Recapping Recent Proposed Mortgage Rule Changes


There are five key issues confronting
the Federal Housing Finance Agency (FHFA) its director told a banking audience
on Monday.  The five, taken together, Director
Mel Watt said, address both of FHFA’s roles; conservator of the two government
sponsored enterprises (GSEs) Freddie Mac and Fannie Mae and regulator of the
two GSEs and the Federal Home Loan Banks. 

Watt, speaking to the North Carolina
Bankers Association’s American Mortgage Conference, said his agency has
requested public comment on all five of the issues and Monday was the deadline
for comments on the first two; guarantee fee levels for the GSEs and eligibility
requirements for their private mortgage insurer counterparties. 

One of the first decisions he made as
Director, Watt said, was to suspend the increases in guarantee fees announced
last December.  He believed that it was
critical to evaluate the fees and get feedback from stakeholders because of the
significant impact the increases could have on the GSEs, housing finance
markets, and borrowers.  The request for
comment asked for specific responses of how the fees affect various aspects of
the mortgage market.

Another area on which FHFA has focused
has been efforts to strengthen the GSE’s counterparty requirements for private
mortgage insurers.  These PMI companies
have always played an important role in meeting the statutory requirement that
borrowers with less than a 20 percent down payment have some private capital
standing behind the loan to be eligible for GSE purchase.  The recent financial crisis made it clear that
it is critical to ensure PMI is available in both good times and bad. FHFA has
drafted new eligibility standards for these lenders is designed as a counterparty
risk management tool for the GSEs.  

With the comment period on these two
issues ended, FHFA will review and consider responses, Watt said, and
consistent with FHFA’s statutory mandates, will assess and make policy
decisions taking into account both safety and soundness considerations and
possible impacts on access to credit and housing finance market liquidity. 
Watt said that the inter-related nature of the two topics led FHFA to align the
comment periods but that the decisions on each would be separate. 

In August FHFA’s proposal for a Single
structure for the GSEs was issued and comments requested as were proposed
housing goals for the GSEs for 2015 through 2017.  Last week the fifth issue, a proposed rule to
update and clarify certain aspects of Federal Home Loan Bank membership
requirements was released for comment.

The Request for Input on the Proposed
Single Security Structure comes in the early stages of developing that
security, Watt said, because FHFA wanted to facilitate robust discussions from
all stakeholders and the public.  He
highlighted four aspects of that structure.   

First, FHFA’s top priority in pursuing the Single Security is to deepen and
strengthen liquidity in the housing finance markets and getting it right will
have real world benefits for the markets and for borrowers.  An effective
Single Security will support a more liquid “to-be-announced” (TBA)
market for mortgage-backed securities and can also further strengthen market
liquidity by reducing the trading disparities between Fannie Mae and Freddie
Mac securities.   

Second, FHFA hopes to leverage the existing security structures used by the GSEs
and avoid designing a structure from scratch. 
In the proposal, the Single Security would use many of the security
features in Fannie Mae MBS and the disclosure regime used by Freddie Mac

Third, FHFA’s proposal also focuses on the importance of making Fannie Mae
and Freddie Mac’s existing securities equally interchangeable with the future
Single Security. Without this flexibility current market liquidity could be
impacted.   Getting feedback on this approach is critical to the
Security’s success.  

The fourth point Watt touched on is the agency’s timing for developing the
Security.  He stressed that the Request
for Input and the proposal are just the first steps in a multi-year
process.  The next step is to work with
the GSEs to process the feedback that is received.  FHFA, he said, will continue to produce
updates on both the Common Securitization Platform and the Single Security
where appropriate.

The last two areas involve FHFA as regulator.  The agency has proposed affordable housing
goals for the GSEs for the next three years and the comment period on that
proposal remains open until the end of October. 
Watt said that challenges exist in today’s housing market that make it
difficult for many lower-income families to access mortgage financing or to
find an affordable apartment to rent. 
The goals measure GSE mortgage purchases for both homeownership and the
provision of affordable rental housing opportunities for these families.

For affordable single-family mortgages FHFA is asking for feedback on three
alternative ways
to set these goals.  On the goals that address affordable
rental units in multifamily buildings, FHFA has asked for comments on creating
a new category for small multifamily properties that have apartments affordable
to low-income families.  In recent years the GSEs have had limited
purchases in this market segment which can be an important source of affordable
rental housing.  

Finally, last week FHFA released another proposed rulemaking involving
membership requirements for the Federal Home Loan Banks (Banks) and this, Watt
said, has generated significant discussion within the industry.   The
Banks have a mission to support housing finance and it is FHFA’s role as
Regulator to ensure they are doing so in a safe and sound manner that complies
with their statutory requirements, Watt said.  To this end, FHFA has
proposed requiring Bank members to demonstrate ongoing mortgage lending
activity instead of a one-time test used when an institution applies for

In addition, FHFA has proposed clarifying the definition of insurance
company in such a way that captive insurers would no longer be eligible for Bank
membership.  While captive insurers may, in some cases, be involved in
housing finance, Watt said, their access to the Federal Home Loan Bank System
raises a number of concerns that are discussed in the proposed rule. 

Watt concluded by saying that FHFA will consider the feedback received from
stakeholders as part of its further evaluation of these five policy areas.  Its evaluations and decision making will
continue to balance its mandates of ensuring safety and soundness and ensuring
broad liquidity in the housing finance markets.  ​

Leave a Reply