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Lawmakers Urge FHFA Director Watt to Consider More Risk Sharing Options

hands-writing1 [1]U.S. Reps. Steve Stivers (R-Ohio) and Gwen Moore (D-Wisconsin) have written a letter [2] to FHFA [3] Director Mel Watt urging him to consider additional credit risk-sharing techniques for Fannie Mae [4] and Freddie Mac [5] that are consistent with federal housing goals outlined in the Conservatorship Scorecard.

The Representatives praised FHFA’s efforts to increase the participation of private capital in the mortgage market to date, but noted a lack of balance between “front end” and “back end” risk sharing. The majority of the GSEs’ credit risk transfer activity subject to Scorecard measurement to date has been of the back end variety, meaning it occurs after the GSEs purchase or guarantee a loan or pool of loans and assume the related credit risk. With front end risk sharing, the lender/seller retains a portion of the risk by obtaining private mortgage insurance to provide default loss protection and borrower equity before the GSEs purchase/guarantee a loan or pool of loans.

Stivers and Moore inquired of Watt’s plans to incorporate more front end risk sharing into the GSEs’ credit risk transfer activities, stating several reasons why they believe this is important:

Click here to view a complete copy [2] of the Stivers-Moore letter to Mel Watt.