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Hearing Acknowledges FHFA’s Progress, Points to Shortcomings

As the GSEs approach their fifth year in government conservatorship, Congress held a ""hearing"":http://www.banking.senate.gov/public/index.cfm?FuseAction=Hearings.Hearing&Hearing_ID=d27c8a1c-a48b-44ef-8606-86b00b762c88 Thursday to evaluate the ""Federal Housing Finance Agency's (FHFA's)"":http://www.fhfa.gov/ role as regulator and conservator.

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Acting Director Edward DeMarco offered ""testimony"":http://www.banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=9ebba1c6-8488-4fd4-b10a-9e6592756cf1 detailing the agency's achievements, and Steve A. Linick, inspector general at the ""FHFA Office of the Inspector General,"":http://fhfaoig.gov/ highlighted some areas in need of improvement at FHFA.

DeMarco outlined three phases of conservatorship. The first consisted of stabilizing the GSEs to support the mortgage market during the crisis. ""This phase has been successful,"" DeMarco said.

The second phase was focused on foreclosure prevention, which continues to be a focus at Fannie Mae and Freddie Mac.

The third phase, which the agency is now entering, consists of three main goals to reduce the government's role in the mortgage market and set up a viable secondary market for the future.

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This phase is outlined in DeMarco's ""2012 Strategic Plan for the Operation of the Enterprise Conservatorships."":http://www.fhfa.gov/webfiles/23344/StrategicPlanConservatorshipsFINAL.pdf

DeMarco also touched on FHFA's recently announced ""Streamlined Modification Initiative,"":http://dsnews.comarticles/new-fhfa-initiative-simplifies-modification-process-for-delinquent-borrowers-2013-03-27 which allows seriously delinquent borrowers to obtain loan modifications without full documentation.

""All borrowers have to do to take advantage of the modification offer is make three on-time trial payments, after which their loan will be permanently modified,"" DeMarco said.

""Linick"":http://www.banking.senate.gov/public/index.cfm?FuseAction=Files.View&FileStore_id=a0deea09-d2ed-4d85-b8c8-50fe562ff4b7 praised the FHFA as it has ""accepted and begun to implement the vast majority of our audit and evaluation recommendations.""

However, Linick also addressed areas that could use improvement.

In particular, he suggested ""FHFA needs to be more involved in enterprise decision-making,"" adding that in some instances FHFA has ""displayed undue deference to Enterprise decision-making.""

He also pointed to shortcomings in FHFA's identification of potential risks at the GSEs and its management of those risks.

Another area of concern for Linick is the shortage of examiners at FHFA.

However, among all his concerns, Linick stated, ""There's no doubt uncertainty is the single-most important challenge."" The uncertainty surrounding the GSEs and the future of the secondary mortgage market provides intense challenges for the GSEs, its conservators, and the broader market, according to Linick.

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