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Countdown Begins for GSE Slow Down

by Houston Agent

The FHFA is attempting to slow down operations at the GSEs, but the White House has other plans in mind.

Save the Date! The Federal Housing Finance Agency (FHFA) has officially committed to a Dec. 31 end date for establishing a securitization plan for Fannie Mae and Freddie Mac, the long-troubled GSEs that the agency is slowly winding out of existence.

The confirmation comes after comments in February by FHFA Acting Director Edward DeMarco, who said in a letter to Congress that his agency would begin drafting plans to transfer the GSEs business to a new secondary mortgage market serviced by multiple firms.

“The absence of any meaningful secondary mortgage market mechanisms beyond the enterprises and Ginnie Mae is a dilemma for policymakers expecting to replace the (GSEs),” DeMarco said in the letter, as reprinted by HousingWire. “Without an alternative market infrastructure that investors could rely on, new mortgages would have been largely unavailable if the Enterprises suddenly had been shut down.”

DeMarco had been cloudy on the exact details of the plan, instead vaguely commenting on its complexity and laborious nature. In the FHFA’s Friday announcement, though, the FHFA has provided a roadmap for its eventual plans to reduce the GSEs presence (the two firms currently handle $5.7 trillion in mortgages), with Dec. 31 as the cutoff date.

According to a Mortgage Daily News brief, the FHFA’s plan is divided into four parts:

“1.      Build a New Infrastructure (30 percent).  This includes continued progress on or completion of market enhancement activities, development of a securitization platform and Pooling and Servicing Agreements.

2.      Contract the Enterprises’ dominant presence in the marketplace while simplifying and shrinking certain operations (30 percent).  This requires working with FHFA to develop options for shifting credit risk to private investors, risk sharing, and pricing.

3.      Maintain foreclosure prevention activities and credit available for new and refinanced mortgages (20 percent).  Loss mitigation is to include continued evolution of Servicer Alignment Initiative, enhancement of short sales, deeds in lieu, and deeds-for-lease programs, and facilitation of real estate sales (REO).

4.      Manage Efficiently in Support of Conservatorship Goals (20 percent).  This includes concluding litigation and loan repurchase claims, prioritizing and managing GSE goals, ensuring corporate governance procedures are maintained, and seeking and considering public input.”

As the Washington Post points out, though, there could be considerable conflict going forward between the FHFA and the White House regarding federal housing policy. The FHFA primarily intends on decreasing its mortgage footprint by raising fees on its GSE mortgages; by making its offerings more expensive, borrowers will be more inclined to take out private loans, and the FHFA can therefore slowly starve the GSEs’ resources and gradually wind them down.

The problem, though, is that the White House has called, with increasing regularity, for the FHFA to step up its involvement in the mortgage markets, and many Democratic lawmakers have been even more pronounced in their visions for the agency.

Quoted in the Post, DeMarco spoke to those irreconcilable differences.

“This is clearly one of the challenges that FHFA faces as conservator,” he said. “We’re getting a clear message about wind-down. At the same time, there are continuing to be calls for . . . Fannie and Freddie to do more.”

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