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Federal Housing Finance Agency (FHFA
) Director Mel Watt discussed the progress toward the Agency's three main goals – maintaining, reducing, and building – in a speech he delivered Thursday at the Goldman Sachs Housing Finance Conference in New York.
These three goals are being tracked in the FHFA's annual Conservatorship Scorecard, which was released in early January.
"The annual Conservatorship Scorecard is FHFA’s mechanism for laying out our priorities and expectations for the Enterprises and our means of providing transparency to the public about what we expect," Watt said.
Watt said there are "no surprises" in 2015 when it comes to the first goal of maintaining. He outlined the Agency's two objectives under this goal, which are to maintain, promote, and expand access to credit safely and soundly, and to continue the loss mitigation and foreclosure prevention activities of Fannie Mae and Freddie Mac.
Two of the actions the FHFA has taken to fulfill the first goal of maintaining are to update and clarify the Representation and Warranty Framework Fannie Mae and Freddie Mac use to make sure that they loans they purchase meet underwriting guidelines and to update and enhance the Enterprises' counterparty standards for mortgage servicers.
"We believe that providing lenders greater certainty about when and under what circumstances they would be required to repurchase or take loans back onto their books and providing servicers updated guidelines about when they would be required to pay compensatory fees has moved the availability of mortgage credit in the right direction," Watt said. "We expect the Enterprises to continue these efforts in 2015."
Also to fulfill FHFA's goal of maintaining, Watt said both of the Enterprises planned to reduce the amount of non-performing loans in their portfolios. Earlier this week, Freddie Mac made its first NPL sale of 2015 when it auctioned off 1,975 loans with a UPB totaling $392 million. Last month in its 2014 Financial Summary, Freddie Mac reported that it helped 120,000 distressed borrowers avoid foreclosure through either loan modifications, repayment plans, forbearance agreements, short sales, or deeds-in-lieu of foreclosure – bringing the total number of homeowners the Enterprise has helped with a foreclosure alternative since 2009 up to 1.1 million.
Under the goal of reducing risk to taxpayers by increasing private capital's role in the mortgage market, Watt said 2014 was a "breakthrough year for the Enterprises' single-family credit risk transfer program." The Enterprises began a handful of transactions in the second half of 2013 that became programs of regular debt issuances known as STACR for Freddie Mac and CAS for Fannie Mae.
"The ability and willingness of the Enterprises to provide historical loan performance data has greatly enhanced the ability of the market to achieve pricing that both serves the interests of investors and allows the Enterprises to meet their financial objectives," Watt said.
According to Watt, FHFA tripled the risk transfer requirement in the 2014 scorecard compared to $2013. Each Enterprise was required to transfer a portion of the single-family mortgage credit risk with a UPB of $90 billion, compared with the 2013 requirement of $30 billion. Both Enterprises executed credit risk transfer transactions on mortgages with a combined UPB of more than $300 million, significantly surpassing last year's benchmark.
On the "build" component of the 2015 scorecard, Watt discussed the objective of building a new securitization infrastructure for Fannie Mae and Freddie Mac that other secondary market participants would be able to use.
"Last year was the first time that FHFA included the development of a Single Security as part of our conservatorship priorities for the Enterprises," Watt said. "Our objective in adding this multi-year project to the agenda is to improve overall liquidity in the market, which will not only be beneficial to the Enterprises and other market participants, but will also benefit borrowers. It would also benefit taxpayers by reducing Freddie Mac’s costs that result from the trading disparity between Freddie and Fannie’s securities."
Watt said providing increasing levels of detail about the Single Security will be a "high priority" for FHFA in 2015.
