Category: GSE Reform

Fannie, Freddie Regulator to Propose New Affordable Housing Rules, Takes Steps Away from LIBOR and Toward Privatization of GSEs

Posted on by Trey Jackson

Mark-Calabria-RER_8953x475

The federal regulator of Fannie Mae and Freddie Mac – the Government Sponsored Enterprises (GSEs) who own or guarantee $5.6 trillion in single and multifamily mortgages – will propose new affordable housing requirements and duty-to-serve plans this year. 

  • Federal Housing Finance Agency Director Mark Calabria, above, told Politico this week that the regulator’s Division of Research and Statistics will first study how effective the current rules have been, which expire at the end of 2020.   “I don’t know whether they’ve (the requirements) made a difference in getting anybody into a home who wouldn’t have been otherwise; I mean unless you have a strong evaluative function, how do you know whether what you’re doing makes a difference?” Calabria said.    (PoliticoPro, Feb. 10)
  • Calabria also discussed the timeline for when Fannie and Freddie will stop acquiring adjustable rate mortgages tied to the London Interbank Offered Rate (LIBOR) as loans will begin to be tied to the Secured Overnight Financing Rate (SOFR) as the global benchmark for interest rates.  FHFA’s steps away from LIBOR will include:

*  New language will be required for single-family Uniform Adjustable Rate Mortgage (ARM) instruments closed on or after June 1, 2020;  

*  All LIBOR-based single-family and multifamily ARMs must have loan application dates on or before September 30, 2020 to be eligible for acquisition; and,

*  Acquisitions of single-family and multifamily LIBOR ARMs will cease on or before December 31, 2020.

  • “These steps represent important milestones in the Enterprises’ transition away from LIBOR to a more robust reference rate.  We will continue to monitor exposure to LIBOR and ensure the Enterprises manage the risks associated with the transition in a safe and sound manner,” said Calabria.  (FHFA news release, Feb. 5)
  • FHFA also continues to take steps toward recapitalizing Fannie and Freddie before returning the GSEs to private ownership after their $190 billion government bailout in 2008.  Calabria announced on Feb. 3 that FHFA has selected Houlihan Lokey Capital, Inc. as a financial advisor to assist in the development and implementation of a roadmap to responsibly end the GSEs conservatorships. 
  • Houlihan Lokey will consider business and capital structures, market impacts and timing, and available capital raising alternatives, among other items as outlined in a previously published Statement of Work.

  • “Hiring a financial advisor is a significant milestone toward ending the conservatorships of the Enterprises,” Calabria said. “The next major milestone for FHFA is the re-proposal of the capital rule, which will happen in the near future.”  (FHFA news release, Feb. 3)
  • Director Calabria spoke during The Real Estate Roundtable’s Jan. 28, 2020 State of the Industry Meeting in Washington.  He addressed his agency’s need to responsibly privatize Fannie and Freddie while ensuring sufficient private capital is in place to protect taxpayers, along with access to affordable rental housing.

The Roundtable wrote to the leadership of the Senate Committee on Banking, Housing and Urban Affairs in September 2019 regarding reform of the nation’s house finance system.  The letter notes the Treasury Department’s constructive proposal for both legislative and administrative reforms to the government-sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, and urges both Treasury and the FHFA to work with Congress to end conservatorship through comprehensive, bipartisan, legislative reforms.  (Roundtable GSEs comment letter, Sept. 9, 2019)

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Trump Administration Allows Fannie, Freddie to Retain Earnings in Move Toward Privatization

Posted on by Trey Jackson

Fanne Mae and Freddie Mac logos

The Trump Administration took a key step on Sept. 30 to release Fannie Mae and Freddie Mac from conservatorship by allowing them to retain a total of $45 billion in earnings annually. (Wall Street Journal, Sept. 30)

