The Federal Housing Finance Agency – regulator to troubled housing enterprises Fannie Mae and Freddie Mac – on Tuesday issued a significantly revised strategy for the companies’ operations meant to jumpstart lawmakers’ reform efforts and lead to a mortgage finance market dominated by the private sector, not government.
The plan reflects FHFA Acting Director Edward DeMarco’s frustration with the unwillingness of Congress or the White House to advance any plan to restructure the housing finance system. FHFA’s plans are meant as a first step, DeMarco told National Journal in an interview ahead of the announcement, and they could unlock a stalled policy debate that has major implications for the future of homeownership, especially if lawmakers or the Obama administration wants to move the government-sponsored enterprises in another direction.
Under the new strategy, FHFA would pave the way to a single securitization platform, forcing the GSEs to abandon their systems and build a single infrastructure to support the mortgage credit business – including mortgage servicing agreements and requirements placed on companies that service mortgages. This would yield a single GSE mortgage-backed security.
The second goal under DeMarco’s revised strategy is to reduce the GSEs’ presence in the market, replacing it with private-sector participation. Under the plan, this would be partially accomplished by shifting mortgage credit risk to the private sector through increased guarantee fees, loss-sharing arrangements that require private investors to bear most or even all of the risk, and expanded reliance on mortgage insurance.
FHFA also plans to start studies on eliminating the GSEs’ role in the multifamily market, where the private sector has a stronger hold than it does in the single-family sector.
“It’s time to say OK, what are the goals going forward?” DeMarco told National Journal. “This fits within our responsibility to tell the American people, look this thing has taken a lot of time and money from taxpayers, where is this going and is there something positive that can come from this.”