BPC on Housing Finance Reform
At
October 24th’s Bipartisan Policy Center event entitled “Getting Our House in
Order: Solving the Lingering Issues of the Housing Recession” lawmakers,
commissioners, and experts discussed the current and future state of the
housing market and housing finance reform.
Consumer
Education
In
the event’s first discussion, Gail Hillebrand, Associate Director of Consumer
Education and Engagement Division at the Consumer Financial Protection Bureau
(CFPB), noted that new mortgage rules combined with existing regulation and
oversight will allow borrowers to take control of their mortgage process and
will require lenders to make a good faith determination of a borrower’s ability
to pay.
She
noted that the CFPB is engaged in a “Know Before You Owe” campaign to raise
customer awareness and financial literacy, and has come up with new servicing
rules that would require standards around the ability of customers to report
errors.
GSE
Reform Prospects
The first panel discussion focused on the
problems and possibilities of government sponsored enterprise (GSE) reform
proposals. Moderator, Nick Timiraos, Wall Street Journal, noted that the
Senate Banking Committee seems to be “where the action is” for GSE
reform legislation and asked the panel what the odds are of a bill clearing
either the Senate or House and getting to the President’s desk.
Dwight Fettig, Partner, Porterfield,
Lowenthal & Fettig, stated that the extensive work in the Senate Banking
Committee, including a multitude of hearings and bipartisan meetings, suggests
“very real effort” and increases the chances of having successful
legislation. He added however than even it a bill can pass through Committee it
may have difficulty on the Senate floor due to polarization of the political
parties after the shutdown.
Fettig also said that the voices calling for
incremental change are getting louder and that is seems to be only a “political
need” to completely get rid of Fannie Mae and Freddie Mac.
Jason Gold, Progressive Policy Institute,
stated that he preferred the “mend, don’t end” approach to GSE reform
and cautioned that any legislation should not be “jammed through”
Congress, as any changes to the market structure are untested in practical
terms.
Alex Pollok, American Enterprise Institute,
said he believed that GSE legislation would continue to be debated in 2014, and
recommended that the level of government involvement ultimately be 20 percent
of the market with the private sector taking the other 80 percent.
Richard Smith, Realology Holdings, said he
thinks legislation “has no chance” of passing in the coming year, due
to GSE reform’s controversial nature and the politics of midterm elections. He
predicted that legislation will not be passed until the next Presidential
administration. He added, however, that the process going on now is laying the
foundation so that when the appropriate time is reached, the process can be
completed more quickly.
Timiraos then asked what in the system is
broken and should be addressed first. Bob Ryan, Wells Fargo, said he
would operate on the premise that some things do not need to be fixed, noting
that the qualified mortgage (QM) rules have done a lot to constrain “out of
control underwriting” and improve credit standards. The problem during
the crisis, he said, was that there was not enough capital to absorb losses,
and suggested that minimum capital requirements be determined by regulators not
through legislative actions. He added that “more completion” should be
introduced into the market by forming a single security and that a regulator
should be allowed to charter other guarantors.
Smith followed up, saying that the private
sector will not enter the market until the “rules of engagement” are in place
and suggested that regulators and lawmakers focus on underwriting standards and
exotically structured mortgage products.
Pollock added that the main problem stems
from the link being broken between creating risk and bearing that risk, and
that in the current structure, taxpayers and the GSEs bear all of the
risk. He said that more “skin in the game” is needed in addition to
representations (reps) and warrantees and regulations should be countercyclical
and focus on loan to value down payment ratios.
Timiraos
then asked if a government guarantee should be explicit. The panel agreed
that if the new system moving forward has a government guarantee, it should be
explicit. Smith then recommended that the government be put “lower on the
food chain” than it currently is for any losses.
When
asked if new guarantor entities should be owned by private shareholders or
arranged in a mutual or co-op structure, Ryan said he preferred the shareholder
option, while Pollock said there is “something to think about” in a mutually
owned structure.
