) has released its Pending Home Sales Index for October which inches up .2% to sustain 14 consecutive months of increase.  NAR also is predicting another housing boom for 2016.

Fannie, Freddie & The Affordable Housing Feint

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ShapiroPhoto

Robert J. Shapiro

kamarck_mm_duo

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

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  • 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.