MBA Offers Recommendations on FHFA Strategic Plan
The Mortgage Bankers Association offered a series of recommendations to the Federal Housing Finance Agency on its Fiscal Year 2018-2022 strategic plan, calling for measures that promote broad access to credit for qualified borrowers, a competitive housing marketplace and taxpayer protections.
The letter offers high-level comments on six key areas:
–The importance of the “bright line,” between the primary and secondary mortgage markets;
–Expanding front-end credit risk transfers at Fannie Mae and Freddie Mac;
–Prioritizing development of the Common Securitization Platform and Single Security Initiative;
–Monitoring multifamily market shares and diversity of capital sources;
–Maintaining balance within the mission-related activities excluded from the multifamily volume cap; and
–Promoting a diverse and inclusive workforce at FHFA, the government-sponsored enterprises and the Federal Home Loan Banks.
FHFA invited public comments on its FHFA Strategic Plan (https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/StratPlan_PI_9272017.pdf) which outlines three primary goals for FY2018-2022:
–Ensure Safe and Sound Regulated Entities;
–Ensure Liquidity, Stability, and Access in Housing Finance; and
–Manage the Enterprises’ Ongoing Conservatorships.In its comments, MBA expanded on each of its recommendations:
Separation of Primary Market Activities from Secondary Market Activities
MBA stressed the importance of FHFA to ensure that Fannie Mae and Freddie Mac only undertake those activities that support secondary market liquidity and that they not displace lenders and vendors operating in the primary single-family and multifamily finance markets.
“MBA has long recognized the importance of this ‘bright line’ between the primary and secondary markets, and its continued application is particularly crucial given the rapid development and deployment of new mortgage-related technologies,” wrote MBA President and CEO David Stevens, CMB.
MBA recommended FHFA develop a “clear, well-defined assessment framework” by which to evaluate any new Enterprise activities as to their implications for firms operating in the primary market. Further, MBA recommended the Enterprises incorporate an open architecture framework for single-family initiatives to prevent calcification of a single approach or provider. The Enterprises should also clarify the parameters of any pilot programs they undertake, and upon adoption of new processes or systems, expedite their availability to all market participants that meet transparent performance or risk standards. “Taken together, these steps should help mitigate the risk that the Enterprises’ significant roles in the secondary market could distort the functioning or competitive balance of the primary market,” MBA said.
Enterprise Capital Needs
MBA said it supports FHFA’s call to encourage Congress to complete housing finance reform charts the path for reforms of the housing finance system.
FHFA note in its plan that the GSEs’ capital buffers will be depleted on January 1. While some parties have called for FHFA to suspend the Enterprise dividend payments and thereby allow the Enterprises to gradually rebuild their capital buffers, MBA said such a decision would be “unnecessary from a safety and soundness perspective and counterproductive to efforts to develop and implement much-needed comprehensive reforms.”
MBA noted should Fannie Mae or Freddie Mac need to take a draw on these lines of credit, there would be no change in their existing books of business, day-to-day operations, or prospective ability to provide liquidity to mortgage markets. Further, MBA said a draw by either Enterprise would not constitute a “taxpayer bailout” under any reasonable definition of the phrase, as taxpayers would not be providing fresh funds to keep the Enterprise solvent–the true test of a “bailout.”
“Any suspension of Enterprise dividend payments would also unnecessarily slow the growing momentum for comprehensive housing finance reform legislation,” MBA said. “Those who seek private profit at the expense of sound public policy will be emboldened, while mortgage market participants may lose confidence in the prospects of serious reform, creating further uncertainty around business planning. Given how difficult comprehensive reform has proven over the nine years of Enterprise conservatorship, we question the value of any decision that would risk setting the promising momentum of our current environment off course.
Enterprise Credit Risk Transfers
MBA noted over the past four years, the GSEs developed and grown their single-family credit risk transfer programs. MBA said the GSEs have “ample opportunities” to extend their CRT programs to include greater use of front-end risk sharing.
“MBA urges FHFA and the Enterprises to use the lessons learned from the deep MI pilots initiated by the Enterprises in 2016 to create larger, ongoing front-end risk-sharing programs,” the letter said.
Common Securitization Platform/Single Security
MBA noted the CSP will represent a “dramatic upgrade from the outdated and inflexible securitization infrastructures upon which the Enterprises have previously relied.” In the strategic plan, FHFA commits to “require that the CSP be adaptable for use by additional market participants in the future,” and MBA recommended FHFA begin this process as soon as possible.
MBA noted FHFA announced an expected implementation date for the Single Security within second quarter 2019. “MBA urges FHFA and the Enterprises to take all reasonable steps to adhere to this timeline, and to provide the public with clear markers of progress as the Initiative advances towards completion,” the letter said.
Enterprise Multifamily Businesses
MBA said with the Enterprises in conservatorship, FHFA’s objective should be to ensure that underserved markets, particularly those in need of affordable multifamily rental housing, continue to be served, but not by simply replacing one capital source with another. MBA urged FHFA to carefully calculate the Enterprises’ role, “as their presence will likely impact the activity and diversity of capital sources in the multifamily finance market.”
Additionally, MBA noted as single-family rental properties have become a prominent policy discussion, MBA encouraged FHFA, in its analysis of the rental market and development of low-income and very low-income benchmark levels, to provide clarity on how this asset class will be categorized and measured within the Enterprise housing goals, the Duty to Serve requirements, and if applicable, the multifamily volume cap in the coming years.
Diversity and Inclusion
The strategic plan notes FHFA will “work to promote and ensure diversity and inclusion of minorities and women in the business and activities of the Agency and the regulated entities.” MBA said it strongly supports this objective and urged FHFA to pursue efforts that “lead to a diverse and inclusive workforce through all levels and across all functions of the organizations. Such efforts should be sustained and continually monitored to determine if and where additional resources may be needed.”