On
the problem of capitalizing issuers and guarantors, Ryan said that it is “not
clear” who will come in and provide capital thus making the transition period
to any new system critical. Gold followed up saying that this problem of
not knowing where the capital will come from is more reason to reform the
current structure which has been in place for 70 years, rather than create an
entirely new system.
Keynote
– Carol Galante
Federal
Housing Administration (FHA) Commissioner, Carol Galante, began her remarks by
noting that “the last thing the housing market needed” was the uncertainty
brought about by the government shutdown and expressed the “need to get on with
the business” of housing finance reform. She added that the shutdown “hurt real
people across the country” as quality assurance and risk management departments
were inactive.
Galante
said that, since the financial crisis, access to credit has been severely
constricted and the most important task of the FHA is to provide clarity for lenders
to encourage and expand access to credit and help the mortgage market grow
faster. She said the first step in the process will be to update the
“single family handbook” by reconciling about 1,000 separate mortgage letters
to provide comprehensive “rules of the road” to lenders.
Galante
stated that the FHA has been reducing its footprint in the market and is
currently at pre-crisis levels in terms of the volume of mortgages they gave on
their books. While she noted there is a need for more private sector
involvement in the market, Galante said that the government should play a
supporting role by standing behind private capital and lending to borrowers who
are not served by the private market. She also suggested the use of
automatic triggers as a counter cyclical mechanism, rather than to rely on
Congressional action for things such as raising the loan limits.
Galante
concluded that reforms to the FHA should include: having the right tools to act
quickly and effectively; allowing the FHA to propose rules through letters and
act while going through the rulemaking process; acquiring and properly
compensating specialized staff in their risk management office; and having
greater control over their resources.
In
answering a questions from the audience, Galante said that there is anecdotal
evidence that removing credit overlays is causing the average credit score to
decrease and that paying premiums on an annual basis is better than paying them
upfront.
GSE
Plans and Proposals – Part One
Governor
Frank Keating, President of the American Bankers Association (ABA), stated in
his opening remarks that the 43 percent debt to income ration with QM “is a
high fence to climb for many Americans” and would lead to diminished home
ownership. He said he would like to see the FHA “return to its original
mission” of helping only first time home buyers.
Senator
Mark Warner (D-Va.) said that his GSE reform bill builds off the suggestion put
forth by the Bipartisan Policy Center and he is willing to take his “starting
point” and improve upon it moving forward. He said a housing finance
market where only the private sector was present, would “destroy the 30-year
fixed” mortgage, but that the “status quo” of a totally government driven
market needs to be changed. Warner said his bill “unpacks the status quo” and
“segregates the functions” of government involvement into different
roles. He recommended the use of common reps and warrantees, common
securitization, and a common utility function.
On
his proposal of setting a 10 percent level for first loss, private at risk
capital, Warner said that he doesn’t think it is too high as “Wall Street will
figure out a way to tranche” and price the first losses at different rates of
return.
He
also noted there is an “appropriate role” for rental housing support and
suggested creating a fund with a fee or tax of 5-10 basis points (bps) attached
to any government guaranteed mortgage.
Warner
also said that his bill is “too silent” on multi-family housing and that work
is needed to address the servicing sector.
When
asked how his plan would affect mortgage rates, Warner cited figures provided
by Moody’s Mark Zandi that said the plan would increase interest rates by 40-60
bps.
On
the likelihood of a bill passing the House of Representatives, Warner replied
that the PATH Act, sponsored by Rep. Jeb Hensarling (R-Texas), is a “good
economic exercise” but hoped that is the Senate was able to pass a bipartisan
bill; the House would be willing to take it up.
Keating
noted that Hensarling wishes to get legislation to the conference stage to
allow for debate on the areas of conflict.
GSE
Plans and Proposals – Part Two
Rep.
