The next wave of servicing regulation is coming – Are you ready?

Join this webinar to learn what servicers need to know about recent and upcoming servicing compliance regulations and strategies experts are implementing to prepare for servicing regulatory audits.

In a purchase market, rookie LOs may struggle

Rookie LOs in 2020 could ride the refi wave and rack up a hefty monthly paycheck without Herculean effort. But these days, they'll have to sing for their supper.

Logan Mohtashami on trends in forbearance exits

In this episode of HousingWire Daily, Logan Mohtashami discusses several hot topics in the housing market, including recent trends in forbearance exits and future homebuyer demand in the midst of inventory shortages.

Natural disasters and forbearance: What borrowers and mortgage servicers need to know

With a rise in natural disasters, including wildfires, hurricanes, floods, tornadoes and mudslides. The mortgage industry needs to be proactive in examining programs to help borrowers recover.

Politics & Money

The nail in the coffin for ending GSE conservatorship?

Housing industry trade groups takes a stand against rushed exit

In a letter Monday to U.S. Treasury Secretary Steven Mnuchin, housing industry associations expressed their opposition to a swift end to GSE conservatorship for Fannie Mae and Freddie Mac.

The Mortgage Bankers Association, the American Bankers Association, the National Association of Home Builders and the National Association of Realtors sent a joint letter to Mnuchin regarding their concerns about significant market disruptions that could occur if the GSEs are released from conservatorship prior to building significantly more capital, and prior to completion of key reforms that are necessary to ensure the GSEs operate with appropriate controls in supporting the market.

“We believe there are tangible, near-term steps that the U.S. Treasury Department can take, in coordination with the Federal Housing Finance Agency, to promote critical reforms of the GSEs and bolster their safety and soundness,” the associations wrote in the letter.

“We are concerned, however, that other potential actions to release the GSEs from conservatorship without the necessary safeguards would undermine investor confidence, create volatility in the single-family and multifamily mortgage markets and impede access to credit for consumers.”

The letter made it clear the associations do not support an “endless conservatorship,” and have even worked to help create reform plans to help the GSEs exit conservatorship. However, the letter expressed its concern that a rushed effort to remove the mortgage giants from conservatorship before the Biden administration takes over would cause disruption.

“During conservatorship, investors have relied on the Treasury backstop of the GSEs, which totals over $250 billion, as well as the effective control of the GSEs by the federal government,” the letter states. “A sudden shift in the government’s relationship with the GSEs, which could end conservatorship without an explicit federal backstop in place, could cause investors to reassess the nature of any backstop and result in severe market disruptions.”

“Such market disruptions also are likely to occur if Treasury and FHFA permit the GSEs to exit conservatorship without appropriate levels of capital and before the necessary market conduct and safety and soundness parameters are instituted in a sufficiently durable way,” it continued.

The letter went further to point out specific examples of the harm a rushed exit could cause:

  • A sharp pullback in investor demand for GSE mortgage-backed securities by investors concerned about a diminution of government support and an associated increase in credit risk exposure
  • Potentially large declines in GSE MBS valuations resulting from lower investor demand, which would represent an immediate shock to $6 trillion in GSE MBS, much of which is held by pension funds, mutual funds and other investment vehicles used by savers
  • Downgrades of the GSEs from rating agencies, as was recently posited by Moody’s, which would raise their borrowing costs and alter the views of potential investors in their debt or MBS
  • Uncertainty regarding the Federal Reserve’s ability to acquire GSE MBS through its large-scale asset purchases, thereby limiting its tools to conduct monetary policy
  • Changes to the regulatory treatment – both domestically and abroad – of GSE MBS by virtue of changes in ratings or expectations regarding government support
  • Disruption to the Uniform MBS framework if investors perceive material differences in the credit quality of the two GSEs
  • An increase in mortgage credit costs during economic crises, negatively impacting the GSEs’ ability to support the market in the next crisis
  • Less revenue to support underserved markets and communities
  • Further reduction in mortgage credit availability due to the expiration of the GSE Qualified Mortgage “Patch” prior to the mandatory compliance date associated with the recent revisions to the QM rule

This could quite possibly be the nail in the coffin for ending GSE conservatorship during the Trump administration. In an interview with the Wall Street Journal, Mnuchin suggested he is not likely to support a consent order to end the conservatorships.

Earlier this month, In a hearing before the House Financial Services Committee, Mnuchin said no definite plans had been made for the future of Fannie Mae and Freddie Mac, but discussed the idea that they could be released from conservatorship before their full capital levels are reached.

“Let me just be clear, despite the fact that the director and I are having conversations, we’ve made no decisions at Treasury whatsoever yet,” Mnuchin said at the time. “We are contemplating. There could be a scenario where at some point in between basically the zero capital they have, and the full capital requirement, there would be a consent order and they would be released subject to consent order. But as I’ve said yesterday, there’s got to be significant capital for them, in my opinion, to be released.”

But now, Mnuchin seemed to walk that back in his interview with WSJ.

“We’re going to not do anything that jeopardizes taxpayers and puts them at additional risk,” he said. “We also want to be careful that we don’t do anything that overnight would limit access to mortgage finance.”

However, an article published Monday on Business Insider claimed Fannie Mae is asking key employees to be prepared to work through the holidays in anticipation of a last-minute push for a release from conservatorship.

For now, however, it appears the possibilities of that release is dwindling, and the decision for GSE conservatorship could be left to the Biden administration.

Comments

  1. The $10,000 question – which nobody in our industry seems prepared to answer – is WHY should the Federal Government provide an explicit guarantee on Fannie and Freddie UMBS?

    Oh, I hear all of the usual suspects saying all of the usual things, and I’m not discounting the fact that returning to the implicit guarantee that existed prior to the current conservatorship (or no guarantee at all) won’t cause a temporary disruption in liquidity and higher yields. It undoubtedly will.

    However, on what planet does it warrant blind acceptance among housing journalists that the United States Taxpayer – who is already on the hook to backstop GNMA bonds – should just be expected to backstop what is essentially the entire housing finance industry for all eternity?

    I’m not saying a rushed exit is the answer, but let’s face facts: a Biden administration won’t lift a finger to facilitate an exit when the same people who gave us the Third Amended Sweep are running things again.

    I know this comment won’t make me popular among my fellow industry professionals, but someone needs to play the adult in the room and at least entertain the notion that government’s job isn’t to facilitate fantasyland lending on the backs of our great-great-grandchildren.

    The fact is the same interventionist easy-money policies that led to the current student loan debacle are in play here. Why is the solution to the failures of government market manipulation always more government market manipulation?

Load More Comments

Leave a comment

Most Popular Articles

These are the hottest housing markets in America

A housing market report from RE/MAX found that 36 of 51 metro areas had double-digit year over year sale price increases in August. Boise led the way.

Sep 17, 2021 By

Latest Articles

Fannie Mae to restart credit risk transfers

Fannie Mae announced that it will restart its credit risk transfer program by the fourth quarter of 2021, following proposed changes to its capital rule

Sep 21, 2021 By
3d rendering of a row of luxury townhouses along a street

Log In

Forgot Password?

Don't have an account? Please