Mel Watt, the Director of the Federal Housing Finance Agency, used his first major public address since taking office to signal a change of direction in regulation of Fannie Mae and Freddie Mac. Overall, the changes indicate an agency focused on maintaining liquidity and stability in the mortgage markets, with far less emphasis on laying groundwork for large-scale return of private capital.In several areas, Director Watt noted concerns about rental affordability, foreclosure prevention, and neighborhood stabilization that motivated policy choices.
Highlights from Director Watt’s speech (see the full prepared text):
- Foreclosure prevention: GSEs will maintain existing efforts and refocus on “in the money” borrowers already eligible for HARP, although with no expansion of HARP eligibility.
- Multifamily affordable housing: Noting that affordable rental housing is an area of critical concern, FHFA will not require a reduction in multifamily production by the GSEs (a change of policy in line with comments submitted by NHC), although Director Watt expects market forces to naturally reduce that role in 2014.He signaled an expanded focus on affordable rental housing, small multifamily, and rental manufactured housing communities to address the great need for affordable housing.
- Neighborhood stabilization: FHFA announced a pilot Neighborhood Stabilization Initiative with Fannie Mae, Freddie Mac and the National Community Stabilization Trust, starting in Detroit, Mich., that will include deeper loan modifications and partnering with nonprofits earlier in the REO sales process.
- Reps and warrants: To encourage lenders to open up the credit box and reduce overlays, FHFA announced it will “relax the payment history requirement for granting representation and warranty relief by allowing two delinquent payments in the first 36 months after acquisition. Lenders will also get loan level confirmations when mortgages meet this performance benchmark and when they pass a quality control review. The Enterprises will also eliminate automatic repurchases when a loan’s primary mortgage insurance is rescinded.”
- Loan limits: FHFA will not reduce loan limits for single-family lending.
- Reduce government’s credit risk exposure: FHFA will triple the amount of risk transfers that shift credit risk away from government and onto private entities from $30 billion to $90 billion in 2014.
- Common securitization platform: The focus will shift to building a platform designed for Fannie Mae and Freddie Mac securities, implying less focus on building an infrastructure to serve private securitizations as well.
Notably absent from the speech was any mention of the National Housing Trust Fund or the Capital Magnet Fund, which await funding from a fee charged to Fannie Mae and Freddie Mac that was suspended at the beginning of conservatorship.