Randy Neugebauer (R-Texas.), in his opening remarks, said that the PATH Act was
written on the premise that the housing finance system is broken, and seeks to
reform the housing system by reducing the footprint of the GSEs. More
specifically, he said the legislation seeks to: 1) wind down Fannie Mae and
Freddie Mac over 5 years; 2) make the FHA healthier and bring it back to its
original mission; 3) bring in more private capital; and 4) create market
discipline.
Jim
Millstein, Millstein & Co, in his remarks, said that there is “no political
appetite to restructure” the GSEs, but that he is scared by the “uniformity” of
the view that they should be wound down. He noted that the GSEs provide funding
for 3/5ths of mortgages and expressed doubt that “if you build it, they will
come,” noting that the system would need half a trillion dollars of first loss
capital without a government guarantee, under the PATH Act. He said if
this system was put in place and the capital was not there, another housing
crisis would occur and there would be discontinuity of credit.
Millstein
suggested that instead of winding down the GSEs reform should include: 1)
recapitalizing the GSEs; 2) ripping up their government charter; 3)
reincorporating and recapitalizing the mortgage guarantee business; 4) winding
down their portfolio; and 5) charging a fee for the government guarantee.
When
asked what gives him the confidence that the private capital will be there in
the new system, Neugebauer replied that he cannot know for sure if it will be
there, but noted it has been there in the past and thinks it is likely to
return. Millstein added that increasing the G-fee could “crowd-in” more private
sector capital, but many investors will be hesitant since they lost so much
during the crisis.
In
response to a question on what would happen in another economic downturn under
the new system, Neugebauer said that the Federal Reserve has stepped in, in the
past, but that having more market discipline will lead to more moderate peaks
and troughs.
On
separating Fannie and Freddie from a government guarantee, Millstein said that
it is possible to do, as long as the government guarantee is realized and “kept
at arm’s length.” He added that the “re-insurance idea makes a lot of sense”
and should be modeled off the Federal Deposit Insurance Corporation system.
When
asked if homebuilders and realtors would be “vigorously against” his approach,
Neugebauer replied “what’s good for the country is what’s good for homeowners”
and the housing market. He added that it “comes down to who you want to control
the housing market, government or the private market.”
Millstein
added that if the housing market was entirely private, more risk would be
concentrated in the banking sector.
On
the chances of the GSE bills coming out of conference, Neugebauer said that he
thinks the House will have the “appetite” to test this based on the tallies
from the Senate and House floor votes, adding that this process will be
important to “move the ball down the road.”
When
asked what role local jurisdictions should play in assisting borrowers with
down payments, Neugebauer said that it is not the government’s role to make
home ownership an entitlement, but is should be an opportunity.
Keynote
– Edward DeMarco
In
his keynote address, Federal Housing Finance Agency (FHFA) Acting Director
Edward DeMarco, stated that in the five years since the GSEs went into
conservatorship: 1) the secondary mortgage market has continued to function; 2)
the GSE’s financial positions have stabilized; 3) progress has been made
resolving the pre-conservatorship book of business; 4) foreclosure prevention
and refinancing options were provided; and 5) a process of building for a
future housing finance system through the Federal Housing Finance Agency (FHFA)
Strategic Plan for Enterprise Conservatorships (Strategic Plan) has begun.
He
said that while the recent profitability of the GSEs is good news, it must be
put into perspective as much of the success is due to onetime measures such as:
the reversal of the valuation allowance against the deferred tax asset, or
releases of loan loss reserves related to improved housing market conditions.
DeMarco also noted that the single-family mortgage market remains heavily
supported by taxpayers and the Obama Administration has “made clear” it intent
to wind down the GSEs.
While
credit quality of the GSE’s book of business is “quite good” he stated that it
does not alter the fact that the “GSE business model remains broken.” He said
the FHFA will soon establish multi-year targets for Fannie Mae and Freddie Mac
to further achieve the three strategic goals of: 3) contracting the GSE’s
footprint; 2) maintaining market liquidity; and 3) continuing borrower
assistance.
