Fannie Mae-No Politics (FNMA)

[955]

TAKEOVER of housing finance by the FEDERAL RESERVE. Federal Reserve's continued involvement in the affairs of Fannie & Freddie well beyond statute limitations. Congress asleep at the switch? Nobody see a problem with this???

HERA 2008 authorizes sweeping consultations and sharing vital information regarding the capital, asset and liabilities,
financial condition, and risk management practices between FHFA Director and Board of Governors of the Federal Reserve, BUT ONLY UNTIL 31 DECEMBER 2009.

HERA 2008

SEC. 1118. CONSULTATION BETWEEN THE DIRECTOR OF THE FEDERAL
HOUSING FINANCE AGENCY AND THE BOARD OF GOVERNORS
OF THE FEDERAL RESERVE SYSTEM TO ENSURE
FINANCIAL MARKET STABILITY .
Subsection (a) of section 1313 of the Federal Housing Enterprises
Financial Safety and Soundness Act of 1992 (12 U.S.C. 4513),
as amended by the preceding provisions of this Act, is further
amended by adding at the end the following new paragraph:
‘‘(3) COORDINATION WITH THE CHAIRMAN OF THE BOARD
OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM.—
‘‘(A) CONSULTATION.— The Director shall consult with,
and consider the views of, the Chairman of the Board
of Governors of the Federal Reserve System, with respect
to the risks posed by the regulated entities to the financial
system, prior to issuing any proposed or final regulations,
orders, and guidelines with respect to the exercise of the
additional authority provided in this Act regarding prudential
management and operations standards, safe and sound
operations of, and capital requirements and portfolio standards
applicable to the regulated entities (as such term
is defined in section 1303). The Director also shall consult
with the Chairman regarding any decision to place a regulated
entity into conservatorship or receivership.
‘‘(B) INFORMATION SHARING.—To facilitate the consultative
process, the Director shall share information with
the Board of Governors of the Federal Reserve System
on a regular, periodic basis as determined by the Director
and the Board regarding the capital, asset and liabilities,
financial condition, and risk management practices of the
regulated entities as well as any information related to
financial market stability.
‘‘(C) TERMINATION OF CONSULTATION REQUIREMENT.—
The requirement of the Director to consult with the Board
of Governors of the Federal Reserve System under this
paragraph shall expire at the conclusion of December 31,
2009.’’.

https://www.gpo.gov/fdsys/pkg/PLAW-110publ289/pdf/PLAW-110publ289.pdf


Treasury TAKEOVER of housing finance:

Jeff Foster is Senior Policy Advisor, Capital Markets, U.S. Department of the Treasury Note the date of his email that follows is well after 31 December 2009. Also note the email is directed to the NY FEDERAL RESERVE BOARD.

From: Foster, Jeff
Sent: Monday, February 06, 2012 8:59 PM
To: Joseph Tracy ([e-mail]); [e-mail]
Subject: Draft Housing Finance Reform Proposal
Attachments: HFR 12512.doc

Joe/Trish - Good to see you tonight. Attached is the draft housing finance I GSE reform proposal. We have shared this with the Secretary. Would like to find a time to discuss with you in the next week or so. Hopefully this will be a good starting point for discussion.

Please keep this close for now, and let's discuss who else should potentially review and provide input.
Thx,
Jeff

https://assets.documentcloud.org/documents/2839971/Fannie-Mae-and-Freddie-Mac-Unsealed.pdf


Draft housing finance I GSE reform proposal referred to in the above email follows. Note heavy involvement of the Federal Reserve, A MAJOR RED FLAG!

HOUSING FINANCE REFORM - WORKING DRAFT PROPOSAL FOR COMMENT

There are a number of ways to structure a mortgage finance system that follows these principles and
supports the continued availability of mortgage credit, including long-term fixed rate mortgages.
The reform proposal detailed in this memo seeks to meet these principles in an effective and
balanced way. It builds upon discussions with you and a two-year interagency working group
process, which has included participation from Treasury, HUD, NEC, CEA, DPC, and input from
the Federal Reserve.
.
.
.
To support strong oversight, regulatory consistency and a level playing field with banks (including capital standards), PMGs (Private Mortgage Guarantors) would be chartered as a subsidiary of a Bank Holding Company (BHC).

