The 53-page plan calls for both legislative and administrative changes. Chances for GSE legislation before the 2020 elections are remote, so insiders are looking more at the numerous administrative recommendations in the plan that can be accomplished without Congressional approval – although many of these may not come to fruition if there is a change in the Administration. That being said, here are some of the plan’s key components:
An End to the Fannie/Freddie Conservatorships: The conservatorships of Fannie Mae and Freddie Mac would end, as would the net profit sweep that was established in the 2012 amendments to the Preferred Stock Purchase Agreements (PSPAs). Treasury says it does not believe the government guarantee is needed for the mortgage-backed security market but will support legislation that authorizes an explicit, paid-for federal guarantee limited to the timely payment of principal and interest on qualifying mortgage-backed securities.
Fannie and Freddie must be recapitalized before the sweeps can end, so in the absence of an explicit guarantee, there is no date set for the end of the sweeps. Treasury and Federal Housing Finance Agency (FHFA) will develop a recapitalization plan for each GSE after identifying and assessing the full range of strategic options.
An Assessment of Fannie/Freddie Products and Services: The FHFA should level the playing field between the GSEs and the private market by reassessing the GSEs' current products and services to make sure they fall within their charters. In particular, the FHFA should solicit information on whether to tailor support for cash-out refinancings, investor loans, vacation home loans, higher principal balance loans, or other subsets of GSE-acquired mortgage loans.
Modifications to Affordable Housing Goals: Congress should replace the GSEs’ statutory affordable housing goals with a more efficient, transparent, and accountable mechanism for delivering tailored support to first-time homebuyers and low- and moderate-income, rural, and other historically underserved borrowers. Pending legislation, FHFA should consider more efficient mechanisms for the GSEs to achieve the statutory affordable housing goals.
Eliminating the QM Patch in the Qualified Mortgage Rule: Consistent with a July 25 announcement by the Consumer Financial Protection Bureau (CFPB), the Administration plans to terminate the “GSE patch” – a safe harbor under the Ability-to-Repay/Qualified Mortgage rule for loans eligible for purchase by Fannie Mae or Freddie Mac -- on its scheduled expiration date of January 10, 2021. The patch will be replaced by a “clear bright line safe harbor”. Following changes to the CFPB’s Qualified Mortgage rule, the FHFA should revisit the determination as to which single-family mortgage loans should be eligible for acquisition by the GSEs or, following legislation, should be eligible to secure government-guaranteed MBS.
These and other recommendations in the plan reflect this Administration’s broader goal of reducing the role of the federal government in housing into more limited, well-defined missions. Whether it succeeds in whole or part depends on how quickly it moves to implement the administrative portions of the plan, and, of course, the outcome of the 2020 elections.
Sue Johnson is the former executive director of RESPRO, the Real Estate Services Providers Council Inc. She retired in 2015 and is now a strategic alliance consultant.
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