DeMarco
added that this will be done by: 1) contemplating which GSE activities are
likely to be part of the future secondary market; 2) reducing risk exposure
across all lines of business; and 3) attracting capital back into the mortgage
market.
On
the single-family guarantee business, DeMarco said the GSE’s market presence
should be reduced gradually over time through risk-sharing transactions, increased
guarantee fees on new mortgages, and reducing the maximum size of loans that
the Enterprises guarantee. DeMarco also noted the FHFA will announce the 2014
conforming loan limits in late November. He added that the FHFA expects to give
market participants at least six months’ notice of any change and that any
reduction would be across the board, not just in some parts of the country.
On
multi-family housing, DeMarco said the FHFA established a goal that Fannie Mae
and Freddie Mac would contract their multifamily activity by 10 percent from
2012 levels and that the market appears to have absorbed this reduction without
major disruption.
On
the GSEs retained portfolio, Demarco noted that they have been steadily
declining since 2009, but have changed and become less liquid. To address this
issue and further reduce risk in the Enterprises’ retained portfolios in 2013,
he said the FHFA set a target of selling five percent of the less liquid
portion of their retained portfolios, or their retained portfolios excluding
agency securities.
Looking
forward, DeMarco said that housing reform should consider the structure of
entire housing market and that housing reform legislation from Sens. Bob Corker
(R-Tenn.) and Warner and the PATH Act, are “worthy of serious consideration.”
In
closing, he said he is very pleased that both legislative efforts have
recognized the important work that FHFA has undertaken to develop a new
secondary mortgage infrastructure and that both bills include the Common
Securitization Platform as part of the new housing finance system.
“This
is a positive step forward, but we need more progress because a government-run
conservatorship is not a sustainable long-term operating structure,” DeMarco
said.
For
more information on this event and to view a webcast, please click here.
,Blog Tags:,Blog Categories:,Blog TrackBack:,Blog Pingback:No,Hearing Summaries Issues:Housing,Hearing Summaries Agency:Special Event,Publish Year:2013
At
October 24th’s Bipartisan Policy Center event entitled “Getting Our House in
Order: Solving the Lingering Issues of the Housing Recession” lawmakers,
commissioners, and experts discussed the current and future state of the
housing market and housing finance reform.
Consumer
Education
In
the event’s first discussion, Gail Hillebrand, Associate Director of Consumer
Education and Engagement Division at the Consumer Financial Protection Bureau
(CFPB), noted that new mortgage rules combined with existing regulation and
oversight will allow borrowers to take control of their mortgage process and
will require lenders to make a good faith determination of a borrower’s ability
to pay.
She
noted that the CFPB is engaged in a “Know Before You Owe” campaign to raise
customer awareness and financial literacy, and has come up with new servicing
rules that would require standards around the ability of customers to report
errors.
GSE
Reform Prospects
The first panel discussion focused on the
problems and possibilities of government sponsored enterprise (GSE) reform
proposals. Moderator, Nick Timiraos, Wall Street Journal, noted that the
Senate Banking Committee seems to be “where the action is” for GSE
reform legislation and asked the panel what the odds are of a bill clearing
either the Senate or House and getting to the President’s desk.
Dwight Fettig, Partner, Porterfield,
Lowenthal & Fettig, stated that the extensive work in the Senate Banking
Committee, including a multitude of hearings and bipartisan meetings, suggests
“very real effort” and increases the chances of having successful
legislation. He added however than even it a bill can pass through Committee it
may have difficulty on the Senate floor due to polarization of the political
parties after the shutdown.
Fettig also said that the voices calling for
incremental change are getting louder and that is seems to be only a “political
need” to completely get rid of Fannie Mae and Freddie Mac.
Jason Gold, Progressive Policy Institute,
stated that he preferred the “mend, don’t end” approach to GSE reform
and cautioned that any legislation should not be “jammed through”
Congress, as any changes to the market structure are untested in practical
terms.
