The government-sponsored enterprises are getting back to their core mission, shaking the idea that a resolution to conservatorship is just around the corner and reshaping their business models to reduce risk to taxpayers while expanding access to credit.
That was the message from Timothy Mayopoulos, president and CEO Fannie Mae and Donald Layton, CEO of Freddie Mac, speaking on the “A Conversation with GSE Leadership” panel at the Mortgage Bankers Association’s 102nd Annual Convention and Expo in San Diego, California. Nearly 4,500 real estate finance professionals are in San Diego this week for the convention.
David Motley Motley, president of Colonial Savings, served as the moderator.
Mayopoulos reviewed recent new initiatives and ones from last year designed to expand access for buyers.
“Changes at the front end are driving changes to expand access to qualified buyers,” Mayopoulos said.
Earlier Monday, Fannie Mae announced it is simplifying the lending process for lenders and borrowers with a series of updates to its mortgage offerings. One of the biggest changes is that beginning in mid-2016, Fannie Mae will require lenders to use trended credit data when underwriting single-family borrowers through Desktop Underwriter. Fannie is working with Equifax and TransUnion to provide the data.
Mayopoulos said that the company’s primary revenues are now coming through guarantee fees as a stable, more reliable revenue source, he said, and that the company is shifting more credit risk to private investors.
He called it a “more sustainable and reliable business structure.”
Layton noted that the GSEs are into their eighth year of conservatorship, and that a “big bill” out of Washington to “redo our entire housing finance system” is years away.
“Conservatorship will be with us for a while. And there is no playbook for running a company in conservatorship,” Layton said.
Layton emphasized the focus on credit risk transfer.
“Credit risk transfer is our entire business model now,” Layton said.
He said that Freddie Mac has rid itself of the early conservatorship mindset, which was hesitant, waiting to get orders from government, and not sure if it was about to end.
“We’re focusing on our classic mission to support families by increasing stability, liquidity and affordability of mortgage market,” he said.
He said the company has a new orientation to increasing access to credit safely and sustainably.
He also spoke about the new partnership with Quicken Loans announced Monday to pilot a series of initiatives aimed at helping provide more Americans the opportunity to achieve homeownership. The program will feature unique, co-developed products to meet the needs of emerging markets, including Millennials, first-time homebuyers and middle-class borrowers. It will explore numerous modifications and expansions to Freddie Mac’s current Home Possible mortgage products, and will also include continued homebuyer education. Home Possible enables eligible borrowers to finance a house with a down payment of as little as 3%.
On the issue of the Common securitization Platform, both agreed it is happening.
“It’s just that the timing is uncertain,” Layton said.
He added that the timing is only uncertain because of “well-known risk” of committing to a timeframe on something with such complexity as the CSP.
Mayopoulos added that with the two companies having more than $5 trillion in assets, “no one wants to have a healthcare.gov situation” referencing the initial disaster of the launch the ObamaCare platform.
“Measure twice and cut once,” he said.
Neither Layton nor Mayapoulos addressed reports that the White House is reconsidering its approach to conservatorship, and considering recapitalization.
However, officials from the White House and U.S. Treasury are expected to make additional new comments regarding the GSEs and efforts to alter the terms of the bailout later Monday.
White House advisor Michael Stegman is expected to deny suggestions that the administration’s GSE policy is shifting toward a consideration of reform and release.
Adding to this, Counselor to the Treasury Secretary Antonio Weiss said in op-ed in Bloomberg today “How Not to Fix Fannie and Freddie” that the “recent push to recapitalize Fannie Mae and Freddie Mac and release them from conservatorship is misguided.”
The Weiss editorial was a restatement of Treasury’s positions regarding the potential impact of GSE privatization on borrower costs, the amount still owed under the terms of the GSE bailout, and the broader case against recapitalization.
Not everyone thinks this is entirely the bottom line on the issue.
“While we continue to believe that the policy conversation in D.C. is slowly shifting toward a consideration of reforming and releasing the GSEs from conservatorship, these comments from Obama Administration officials reinforce our view that administrative action is not imminent,” says Isaac Boltansky at Compass Point Research & Trading. “Instead, our sense is that the next iteration of the GSE conversation will focus squarely on the merits of GSE capital retention which should be viewed as a mile marker on the road to exiting conservatorship but still far from the privatization off-ramp.”