The director of the Federal Housing Finance Agency outlined a broad new shift in housing policy in his first major policy speech at the Brookings Institution in Washington on Tuesday, and initial reaction from leaders in the finance industry is positive.
David Stevens, president and CEO of the Mortgage Bankers Association said he likes where director Mel Watt appears to be going.
“In his first major speech outlining his priorities as the conservator for, and regulator of, Fannie Mae and Freddie Mac, Director Watt is showing that he has hit the ground running and put a lot of thought into the path he intends to take with the two companies,” Stevens said. “The housing recovery has been hampered by the uncertainty surrounding the future of the secondary mortgage market and Director Watt’s remarks should help ease some of those concerns by providing a clearer roadmap for the short term.”
Key changes in policy include the following shifts:
- No reduced loan caps: The agency won’t proceed with outgoing acting director Edward DeMarco’s plans to reduce the maximum loan amounts that are eligible for purchase by Fannie and Freddie. Such a change could undermine and damage a housing market already facing headwinds. Fannie and Freddie will buy loans as large as $417,000 in most housing markets, and up to $625,500 in the high-cost markets.
- Expanding the credit box: Policymakers and lenders have said banks are making credit standards tighter than they’d otherwise be due to broad authorities by Fannie and Freddie to “put back” defaulted loans to the mortgage giants. The companies on Monday announced a series of steps designed to give lenders a better idea of when they would and wouldn’t face costly put-backs. Lenders believe that too much uncertainty still exists in this area for them to ease their credit overlays, Watt said Tuesday.
- No reduction in GSE footprint: Watt says the GSEs should focus on reducing taxpayer risk without necessarily shrinking the companies’ size. He wants to accelerate the sales of certain securities that allow investors to buy non-guaranteed portions of mortgage bonds.
“The Director has signaled he intends to take a balanced approach designed to ensure a fair and competitive mortgage market that can serve the financing needs of homeowners and the multifamily rental market, while also taking steps to engage more private capital and reduce taxpayer exposure. I was very pleased to hear him focus on issues around access to credit for qualified borrowers and ensuring sufficient liquidity to provide a variety of housing options to lower and middle class Americans, both buyers and renters alike,” Stevens said.
The National Association of Federal Credit Unions hailed Watt’s announcement today that his agency plans to keep its policy of allowing debt-to-income ratios above 43% for some loans purchased by Fannie Mae and Freddie Mac.
“NAFCU thanks Director Watt and his agency for listening to concerns raised by NAFCU and its member credit unions about the need for flexibility in providing mortgages and to avoid unnecessary changes that could disrupt the housing market,” said Carrie Hunt, NAFCU’s senior vice president of government affairs and general counsel.
Watt also said FHFA will seek comments on guarantee fee increases. NAFCU urged that the hikes set to take effect earlier this year be withdrawn, and Watt postponed them pending further review.
Steven said he also appreciated the clarity Watt said he wants to bring for the industry.
“Director Watt appears focused on several items that we have been advocating for, including greater clarity around reps and warrants, enhanced risk sharing to bring in more private capital and moving toward a common or fungible GSE security. Importantly, he is moving forward quickly with key changes that can be made now and appears committed to working with the industry on further improvements,” Stevens said. “Given the difficulties passing GSE reform legislation as the mid-term elections approach, it is good to see Director Watt looking hard at the tools he has at his disposal to help reform and improve the housing finance system. To be sure, this does not in any way lessen the need for Congress to enact needed reforms, but the Director’s comments today indicate that positive change could be on its way in the meantime.”