Alex Pollok, American Enterprise Institute,
said he believed that GSE legislation would continue to be debated in 2014, and
recommended that the level of government involvement ultimately be 20 percent
of the market with the private sector taking the other 80 percent.
Richard Smith, Realology Holdings, said he
thinks legislation “has no chance” of passing in the coming year, due
to GSE reform’s controversial nature and the politics of midterm elections. He
predicted that legislation will not be passed until the next Presidential
administration. He added, however, that the process going on now is laying the
foundation so that when the appropriate time is reached, the process can be
completed more quickly.
Timiraos then asked what in the system is
broken and should be addressed first. Bob Ryan, Wells Fargo, said he
would operate on the premise that some things do not need to be fixed, noting
that the qualified mortgage (QM) rules have done a lot to constrain “out of
control underwriting” and improve credit standards. The problem during
the crisis, he said, was that there was not enough capital to absorb losses,
and suggested that minimum capital requirements be determined by regulators not
through legislative actions. He added that “more completion” should be
introduced into the market by forming a single security and that a regulator
should be allowed to charter other guarantors.
Smith followed up, saying that the private
sector will not enter the market until the “rules of engagement” are in place
and suggested that regulators and lawmakers focus on underwriting standards and
exotically structured mortgage products.
Pollock added that the main problem stems
from the link being broken between creating risk and bearing that risk, and
that in the current structure, taxpayers and the GSEs bear all of the
risk. He said that more “skin in the game” is needed in addition to
representations (reps) and warrantees and regulations should be countercyclical
and focus on loan to value down payment ratios.
Timiraos
then asked if a government guarantee should be explicit. The panel agreed
that if the new system moving forward has a government guarantee, it should be
explicit. Smith then recommended that the government be put “lower on the
food chain” than it currently is for any losses.
When
asked if new guarantor entities should be owned by private shareholders or
arranged in a mutual or co-op structure, Ryan said he preferred the shareholder
option, while Pollock said there is “something to think about” in a mutually
owned structure.
On
the problem of capitalizing issuers and guarantors, Ryan said that it is “not
clear” who will come in and provide capital thus making the transition period
to any new system critical. Gold followed up saying that this problem of
not knowing where the capital will come from is more reason to reform the
current structure which has been in place for 70 years, rather than create an
entirely new system.
Keynote
– Carol Galante
Federal
Housing Administration (FHA) Commissioner, Carol Galante, began her remarks by
noting that “the last thing the housing market needed” was the uncertainty
brought about by the government shutdown and expressed the “need to get on with
the business” of housing finance reform. She added that the shutdown “hurt real
people across the country” as quality assurance and risk management departments
were inactive.
Galante
said that, since the financial crisis, access to credit has been severely
constricted and the most important task of the FHA is to provide clarity for lenders
to encourage and expand access to credit and help the mortgage market grow
faster. She said the first step in the process will be to update the
“single family handbook” by reconciling about 1,000 separate mortgage letters
to provide comprehensive “rules of the road” to lenders.
Galante
stated that the FHA has been reducing its footprint in the market and is
currently at pre-crisis levels in terms of the volume of mortgages they gave on
their books. While she noted there is a need for more private sector
involvement in the market, Galante said that the government should play a
supporting role by standing behind private capital and lending to borrowers who
are not served by the private market. She also suggested the use of
automatic triggers as a counter cyclical mechanism, rather than to rely on
Congressional action for things such as raising the loan limits.
Galante
concluded that reforms to the FHA should include: having the right tools to act
quickly and effectively; allowing the FHA to propose rules through letters and
act while going through the rulemaking process; acquiring and properly
compensating specialized staff in their risk management office; and having
greater control over their resources.
In
answering a questions from the audience, Galante said that there is anecdotal
evidence that removing credit overlays is causing the average credit score to
decrease and that paying premiums on an annual basis is better than paying them
upfront.