PMGs would be subject to a dual regulatory mandate, with oversight provided by FHFA and the Federal Reserve (and potentially the Reinsurer, if it is a different entity). The BHC approach supports a more integrated and consolidated approach to oversight of the financial services sector and reduces capital and regulatory arbitrage opportunities. (The proposed regulatory framework is outlined in greater detail later in the memorandum.)
.
.
.
Regulatory Structure
• Joint FHFA/Federal Reserve oversight, similar to the FDIC/Federal Reserve structure for BHCs.
o FHFA provides specific oversight over PMG and their capital reserves, operations, etc.
o Federal Reserve provides oversight over BHC and overall capital standards and solvency.
o Reinsurer (if separate from FHFA) could provide an additional level of oversight.
• The BHC structure would be relied upon in part to ensure that capital standards and prudential regulations are not weakened in the future, and a level playing field between mortgage guarantors and the traditional banking sector is maintained.
.
.
.
FHFA's Regulatory Role
• FHFA would continue as an independent regulatory agency with an independent, Senate confirmed director. Changes would include:
o Stronger supervision and capital standards group,
o Stronger modeling, research, and analytics, and
o Market supervision and oversight of the Agency MBS market and the credit risk syndication securities market.
• FHFA, in conjunction with the Federal Reserve, would oversee the solvency and capital adequacy of PMGs. In the event of insolvency or inadequate capital, FHFA would act as the receiver of the troubled PMG.
o FHFA will follow resolution guidelines similar to the Orderly Liquidation Authority (OLA). The FDIC could also be relied upon to administer resolution proceedings.
o Specific resolution guidelines and processes (and their interaction with an IOI or BHC) will need to be discussed with the Federal Reserve and the FDIC.
• The stringency and uniformity of capital, liquidity, risk management and underwriting standards across PMGs will need to be carefully monitored by federal regulators.
o A void "race to the bottom" in standards to gain share.
o Ensure solvency through periods of stress.
.
.
.
Capital Standards and Risk Syndication
• Capital standards at the PMGs will be set jointly by FHFA and the Federal Reserve.
o Minimum 300 basis points leverage ratio (- six times the historical GSE level).
o In addition, PMGs would be required to hold additional risk based capital, as determined by regulators in a manner consistent with Basel III.
• The amount of equity capital the PMG must hold can be reduced through the sale of first loss securities to the capital markets due to the reduction in credit exposure the PMG retains.
o For example, a 10 percent first loss security on a pool of mortgages held by a PMG could reduce capital reserve requirement by 65 - 85 percent (e.g., from 300 basis points down to 100 - 50 basis points). FHFA and the Federal Reserve must jointly determine how capital relief can be achieved via risk distribution to the capital markets.
o Syndicated first loss securities will not be explicitly or implicitly guaranteed by the USG under any circumstance. In the event a PMG fails, holders of the first loss security would not receive any recovery from the USG.
• The interaction with the 5 percent leverage ratio requirement in order to be a "well capitalized" BHC will be an important issue to work through with the Federal Reserve.
o This issue could potentially be addressed if some level of regulatory capital relief and accounting consolidation was possible upon a sufficient level of risk syndication by the PMG.
.
.
.
Concentration limits/restrictions to reduce systemic risk
• No PMG that is a subsidiary of a DFI substantially engaged in other banking activities may guarantee more than [10-15] percent of the total amount of PMG guaranteed securities.
o Any DFI PMG that guarantees more than [2.5-5] percent of the system assets must fully syndicate the first loss credit risk to the capital markets before assuming additional incremental exposure.
• No monoline PMG may guarantee more than [20-25] percent of the total amount of PMG guaranteed securities.
o Any monoline PMG that guarantees more than [5-10] percent of the PMG system assets must fully syndicate first loss credit risk to the capital markets to take on incremental exposure.
o This will ensure that the majority of the credit risk taken on by larger PMGs is distributed to the capital markets during normal times. This will reduce the systemic risk posed by any PMG and also ensure that pricing of the guarantee is reflective of market signals.
• Monoline PMGs would be allowed to have higher system concentration in order to allow them to gain sufficient economies of scale to be competitive with DFls and ensure smaller mortgage originators have a viable securitization option.
• To preserve competition in mortgage markets, concentration limits should apply separately to single-family and multifamily mortgages.
• FHFA and the Federal Reserve could make adjustments to these restrictions depending on overall market share, loan volumes in the PMG system, and prevailing market and economic conditions.
• The combination of a PMG' s private capital funding and concomitant ROE expectations with explicit concentration limits should support price stability and discipline that prevents the PMGs from competing exclusively on price at the expense of capital adequacy (and help
avoid sparking a race-to-the-bottom).
.
.
.
Access for borrowers
• Several policies should help promote mortgage financing access to creditworthy single family and multifamily borrowers in a variety of communities.
• Reforms would be structured such that community reinvestment, fair lending and other antidiscrimination laws would extend to PMGs as they do to other banks.
o This approach would be more efficient than the past affordability goal-based lending measures required by the GSEs.
o Providing liquidity and funding support directly to BHCs should increase the ability to meet CRA requirements.
o Additional conversations on how CRA requirements would apply to a PMG would need to take place with the Federal Reserve.
• To ensure transparency and effective monitoring, PMGs would also be required to collect and publicly disclose timely data on the mortgages they buy, subject to the Home Mortgage Disclosure Act (HMDA).
.
.
.
Areas for Further Analysis
In addition to developing further policy recommendations around other key parts of the reform plan, the following questions and topics are areas which will require further analysis and discussion, in
particular with the Federal Reserve, FHFA, and the FDIC as the plan is developed:

