Federal Housing Finance Agency Acting Director Edward DeMarco sounded off on a slew of Republican bills Thursday, claiming some are extraneous and vowing to work with lawmakers to tweak others.
On Tuesday, Republicans in the House of Representatives introduced eight bills that would reform the government-sponsored enterprises Fannie Mae and Freddie Mac. Each addresses issues from reductions to GSE retained portfolios to guarantee fees.
While Congress looks to take action on these issues, DeMarco said in a subcommittee hearing Thursday that reform will be a long process and that FHFA needs to be in the loop. He then diverged, addressing the recent risk-retention rules put out by regulators that exempted Fannie and Freddie. Many in the industry said the exemption contradicts the Obama administration's effort to wind down government involvement in the mortgage market.
But DeMarco said Fannie and Freddie, as they're currently structured, already own 100% of the risk.
"So, the proposed rule does not classify the loans as qualified residential mortgages (QRM), but it acknowledges that the risk retention by the enterprises is already complete," DeMarco said. "To impose such a requirement would add nothing further to the enterprises’ 'skin in the game' or credit risk exposure as they already have 100% of the credit exposure. However, such a requirement would require the enterprises to increase their portfolios by financing 5% of their mortgage-backed securities themselves."
One bill posed by Rep. Jeb Hensarling (R-Texas) would cap the current portfolios at Fannie and Freddie and lays out a plan for reducing them down. But DeMarco said the current conservatorship agreement provides for a 10% per-year reduction in the retained portfolios that was at $810 billion at the end of 2010. With Fannie at $789 billion and Freddie at $697 billion, DeMarco said both companies are on track to meet the new cap of $729 billion limit at the end of 2011.
"While some faster reduction of the enterprises’ retained portfolios may be possible, a congressional mandate for a significantly faster reduction could cost taxpayers unnecessarily, as some of the illiquid assets may recover some or much of their lost value over time," DeMarco warned.
DeMarco went to add that other bills the Republicans drafted are duplicative of FHFA's role. While under conservatorship, Fannie and Freddie are restricted from engaging in new business, regulations for new housing goals have already been set to mirror the industry's.
A bill requiring the inspector general of the FHFA to submit quarterly reports to Congress would reverse how reports are already arranged and that FHFA already reports on the GSEs voluntarily, DeMarco said.
DeMarco did support a bill from Rep. Randy Neugebauer (R-Texas) that would steadily increase the guarantee fee the GSEs charge for insuring payment on the mortgages it buys. He said FHFA has increased the price several times but he pledged to work with Congress to determine further changes.
Another bill from Republicans would suspend compensation packages at Fannie and Freddie, but DeMarco said "sudden changes in their compensation structure would put the management of those assets at risk and increase taxpayer exposure to greater losses."
He added that FHFA has reduced the GSE's compensation by 40% already to the level it was 12 years ago and will keep them at that level for 2011. On this proposal, DeMarco wouldn't budge.
"I understand and have sympathy for what might motivate such a proposal, but I must report to this subcommittee my firm view that such an action would, on balance, increase costs to taxpayers and risk further disruptions in housing market," DeMarco said.
When the Treasury Department released its white paper in February proposing to unwind Fannie and Freddie, two companies that have pulled $134 billion from the Treasury so far, Secretary Timothy Geithner warned the process would take between five to seven years. He added that in order to give investors and private-market players enough transparency, he asked Congress to act within two.
But House Financial Services Committee Chairman Rep. Spencer Bachus (R-Ala.) said Thursday that Congress must act now. Reviving the economy, he said, hinges on reform of the housing market.
“As recent statistics show, our housing markets remain very fragile. Housing is a tremendously important part of our economy and of consumer spending. We cannot revive the overall economy until we fix the housing market," Bachus said. "Congress must take action – thoughtful and deliberative action which we are starting with the introduction of a number of measures to immediately address the failures of Fannie Mae and Freddie Mac."
The House subcommittee hearing Thursday is considered the first step in that process to what DeMarco calls a world without the GSEs. In the meantime, he said each decision should be made to conserve the assets of these companies so that taxpayers can realize the greatest possible return.
"We do this with a clear expectation that at some time in the future Fannie Mae and Freddie Mac, as we have known them, will no longer exist," DeMarco said. "But we do not know when, or in what fashion, this will happen."
Write to Jon Prior.
Follow him on Twitter @JonAPrior.
On April 1, the new "customary and reasonable" appraiser fees under Dodd-Frank take effect. A week prior, HousingWire ran a Q&A with David Feldman, the vice president of government affairs at CoreLogic Valuations in an effort to clarify the impact this will have on the appraisal industry.
Many appraisers took notice of it, and not in a good way.
In a review of letters to the editor, many expressed frustration that the interview did not go far enough.
"I have to say I am very disappointed with the lack of questioning and follow-up to his very one-sided answers," said Tony Grubb an appraiser at Virginia-based AppraisalTech. "Not once was he asked about or discussed the harm Corelogic's lower than average fees have done to appraisers and their families across the country."
"Amazing what Corelogic says about fees to appraisers," wrote in another complainant who wishes to remain anonymous. "I just spent the last week lowering our fees because all the vendor management companies said that unless you lower your fees to compete with the other guys you will get little or no work."
"Appraisers have become slaves to the banks and vendor management companies," she added.
CoreLogic defends Feldman's words, though declined a vigorous response. The comments were also presented to other, similar firms. Many report the feeling that appraisers are not being flexible enough.
In particular, one firm said it had trouble finding appraisers to do "desk-based" work. "The days of going out to two valuations and taking the afternoon off are over," a manager at the AMC said.
Additionally, the chief appraiser of Pro Teck Valuation Services, Jeff Dickstein, did weigh in on other nagging regulatory questions. Mainly, there is an added worry that the Consumer Financial Protection Bureau, which officially opens on July 21, will further negatively impact the appraisal industry.
Dickstein said the intended use of an appraisal is for the lender to obtain a market value opinion to assess risk for loan collateral, not for the buyer or seller. Most buyers and sellers are interested in anticipated sale price, not market value.
"If a consumer-oriented regulator takes charge, you will see people filing more objections to appraisals," Dickstein said. "The seller for instance may object to the home price being too low and argue for a higher valuation based on something like an above ground spa, which is not a real property feature, and not given value on an appraisal report."
Write to Jacob Gaffney.
Follow him on Twitter @JacobGaffney.
Tags: appraisal fees, appraisers, CoreLogic, Dodd-Frank, proteck
Posted in Commentary, Jacob Gaffney, Voices | No Comments »