GSE
Plans and Proposals – Part One
Governor
Frank Keating, President of the American Bankers Association (ABA), stated in
his opening remarks that the 43 percent debt to income ration with QM “is a
high fence to climb for many Americans” and would lead to diminished home
ownership. He said he would like to see the FHA “return to its original
mission” of helping only first time home buyers.
Senator
Mark Warner (D-Va.) said that his GSE reform bill builds off the suggestion put
forth by the Bipartisan Policy Center and he is willing to take his “starting
point” and improve upon it moving forward. He said a housing finance
market where only the private sector was present, would “destroy the 30-year
fixed” mortgage, but that the “status quo” of a totally government driven
market needs to be changed. Warner said his bill “unpacks the status quo” and
“segregates the functions” of government involvement into different
roles. He recommended the use of common reps and warrantees, common
securitization, and a common utility function.
On
his proposal of setting a 10 percent level for first loss, private at risk
capital, Warner said that he doesn’t think it is too high as “Wall Street will
figure out a way to tranche” and price the first losses at different rates of
return.
He
also noted there is an “appropriate role” for rental housing support and
suggested creating a fund with a fee or tax of 5-10 basis points (bps) attached
to any government guaranteed mortgage.
Warner
also said that his bill is “too silent” on multi-family housing and that work
is needed to address the servicing sector.
When
asked how his plan would affect mortgage rates, Warner cited figures provided
by Moody’s Mark Zandi that said the plan would increase interest rates by 40-60
bps.
On
the likelihood of a bill passing the House of Representatives, Warner replied
that the PATH Act, sponsored by Rep. Jeb Hensarling (R-Texas), is a “good
economic exercise” but hoped that is the Senate was able to pass a bipartisan
bill; the House would be willing to take it up.
Keating
noted that Hensarling wishes to get legislation to the conference stage to
allow for debate on the areas of conflict.
GSE
Plans and Proposals – Part Two
Rep.
Randy Neugebauer (R-Texas.), in his opening remarks, said that the PATH Act was
written on the premise that the housing finance system is broken, and seeks to
reform the housing system by reducing the footprint of the GSEs. More
specifically, he said the legislation seeks to: 1) wind down Fannie Mae and
Freddie Mac over 5 years; 2) make the FHA healthier and bring it back to its
original mission; 3) bring in more private capital; and 4) create market
discipline.
Jim
Millstein, Millstein & Co, in his remarks, said that there is “no political
appetite to restructure” the GSEs, but that he is scared by the “uniformity” of
the view that they should be wound down. He noted that the GSEs provide funding
for 3/5ths of mortgages and expressed doubt that “if you build it, they will
come,” noting that the system would need half a trillion dollars of first loss
capital without a government guarantee, under the PATH Act. He said if
this system was put in place and the capital was not there, another housing
crisis would occur and there would be discontinuity of credit.
Millstein
suggested that instead of winding down the GSEs reform should include: 1)
recapitalizing the GSEs; 2) ripping up their government charter; 3)
reincorporating and recapitalizing the mortgage guarantee business; 4) winding
down their portfolio; and 5) charging a fee for the government guarantee.
When
asked what gives him the confidence that the private capital will be there in
the new system, Neugebauer replied that he cannot know for sure if it will be
there, but noted it has been there in the past and thinks it is likely to
return. Millstein added that increasing the G-fee could “crowd-in” more private
sector capital, but many investors will be hesitant since they lost so much
during the crisis.
In
response to a question on what would happen in another economic downturn under
the new system, Neugebauer said that the Federal Reserve has stepped in, in the
past, but that having more market discipline will lead to more moderate peaks
and troughs.
On
separating Fannie and Freddie from a government guarantee, Millstein said that
it is possible to do, as long as the government guarantee is realized and “kept
at arm’s length.” He added that the “re-insurance idea makes a lot of sense”
and should be modeled off the Federal Deposit Insurance Corporation system.