1) Description and consideration of how the securitizer will handle TBA pooling and rules around the TBA market.
2) Analysis of the interplay of proposed reforms with existing regulatory structures and arrangements, including how Basel 3 capital standards will be applied to PMGs and the implications of the 5% leverage ratio.
3) How will firewalls, conflict of interest, and cross-subsidization be managed by BHCs with a PMG subsidiary?
4) Discussion on how the resolution of a failing PMG will be handled, including the role of various regulatory agencies and interplay between other affiliates of a BHC.
5) What limitations on risk based pricing and ability to selectively offer guarantees should be required? Should there be any form of duty to serve beyond CRA?
6) Further analysis and consideration of structure and application of the USG explicit reinsurance guarantee, including how to set and apply the fee, how the reserve fund will be managed (including what to do with any excess funds over time), budgetary treatment and regulatory
structure
7) Consideration and explanation of how the proposed system will perform and respond at various points over the economic/business cycle, including a discussion of how best to design the system to be counter-cyclical.
8) Expected market shares of PMGs over time in both a steady and stressed market environment.
9) Additional analysis discussing QRM/QM/Conforming Loan standards, including QRM versus PLS market share over time under both a steady state and under stress.
10) Description and consideration of how small, medium and large financial institutions will participate in the proposed market mortgage system and how market access would work for first time home buyers, move-up borrowers and investor properties.
11) Description and consideration of the source of equity and debt capital for PMGs and the composition of their capital structure.
12) Comparison to alternative market structures, such as a new duopoly, a New York Fed type Coop, or Federal Reserve run system, as well as models proposed through congressional legislation (such as the Miller-McCarthy national utility, Campbell-Peters PMG model, and
Isakson bill).
13) Description and consideration of how the proposed system will impact the cost of mortgage financing for borrowers, including a comparison to other proposed mortgage reform plans.
14) Discussion of how monoline PMGs will be competitive with affiliated PMGs.

https://assets.documentcloud.org/documents/2839971/Fannie-Mae-and-Freddie-Mac-Unsealed.pdf


I don't recall any of this ever being put up for a vote with the owners of Fannie & Freddie, the SHAREHOLDERS. Remember, F&F were NOT the cause of the crisis and were solvent at the time of their takeover. ONLY FRAUDULENT ACCOUNTING enabled Gov to place F&F under Gov conceivership thereby handing the entire housing finance system over to the FEDERAL RESERVE and their member BANKS. Do we really wish to turn over control of housing to the very entities that settled out of court with OUR Gov for the hundreds of BILLIONS in fraud they committed in the lead-up to the 2008 financial crisis???