FHFAs Watt: It's Not the Agency's Role to Shrink the GSEs !!
IMFnews...Tuesday, May 13, 2014
Federal Housing Finance Agency Director Mel Watt laid down his marker on the mortgage industry Tuesday morning, declaring at the Brookings Institution that it?s not the agency?s role to ?contract the footprint? Of Fannie Mae and Freddie Mac.
Moreover, it?s clear that the new FHFA director wants to loosen credit to consumers, a huge victory for trade groups such as the Mortgage Bankers Association and National Association of Realtors, which have been clamoring for such a move.
To some listening to his speech ? His second to the industry ? It marks somewhat of a reversal from his predecessor Edward DeMarco and likely will anger GOP officials who would like nothing more than to see Fannie and Freddie disappear.
In a question-and-answer session with reporters following his speech, Watt stressed that the agency?s role is to ?maintain an efficient credit market.? The regulator believes that as ?private capital demonstrates that it will come into the market, I think it will be clear that Fannie and Freddie will step back.?
Meanwhile, in his comments to reporters, Watt did not rule out Fannie and Freddie engaging in principal reductions on troubled GSE loans. For additional coverage, see related stories on IMFnews and the upcoming edition of Inside Mortgage Finance.
Other areas of interest: Originations, Servicing, Secondary/MBS, Regulatory, Fannie, Freddie
FHFA Director Mel Watt Rules Out GSE Loan Limit Increase
By Paul Muolo
pmuolo@imfpubs.com
Federal Housing Finance Agency Director Mel Watt Tuesday morning promised the residential finance industry that he will not use his power as GSE regulator and conservator to lower loan limits on mortgages guaranteed by Fannie Mae and Freddie Mac, effectively freezing current limits where they are today.
?This decision is motivated by concerns about how such a reduction could adversely impact the health of the current housing finance market,? He said.
In a wide-ranging speech before an overflowing audience at the Brookings Institution ? And in supporting documents ? Watt also vowed that the GSEs will continue to permit ?compensating factors? When weighing a decision to guarantee mortgages where the debt-to-income ratio is north of 43 percent. ?FHFA will continue to permit these compensating factors in each company?s underwriting standards,? He said in prepared remarks.
The speech is significant for other reasons: Watt effectively encouraged lenders to loosen GSE credit standards and offered buyback relief to primary market originators. Among the coming changes, the FHFA will create what Watt called an ?independent dispute resolution program? Giving lenders a forum to argue their case if they believe a repurchase is unwarranted. For a deeper analysis on the many topics Watt touched on, see the upcoming editions of Inside Mortgage Finance and Inside The GSEs.
Short Takes: Ed Who? / Oh, Thanks Ed...
Those who heard the Mel Watt speech Tuesday morning at the Brookings Institution may think that he?s trying to undo some of the work of his predecessor Edward DeMarco, but buried in the supporting documents are specific goals from the Federal Housing Finance Agency about shrinking the on-balance sheet holdings of Fannie Mae and Freddie Mac. Fannie holds $468 billion in mostly mortgage-related assets, Freddie $434 billion. Watt wants to see those figures shrink to $250 billion by the end of 2018?
Moreover, in his prepared remarks, Watt went out of his way to thank DeMarco for his tenure as agency director: ?In the face of the greatest economic collapse since the Great Depression, FHFA helped prevent an extremely bad situation from getting much worse. It?s hard to imagine things being worse given the depth of the housing market collapse, but I very much believe that FHFA and Ed DeMarco?s leadership prevented an even deeper financial collapse by stabilizing Fannie Mae and Freddie Mac??.
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