When
asked if homebuilders and realtors would be “vigorously against” his approach,
Neugebauer replied “what’s good for the country is what’s good for homeowners”
and the housing market. He added that it “comes down to who you want to control
the housing market, government or the private market.”
Millstein
added that if the housing market was entirely private, more risk would be
concentrated in the banking sector.
On
the chances of the GSE bills coming out of conference, Neugebauer said that he
thinks the House will have the “appetite” to test this based on the tallies
from the Senate and House floor votes, adding that this process will be
important to “move the ball down the road.”
When
asked what role local jurisdictions should play in assisting borrowers with
down payments, Neugebauer said that it is not the government’s role to make
home ownership an entitlement, but is should be an opportunity.
Keynote
– Edward DeMarco
In
his keynote address, Federal Housing Finance Agency (FHFA) Acting Director
Edward DeMarco, stated that in the five years since the GSEs went into
conservatorship: 1) the secondary mortgage market has continued to function; 2)
the GSE’s financial positions have stabilized; 3) progress has been made
resolving the pre-conservatorship book of business; 4) foreclosure prevention
and refinancing options were provided; and 5) a process of building for a
future housing finance system through the Federal Housing Finance Agency (FHFA)
Strategic Plan for Enterprise Conservatorships (Strategic Plan) has begun.
He
said that while the recent profitability of the GSEs is good news, it must be
put into perspective as much of the success is due to onetime measures such as:
the reversal of the valuation allowance against the deferred tax asset, or
releases of loan loss reserves related to improved housing market conditions.
DeMarco also noted that the single-family mortgage market remains heavily
supported by taxpayers and the Obama Administration has “made clear” it intent
to wind down the GSEs.
While
credit quality of the GSE’s book of business is “quite good” he stated that it
does not alter the fact that the “GSE business model remains broken.” He said
the FHFA will soon establish multi-year targets for Fannie Mae and Freddie Mac
to further achieve the three strategic goals of: 3) contracting the GSE’s
footprint; 2) maintaining market liquidity; and 3) continuing borrower
assistance.
DeMarco
added that this will be done by: 1) contemplating which GSE activities are
likely to be part of the future secondary market; 2) reducing risk exposure
across all lines of business; and 3) attracting capital back into the mortgage
market.
On
the single-family guarantee business, DeMarco said the GSE’s market presence
should be reduced gradually over time through risk-sharing transactions, increased
guarantee fees on new mortgages, and reducing the maximum size of loans that
the Enterprises guarantee. DeMarco also noted the FHFA will announce the 2014
conforming loan limits in late November. He added that the FHFA expects to give
market participants at least six months’ notice of any change and that any
reduction would be across the board, not just in some parts of the country.
On
multi-family housing, DeMarco said the FHFA established a goal that Fannie Mae
and Freddie Mac would contract their multifamily activity by 10 percent from
2012 levels and that the market appears to have absorbed this reduction without
major disruption.
On
the GSEs retained portfolio, Demarco noted that they have been steadily
declining since 2009, but have changed and become less liquid. To address this
issue and further reduce risk in the Enterprises’ retained portfolios in 2013,
he said the FHFA set a target of selling five percent of the less liquid
portion of their retained portfolios, or their retained portfolios excluding
agency securities.
Looking
forward, DeMarco said that housing reform should consider the structure of
entire housing market and that housing reform legislation from Sens. Bob Corker
(R-Tenn.) and Warner and the PATH Act, are “worthy of serious consideration.”
In
closing, he said he is very pleased that both legislative efforts have
recognized the important work that FHFA has undertaken to develop a new
secondary mortgage infrastructure and that both bills include the Common
Securitization Platform as part of the new housing finance system.
“This
is a positive step forward, but we need more progress because a government-run
conservatorship is not a sustainable long-term operating structure,” DeMarco
said.
For
more information on this event and to view a webcast, please click here.