  • Fannie and Freddie received $191 billion in government support during the financial crisis, but since entering conservatorship Sept. 6, 2008, they have paid the Treasury $292 billion in dividends, according to research from Keefe, Bruyette & Woods. (Reuters, March 27)
  • Under their modified governing agreements, Fannie Mae will now be allowed to retain $25 billion and Freddie Mac $20 billion annually (Bloomberg, Sept. 30)
  • The Treasury Department and Federal Housing Finance Agency (FHFA) jointly announced the modifications to the Government-Sponsored Enterprises’ (GSEs) Preferred Stock Purchase Agreements (PSPAs) – designed in the wake of the financial crisis to ensure Fannie and Freddie maintain positive net worth, meet outstanding obligations and continue providing liquidity to the multi-trillion dollar mortgage market.  (Fannie Mae Capital Agreement and Freddie Mac Capital Agreement)
  • “These modifications are an important step toward implementing Treasury’s recommended reforms that will define a limited role for the Federal Government in the housing finance system and protect taxpayers against future bailouts,” said U.S. Treasury Secretary Steven T. Mnuchin. (Treasury news release, Sept. 30)
  • FHFA Director Mark Calabria – Fannie and Freddie’s chief regulator – stated, “FHFA commits to working with Treasury in the coming months to amend the share agreements and further advance broader housing finance reform. These reform goals include limiting the government’s role in housing finance, increasing marketplace competition, focusing on affordable housing, and sustainable homeownership. The status quo is not an option. Now is the time to act.”
  • The Washington Post reported on Oct. 2 that Fannie, Freddie, and the Federal Housing Administration guarantee 33 percent more debt than before the housing crisis,  more than at any other point in U.S. history.
  • In Congress, Senate Banking Committee Chairman Mike Crapo (R-ID) on Feb. 1 released an outline for reforming the nation’s housing finance system, including the GSEs (Crapo Statement and Housing Reform Outline, Feb. 1).  At the end of March, Crapo’s committee held two days of hearings on reforming the multi-trillion dollar housing finance markets.  (Roundtable Weekly, March 29)

The Real Estate Roundtable and 27 industry organizations on March 1 submitted principles for reforming the GSEs.  The letter emphasized that compelling evidence must show the private market is capable of an expanded role before efforts are made to reduce the GSEs’ current housing finance footprint. “Ultimately, we believe any reform, be it administrative or legislative, must seek to further two key objectives: 1) preserving what works in the current system, while 2) maintaining stability by avoiding unintended adverse consequences for borrowers, lenders, investors, or taxpayers.”  (Roundtable Weekly, March 1)

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Industry Coalition Promotes GSE Reform Principles; Senate Banking Committee Advances New FHFA Director

Posted on by Trey Jackson

The Real Estate Roundtable and 27 other industry organizations today submitted principles for reforming the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac, which underpin the multi-trillion-dollar financial market for single-family and multifamily mortgages. (GSE Reform Coalition letter, March 1)

The Real Estate Roundtable and 27 other industry organizations today submitted principles for reforming the Government-Sponsored Enterprises (GSEs). 
  • “We believe that comprehensive legislative reform, including an end of conservatorship, is ultimately necessary in order to codify structural changes that ensure safety and soundness and provide the certainty needed for private capital to establish a more reliable presence in housing finance,” according to the comments.
  • The letter emphasized that compelling evidence must show the private market is capable of an expanded role before efforts are made to reduce the GSEs’ current housing finance footprint. “Ultimately, we believe any reform, be it administrative or legislative, must seek to further two key objectives: 1) preserving what works in the current system, while 2) maintaining stability by avoiding unintended adverse consequences for borrowers, lenders, investors, or taxpayers.”    
  • Fannie and Freddie recently announced they will pay a combined $4.7 billion in dividends to the U.S. Treasury Department.  The government took control of the two GSEs in September 2008 during the financial crisis.  (Reuters, Feb. 14)
  • The GSE coalition reform principles were sent to Acting Federal Housing Finance Agency (FHFA) Director Joseph Otting and Washington policymakers days after the Senate Banking Committee advanced the nomination of Mark Calabria as FHFA Director.  Calabria, currently chief economist to Vice President Mike Pence, would lead the agency that oversees the GSEs.  A vote to approve Calabria now moves to the full Senate, where it is expected to pass. (Housing Wire, Feb. 26 and Senate Banking Committee nomination hearing, Feb. 14) 
  • The coalition states in today’s letter that FHFA should establish policies that ensure a continuation or expansion of: 

    The  coalition states that FHFA should establish certain policies to support the continuation or expansion of a robust housing market.

     

    • A liquid national market with broad and fairly-priced access to affordable credit and improved infrastructure for the single-family secondary market;
    • Support for strong and sustained liquidity in the multifamily rental market;
    • Equal secondary market access and pricing for all lenders, regardless of size or volume; and
    • The sustainable transfer of appropriate credit risk to the private sector. 
  • The letter also advocates that principles governing any potential administrative reforms to the GSEs should be guided by the potential impact on borrowers, taxpayers, and market structure dynamics.  Any reform that would meaningfully alter the GSEs’ market presence-single-family, multifamily, or both-should also seek to maintain and enhance the stability and liquidity of the housing finance system.  (GSE Reform Coalition letter, March 1) 
  • Roundtable President and CEO Jeffrey DeBoer added, “Housing finance reform should support the GSE’s overall mission-ensure Americans across a broad range of income levels have access to a diverse supply of housing.” 

