The Federal Housing Finance Agency [1] (FHFA) released its strategic plan [2] for the conservatorships of Fannie Mae [3] and Freddie Mac [4]. In its report, the FHFA focused on three tenets going forward for the GSEs: maintain foreclosure prevention activities, reduce taxpayer risk, and build a new, single-family securitization infrastructure.
The first point in the strategic plan calls for a continuation of foreclosure prevention activities, as well as providing credit availability for new and refinanced mortgages to "foster liquid, competitive, and resilient national housing finance markets."
The FHFA noted that Fannie Mae and Freddie Mac helped maintain broad liquidity in the secondary mortgage market—$6.4 trillion since 2009—helping to stem losses and provide opportunity. However, the agency feels some originators have overcompensated, creating an environment that results in the rejection of many loans that would meet the GSEs' credit standards. Going forward, the FHFA would like to extend access to credit to borrowers who are worthy while keeping risk low.
The FHFA also plans to continue foreclosure prevention actions, noting completed foreclosure prevention actions totaled nearly 2.6 million since the onset of the housing crisis. Areas that are considered the hardest hit will be targeted in order to help continue recovery efforts.
Second, the FHFA wants to reduce taxpayer risk by increasing the role private capital plays in the mortgage market. The agency plans to continue transfers of mortgage securities to private investors. In 2013, the GSEs transferred substantial credit risk on $30 billion of mortgage-backed securities (MBS). The agency plans to continue reducing taxpayer risk by increasing the amount of credit risk to private capital through $90 billion of new mortgage-backed securities, triple the amount compared to the previous year.
Furthermore, the FHFA is directing Fannie and Freddie to submit plans to reduce portfolio assets to $250 billion by 2018. As of March 2014, Freddie Mac's portfolio stood at $434 billion and Fannie Mae's was $468 billion. "Reducing these retained portfolios continues to shift credit, asset liquidity and interest rate risks from the Enterprises and onto private investors," FHFA said.
Finally, the FHFA plans to build a new single-family securitization infrastructure for use by the GSEs that is also adaptable for use by other participants in the secondary market. Currently, the GSEs issue two different mortgage securities that are not interchangeable, and Freddie Mac's security has historically traded less favorably compared to Fannie's. The common platform will help reduce the disparity between the two company's different securities.
The FHFA plans to continue to improve mortgage data standards for the GSEs, such as appraisal data, loan delivery data, loan applications data, mortgage closing data, and mortgage servicing data. The agency will continue efforts with the Uniform Mortgage Data Program in order to improve accuracy, increase transparency, assess risk, and create efficiencies for the mortgage industry.