Members of the Senate Banking, Housing & Urban Affairs committee plan to put Ed DeMarco, current acting director of the Federal Housing Finance Agency, in the hot seat, questioning the agency’s role as regulator and conservator of Fannie Mae and Freddie Mac

While it’s no surprise that DeMarco has called for the wind down of both government-sponsored enterprises, the acting director made it clear in prepared testimony for today’s panel that as long as the FHFA is the overseer, he will stick to its mission. 

As a result, DeMarco highlighted various conservatorship strategic plans that are priorities for the remainder of the year. 

One will be the near-term efforts regarding mortgage insurance. 

“To better protect the interests of the enterprises, we are updating mortgage insurance master policies by clarifying the role and responsibilities of insurance carriers, particularly when servicers pursue loss mitigation to help delinquent borrowers,” DeMarco said.

Another policy project of note is the development of an aligned set of standards for force-placed insurance. 

The various concerns with force-placed insurance include the costs, limitations on coverage and consumer protections, the acting director explained. 

“FHFA recently sent a notice to the Federal Register setting forth an approach to address certain practices relating to lender-placed insurance that we consider contrary to prudent business practices, contrary to appropriate administration of enterprise guaranteed loans, and which expose the enterprises to potential losses and safety and soundness risks,” DeMarco said.

The FHFA also plans to pursue a broader approach to lender-placed insurance, bringing together public and private sector parties to participate in a conversation with the agency and with a wide range of stakeholders.

“Our goal is to establish a set of standards that could be adopted by a broader set of mortgage market participants, similar to what was done with the Servicing Alignment Initiative,” DeMarco said.

Sitting on the other side of the row, Steve Linick of the Office of the Inspector General applauded the FHFA for progressive steps it has taken as regulator and conservator, but pointed out that work still needs to done.

For instance, as conservator FHFA needs to be more involved in GSE decision-making, Linick explained in his prepared testimony.

“We have concluded that some matters are sufficiently important to warrant greater involvement and scrutiny by the agency. In some cases, the deficiencies have been remediated, but in other cases they still persist,” he said.

For instance, in 2012, the OIG found the FHFA unduly relied on information provided by Fannie Mae when it issued a “no objection” response to the GSE’s last minute request to make a financial investment of between $55 million and $70 million.

Furthermore, as regulator FHFA can be more proactive in managing risk, Linick noted. 

“In general, we have observed FHFA has difficulties identifying new and emerging risks potentially affecting the enterprises, issuing guidance and regulations governing risk managed at the GSEs, as well as providing strong and consistent enforcement for violations of policy,” he said.

Linick also identified that the FHFA may not have enough examiners.

In a 2011 report, the OIG found that the FHA had too few examiners to ensure the efficiency and effectiveness of its GSE oversight program. Additionally, the FHA had scaled back planned worked during examinations due to examiner shortages. 

“Although the agency has made progress since we issued this initial report by reorganizing the examination function and hiring new staff, it is not clear that FHFA has achieved adequate resources,” Linick explained.