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FSOC Recommends GSEs Continue Spreading Mortgage Credit Risk Across Private Market

Fannie-Freddie-logosIn its annual report released earlier this week, the Financial Stability Oversight Council (FSOC) recommended that the Federal Housing Finance Agency (FHFA) continue to encourage Fannie Mae and Freddie Mac to spread mortgage credit risk across the private market.

The FSOC noted in its report that the GSEs have engaged in risk-sharing with market participants in the past year, thus reducing their exposure to mortgage credit risk. The Council recommended a further reduction in the GSEs' retained portfolios, particularly in the area of less liquid assets, by using measures that do not interfere with mortgage market stability or restrict credit access. The GSEs' retained portfolios declined by almost 14 percent in 2014.

The Council also noted that the FHFA and HUD have been working with the Federal Housing Administration (FHA) and the GSEs in the last few years to clarify the requirements for originators to buy back loans backed by the GSEs and the FHA. At the same time, however the FSOC recommended that the FHFA, Treasury, and HUD work with participants in the mortgage market to clarify their representations and warranties policies, citing "uncertainty regarding repurchase requirements as a major driver of their credit policies for GSE and FHA loans, which are often more conservative than these institutions require."

The annual report was the Councils' fifth, and it was unanimously approved earlier this week. Among the agencies that are represented on the FSOC that helped draft the annual report include Treasury, the Federal Reserve, the Office of the Comptroller of the Currency, the SEC, the FDIC, the Commodity Futures Trading Commission, the FHFA, and the National Credit Union Administration. Click here to view the entire annual report.

Fannie Mae and Freddie Mac were taken into conservatorship by the FHFA in September 2008 after receiving a taxpayer bailout of $187.5 billion in order to continue operations. The two GSEs returned to profitability in 2012 but the controversial conservatorship continues, with many analysts stating they do not see it ending in the foreseeable future.

About Author: Brian Honea

Brian Honea's writing and editing career spans nearly two decades across many forms of media. He served as sports editor for two suburban newspaper chains in the DFW area and has freelanced for such publications as the Yahoo! Contributor Network, Dallas Home Improvement magazine, and the Dallas Morning News. He has written four non-fiction sports books, the latest of which, The Life of Coach Chuck Curtis, was published by the TCU Press in December 2014. A lifelong Texan, Brian received his master's degree from Amberton University in Garland.

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