This column is brought to you by the NAR Real Estate Services group.
In late February, the Federal Housing Finance Agency (FHFA) issued a strategic plan for their future actions as conservators of Fannie Mae and Freddie Mac, also known as the GSEs. The initial reading in Washington was that this was simply FHFA offering a blueprint of what Congress should do with the GSEs. However, a careful reading of the strategic plan clearly indicates that FHFA intends to do most, if not all, of what is in the plan on their existing authority. In other words, under their conservatorship authority, they will begin the transformation of the GSEs while attempting to protect the taxpayers from further losses and help existing borrowers deal with defaults and other problems. There are good, bad and mixed aspects to this plan. Here are some of the highs and lows.
FHFA plans to transform and modernize the securitization platforms of the GSEs. They will combine the two platforms and modernize them into a single structure for securitization. This is potentially a good thing because it is a step toward preserving one of the most important core functions the GSEs have provided—a solid, standardized way of securitizing packages of mortgages for sale. FHFA recognizes the important role the GSEs played and signals that at least FHFA believes that role cannot be abandoned without significant harm to housing finance and the economy.
In the category of not so good, at least for the current housing market, FHFA is going to continue to raise guarantee fees and adjust loan pricing in order to increase revenues, and more importantly, make GSE products more expensive, thus less attractive. Much in the way the Federal Reserve raises interest rates in order to cool down demand, FHFA (and for that matter, FHA) has been increasing premiums, fees and pricing to make their loans less attractive and reduce marketshare. The problem here is that they are hurting consumers who either have to pay more than necessary or cannot afford the mortgage at all. Credit has been too tight already and this will make it tighter and more costly.
In the positive area, FHFA is going to continue to help troubled homeowners through improving the foreclosure avoidance processes, including short sales and loan modifications. As everyone knows, the short sale process still needs improvements, and for those borrowers who cannot afford their homes anymore, it is a superior outcome to a foreclosure. The same is true for the GSEs. They receive far less on average in a foreclosure than they do in a short sale.
Another somewhat positive development is that FHFA plans to be more transparent with regard to what would instigate a loan buyback situation. Loan buybacks have been a principal cause of tightening credit at the lender level. Lenders have added credit overlays above and beyond the rules for the GSEs and FHA simply because they fear every delinquent loan could be put back to them as a buyback. If the rules on buybacks, representations and warranties are clearer, lenders will have less to fear.
As you can see, FHFA’s plan has some good and bad in it. NAR will be working to promote the good parts that will help sustain and promote homeownership. NAR will also seek to prevent or minimize the negative impacts. Perhaps the best part of the FHFA plan is the acknowledgment that there is no quick and easy fix to the housing finance system. Abrupt and not well thought-out changes could lead to catastrophic disruptions.
Ken Trepeta is the director of Real Estate Services for the National Association of Realtors®.
