Possibly in response to several top government officials in the housing space publicly stating this week that the FHFA’s 7-year-old conservatorships of Fannie Mae and Freddie Mac would not end during the Obama Administration, Freddie Mac CEO Donald Layton published a commentary on the GSE’s website Thursday outlining “Freddie Mac’s Plans for the Future.”
Government officials such as Michael Stegman, President Obama’s top adviser on housing policy, and Antonio Weiss, Counselor to the Treasury Secretary, have both stated this week that the conservatorships would continue for at least another year and four months until the next president takes office. Layton made it clear in his commentary, however, that he is focused on making a better mortgage market for the customer and making the system better for the U.S. taxpayer through more credit risk transfer.
Layton said Freddie Mac had moved on from the “early-years conservatorship mindset,” which saw the Enterprise being hesitant to take action while it waited for instructions from the government. Now, Layton said, “[w]e’re firmly facing the future, not the past.”
Freddie Mac’s charter says the Enterprise’s mission is to help families by being a great market participant in the U.S. mortgage markets dedicated to the “liquidity, stability, and affordability” of those markets, and to be innovative in doing it—helping families whether they rent or own, according to Layton.
“In the past, our ‘affordability’ mission was focused mainly on meeting the narrowly-defined affordable goals set by the government,” Layton said. “Now, we view the ‘affordability’ clause in our Charter very broadly, in fact as a ‘community mission,’ This covers classic affordability as well as other things like broad access to credit, foreclosure alternatives (which hardly existed pre-2008), and other community-focused priorities.”
Layton cited as an example of this the 97-percent LTV product offered by Freddie Mac that allows buyers to purchase mortgages with 3 percent down payments—and it has been done responsibly and with acceptable credit quality, he said. As a result, the Enterprise has done thousands of loans—more than expected—with this product. Layton also cited Freddie Mac’s partnership with Quicken Loans, announced earlier this week, which is aimed at developing products aimed at satisfying the housing needs of low- to moderate-income borrowers, first-time homebuyers, and millennials.
“We're laser-focused on getting better as a company and aggressively improving ourselves. And, with FHFA taking the lead, on making the entire housing finance system better.”—Donald Layton
As for the mission of helping the customer, Layton credits the efforts of Dave Lowman, head of Single-Family Business at Freddie Mac, and his team with increasing customer satisfaction. In 2008, only 16 percent of Freddie Mac’s single-family business came from lenders outside the top 10 in the country. But that has changed in the last few years.
“We rolled up our sleeves and began to focus on middle-sized and smaller customers,” Layton said. “We added salespeople and newer service models because one size does not fit all. Today, aided of course by market trends favoring smaller lenders, we've tripled that 16 percent to about 50 percent.”
On making the system better for the taxpayer, Freddie Mac has become aggressive in the field of credit risk transfer in the last two years in order to reduce taxpayer exposure to mortgage risk.
“Depending upon how you measure it, in single-family, we are selling off in the range of 2/3 or 3/4 of the non-catastrophic risk,” Layton said. “Single-family risk transfer was zero a few years ago by comparison. Now it's a fast-moving field.”
Layton said Freddie Mac has perhaps accomplished more in the last few years than in the last decade with the push to achieve the three missions he spoke of in the commentary.
“But we're not resting on our laurels,” he said. “We're laser-focused on getting better as a company and aggressively improving ourselves. And, with FHFA taking the lead, on making the entire housing finance system better.”