Mark Calabria, director of the Federal Housing Finance
Agency (FHFA) used the annual convention and expo of the Mortgage Bankers
Association to announce changes in the agency’s requirements for certain operations
of the government sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
FHFA is seeking comments on a proposed rule requiring
the GSEs to provide advance notice to FHFA of new activities and to obtain
prior approval before they launch any new products. The rule establishes
revised criteria for determining if such notice is required and determining if
an activity is a new product that merits public notice and comment.
In a press release that accompanied Calabria’s announcement at the virtual
MBA event, the agency said it is obligated to ensure Fannie and Freddie stay
focused on their core mission and do not stray into business the market already
serves well. “This rule will help clarify the post-conservatorship housing
finance market. And it will establish a process that allows stakeholders and
the public to remain engaged in shaping the future of the housing finance
market as it develops.”
Calabria said the proposed rule, which will also outline the review process
and timelines for approving a new product “is an important step as the Agency
works to end the Enterprises’ conservatorships.”
The Housing and Economic Recovery Act of 2008 requires Fannie and
Freddie to provide FHFA with such notices and FHFA issued an interim final rule
implementing these requirements in 2009, but the rule has been little used
during the conservatorships. FHFA’s proposal retains the key concepts from the
2009 rule, while clarifying the definitions of new activities and products.
The review process only needs to occur once for each approved new product.
For example, Fannie can offer a new product that is identical or substantially
similar to one approved for Freddie – or vice versa.
Calabria assures MBA members that the process will give stakeholders reliable,
transparent opportunities to comment on new developments at the GSEs. “This is
especially important when Fannie and Freddie are pursuing new lines of business,”
The Director recapped the agencies response to the COVID-19 national
emergency and thanked MBA members for their assistance. “You have helped
millions get into forbearance plans. Now, you are helping many who are ready to
get back to paying their mortgage. And throughout it all, you have continued
underwriting the good loans that make homeownership both affordable and
sustainable.” FHFA, he said,
employment-verification, and appraisal flexibilities to keep the market
functioning as many offices closed. He announced that those flexibilities will
be extended until at least November 30.
Suspended all single-family foreclosures and foreclosure
driven evictions. The policy has protected more than 28 million homeowners and
enabled roughly 200,000 families facing foreclosure pre-COVID to stay in their
homes. This policy has now been extended through the end of the year.
Granted forbearance for up to 12 months to
distressed homeowners. The GSEs have worked with servicers to develop loan
modification options and repayment plans to prevent payment shock at the end of
the plan. About one-fifth of borrowers in forbearance with GSE loans have
continued to make payments and FHFA has directed the GSEs to treat these
borrowers as current if they seek new purchase or refinance mortgages.
Made sure that distressed borrowers do not have
to deal with endless rounds of paperwork to negotiate with their servicer and
have, learning lessons from 2008, specifically
avoided the constantly changing rules under HARP and HAMP that added so much
confusion in the last crisis.
Developed the first nationwide multifamily
forbearance project to protect renters. Landlords who are in forbearance may
not evict tenants for nonpayment of rent.
Put a four-month limit was on servicers’ obligations
to advance principal and interest payments on loans in forbearance to protect
servicer’s liquidity. The GSEs have also been enabled to purchase some
single-family mortgages that go into forbearance between closing and delivery.
Calabria said his agency’s actions have helped homeowners, renters, and the
housing market deal with this crisis, but at a cost, at least $6 billion. That
is $4 billion in loan losses from projected forbearance defaults, $1 billion in
losses from the foreclosure moratorium, and another $1 billion in forbearance
expenses. These figures could be even higher depending on the path of the
“To cover these projected losses, starting December 1, the Enterprises will
be adding an adverse market fee of 0.5 percent to some refinance acquisitions,”
he said. The fee has been tailored to ensure low-income borrowers can continue
accessing record-low rates to reduce their monthly mortgage payments and borrowers
with loan balances of $125,000 or less are exempted from the fee. Nearly half
of these are at or below 80 percent of area median income. Also exempt are
affordable refinance products, Home Ready and Home Possible. Calabria said it
is important to recognize that Congress has not provided the Enterprises any
funding to offset the costs of these policies.
The fee was originally scheduled to go into effect September 1. But after
listening to the feedback, FHFA delayed implementation until December 1. This
recognizes that Congress may take the opportunity to review alternatives.
Calabria noted that, while most financial institutions are required to
maintain reserves of loss-absorbing capital exactly for situations like this,
Fannie and Freddie were required for years to send almost every penny of their
loss-absorbing capital to the U.S. Treasury. “As a result, when I walked in the
door at FHFA, Fannie and Freddie were leveraged about 1,000 to 1. If the
Enterprises had still been leveraged 1,000 to 1, they would have already failed
in response to COVID. On the other hand, if Fannie and Freddie had more capital
when COVID hit, they would have been able to provide even more support.”
Calabria did not mention that the sweep of profits he referenced was ended by
Prior to the housing crash the biggest players in the market received
special treatment, like guarantee fee discounts, because of their size and
volume, but these are also the players who have access to capital markets.
Therefore, last year FHFA put an end volume-based discounts, variances, and
exceptions at Fannie and Freddie. Small lenders must have access to the
secondary market at terms equitable with larger players.
The Director said, “We are looking at every rule and regulation to ensure
that we are creating that level playing field across the industry.” But, he
added, there is more needed to ensure the stability of housing finance markets.
In particular, the GSEs must build capital.
“Fannie and Freddie’s combined leverage ratio is now down to roughly 250 to
1. This is certainly better than 1,000 to 1. But it is not close to safety and
soundness. In their current condition, Fannie and Freddie will fail in a
serious housing downturn.” This past May, FHFA released a re-proposed
regulatory capital framework for the GSEs. This is a critical step toward ensuring
that the Enterprises can support sustainable homeownership throughout the
It is also a critical step toward responsibly ending the conservatorships.
It was insufficient capital that triggered the conservatorships. And building
private capital is a necessary precondition to ending them, but ending the
conservatorships will be process-driven, not calendar-driven. Other critical
mile-markers include sound risk management, world-class regulation, and putting
in place prudent and sustainable lending standards.
As to that last criteria, he noted that borrower debt-to-income has been one
of the strongest predictors of forbearance and data also shows that a major
driver of today’s racial homeownership gap is that minority households went
into the 2008 crisis with extremely high levels of leverage. From 2001 to 2005,
African American and Hispanic mortgage borrowing increased 78 and 116 percent,
respectively. But from 2005 to 2015, the number of minority borrowers plummeted
by 63 percent.
Minority households lost significant amounts of wealth because of the
housing market collapse. Between 2007 and 2010, household wealth declined 31
percent for African American families and over 40 percent for Hispanic
This experience demonstrates that the benefits of owning a home require
homeownership to be both affordable and sustainable. FHFA’s job is to ensure
the Enterprises support both.
He concluded, “FHFA is implementing regulatory reforms that prepare the
Agency and the Enterprises to operate effectively outside of the
conservatorship framework. Our goals are to cement FHFA as a world-class
regulator and ensure Fannie and Freddie are first-in-class in corporate
governance and risk management.”