Senate Banking Committee Chairman Mike Crapo (R-ID) on Feb. 1 released an outline for reforming the nation’s housing finance system, including the GSEs. (Crapo Statement and Housing Reform Outline, Feb. 1 / Roundtable Weekly, Feb. 8)

Top Republican Unveils Bipartisan Housing Finance Reform Bill

Posted on by Trey Jackson

House Financial Services Committee Chairman Jeb Hensarling (R-TX) on Sept. 6 unveiled a sweeping proposal to overhaul the housing finance system in the United States during a hearing entitled, “A Failure to Act: How a Decade without GSE Reform Has Once Again Put Taxpayers at Risk.”

House Financial Services Committee Chairman Jeb Hensarling (R-TX) on Sept. 6 unveiled a sweeping proposal to overhaul the housing finance system in the United States during a hearing entitled, “A Failure to Act: How a Decade without GSE Reform Has Once Again Put Taxpayers at Risk.” 

(Hensarling statement on YouTube). 
  • This fall marks ten years since the height of the financial crisis, when the Government-Sponsored Enterprises (GSEs) Fannie Mae and Freddie Mac were placed into government conservatorship on September 6, 2008.  According to a committee summary of yesterday’s  hearing, “The subsequent financial bailout of Fannie Mae and Freddie Mac has required over $190 billion in taxpayers contributions to date, and taxpayers remain explicitly obliged to provide over $254 billion should future losses materialize.  Never intended as a permanent solution, the conservatorship continues ten years later.” 
  • The discussion draft of the “Bipartisan Housing Finance Reform Act of 2018” proposes to “repeal the GSEs’ charters, permanently ending their monopoly, and transition to a system that allows qualified mortgages backed by an approved private credit enhancer with regulated, diversified capital resources to access the explicit, full government securitization guarantee provided by Ginnie Mae,” according to Chairman Hensarling’s opening committee statement.  The bill is co-sponsored by Jim Hines (D-CT) and John Delaney (D-MD). 
  • In a Wall Street Journal Op-Ed, Hensarling further explained the proposal – “Loan originators would have to acquire coverage from an approved ‘credit enhancer,’ or private mortgage credit guarantor, to use the Ginnie Mae system. That would function as a private capital buffer on the loan, which could then be securitized by any of Ginnie Mae’s more than 400 approved issuers with an explicit, full government guarantee of mortgage-backed securities.” (Wall Street Journal Op-Ed, Sept. 6) 
  • The day before the hearing, a coalition of the housing industry’s largest trade groups and affordable housing advocates wrote to the Trump Administration and Congress to enact permanent reforms to the government-sponsored enterprises.  ( Coalition letter and HousingWire, Sept 5) 
  • A private sector solution to GSE reform was offered in a Sept. 4 Op-Ed in The Hill by Roundtable member Willy Walker, Chairman and CEO of Walker & Dunlop, one of the largest commercial real estate finance companies in the United States.
  • In his Op-Ed, Mr. Walker writes, “The GSEs’ multifamily lending businesses, where they back loans to owners of apartment buildings across the country, is the model that should be applied to all lending done by the GSEs. It’s the same role they play in financing single-family homes, but with a fundamental difference: In the multifamily business, private capital is required to take risk on every loan the GSEs guarantee, protecting the GSEs and taxpayers in the process.” (A fix for Fannie Mae and Freddie Mac already exists, Sept. 4) 
  • The proposed legislation has slim chances of advancing during an election year, yet Reps. Hensarling and Delaney said it could serve as a road map that lawmakers in the next Congress could use to push for GSE reform.  Hensarling is not running for re-election. (Bloomberg, Sept 6) 

Hensarling concluded his committee statement, “If the political will to enact such reform stalls in this Congress or the next, the Administration can and should effectuate change. The President will appoint a new Federal Housing Finance Agency Director in January. With apologies to The Rolling Stones, ‘you can’t always get what you want, but if you try some time, you just might find, you get what you need’ to avert the next housing crisis.”  (Hensarling statement on YouTube)