Tell FHFA Your Thoughts On Fannie & Freddie Affordable Housing Goals
- October 16, 2014
Tell FHFA Your Thoughts On Fannie & Freddie Affordable Housing Goals
UPDATE:
Thanks to our members who have already submitted comments!
Ronald writes, “As a FMCC shareholder, and as a real estate broker of almost 40 years, I believe that the FHFA should set goals of 1) Relisting the FMMC and FNMA stock; 2) Removing both entities from conservatorship; and 3) Shelving any proposals to wind down the GSEs ASAP. My view of the housing crises and resulting GSE financial problems is that the GSE’s problems were not as much a result of GSE practices as they were the result of the repeal of the Glass-Steagall Act, i.e., deregulation, which resulted in a wide variety of ill-conceived new lending products and fraudulent activity by mortgage lenders, their underwriters, investment bankers, and rating agencies, all of whom worked together to dupe the GSEs into buying substandard loans. This must be the case given the record amount of cash settlements between the aforementioned and the FHFA. Accordingly, if the GSEs were not at the root of the problem, why should they be wound down and why should American homebuyers and GSE shareholders be punished?
Some people believe that FMCC and FNMA represent too great of a systemic risk to be allowed to survive. Such fears are unfounded, as the GSE system has roots going back to the housing collapse during the Great Depression, and the system seems to have worked well for more than 50 years before the repeal of Glass-Steagall led to the crack binge of bad lending practices that ultimately sank the mortgage market and caused the housing collapse. Winding down the GSEs without damaging the housing market is a pipe dream since the GSEs probably represent 80% or more of the secondary market, and there wouldn’t be enough private entities to fill the void left by their demise, which would be sure to drive up lending costs thereby reducing housing affordability. Furthermore-and most important-one of the reasons that the GSEs have been so successful in being able to attract the vast amounts of capital necessary to conduct their operations is because of the explicit backing of the full faith and credit of the US Government. Huge funds all around the world that buy the GSE’s paper are required by their investment criteria to only buy US Government guaranteed paper, which means that most such investors couldn’t buy private agency debt even if they wanted to, which means that private agencies couldn’t raise the capital necessary to efficiently run the nation’s secondary mortgage market.
The FHFA should set goals to honor the terms of the FNMA and FMCC conservatorship and restore them to profitability because winding them down will damage shareholders, investors, homeowners, and the American economy.”
Mark writes, “I’m concerned about recent proposals that would wind down Fannie and Freddie, because these institutions are an indispensable part of making home ownership affordable. Proposals to eliminate that GSEs would be disruptive to mortgage markets, threaten home ownership, and be at odds with the responsibilities of FHFA as the conservator of these institutions under the HERA statute.
Also, I am upset about the government’s conservatorship, which was not intended to be permanent. It could have placed them into receivership but did not. HERA, passed by Congress and signed into law by the President, prescribes FHFA’s duty to conserve value for shareholders and to nurture the institutions back to profitability. Shareholders have rights under the constitution, and FHFA has responsibilities under the law – and both preclude the Treasury’s decision in 2012 to take 100% of profits on an ongoing basis, which permanently undercapitalizes the institutions and does not allow investors any return on their investments.
I want the government to immediately stop the illegal Third Amendment Sweep and allow the GSEs to begin rebuilding their capital base. Fannie and Freddie should be released from conservatorship now.”
An anonymous investor writes, “The manner in which FHFA has been acting on behalf of Fannie Mae and Freddie Mac as conservator has been slow, inefficient and detrimental to the U.S housing economy and to the average American home buyer. The current macroeconomic situation in housing is a direct result of the profit driven greed of mortgage brokers, banks and other intermediaries that forged documents, lied, cheated, misrepresented, falsified, fabricated, misstated and deceived Fannie Mae and Freddie Mac underwriting guidelines. As a result, housing has retracted and is currently stagnated at best. Flippers, foreign buyers and large real estate investors have dominated purchases of U.S. real estate since 2009 and on. They have the ability to pay all cash and stack their real estate holdings through leveraging their real estate portfolios through private funding and portfolio loans. The U.S. has largely become a renter nation because of FHFA inaction.
Credit score requirements are right now the single largest barrier to qualifying for a home purchase. Even if a home buyer has the ability to put down 50% to purchase a home and want to finance the balance they are not going to be able to get a mortgage if they have a low credit score, even if they meet other requirements such as DTI, income verification etc… Meanwhile someone with a high credit score that can barely afford 3% as a down payment could qualify, ceteris paribus. Do you see a problem with that?
The hassle of going through credit bureaus to rectify an inconsistency or inaccuracy is time consuming, expensive and beyond difficult, most people can’t handle the frustration that comes along with it. According to a recent FTC study 26% of credit reports were found found to have at least one error on their credit reports.
While I believe g-fees should be higher for home buyers that put down a lower down payment, I do not believe g-fees should be as high with someone who is able to put a higher down payment. I also believe there should be a loan option available for home buyers that put down 50% or more to allow for a waiver of credit score requirements. Due to the ‘financial crisis’ it is difficult for a lot of people to get their credit scores back up to FHA requirements.
The looting of Fannie Mae and Freddie Mac capital reserves through the unconstitutional net worth dividend sweep and the 10% per yearly portfolio decline to $250 billion ‘wind-down’ is a major concern. The concerns I have are firstly, the 10% per year decrease in the size of the MBS portfolio resulting in the inability to increase retained mortgages on the books to support American home ownership. Secondly, to the stability of the GSE’s in sweeping all profits away from the GSE’s, which will only exacerbate any future problems by limiting their reserves. Thirdly, as a long term shareholder in FNMA and FMCC, I have legitimate concerns about my investment. Fannie Mae and Freddie Mac are the 2 pillars of the housing market and they have been around for decades promoting home ownership and in making financing available for the average American. I see absolutely no need to change them, wind them down, defund, restructure them, or do anything except to allow them to rebuild their capital and conduct their regular course of business, as they have for decades, with strict oversight.”
Jeff writes, “I think the only “goal” that Fannie Mae and Freddie Mac should have is to accept only good, quality mortgages for bundling into mortgage-backed securities. That is how any privately-owned company should operate. I think FHFA should release the companies from conservatorship and once again make them part of the private sector.
To give these companies any other “goal” … like accepting substandard mortgages, mortgages from non-credit worthy applicants, mortgages from certain areas of the country, etc. is to invite another financial crisis.”
We appreciate everyone’s comments and encourage others to submit their thoughts.
The Federal Housing Finance Agency is asking for public comment on housing goals for Fannie Mae and Freddie Mac over the next three years. This is a routine “ask” for federal agencies, which are required to solicit public comments for various rulemaking processes and such. It’s one of those many functions of government that the general public never really thinks about. But these comment periods are an important way for citizens to make their voices heard. Do bureaucrats read the comments? We certainly hope so, and we would encourage everyone who has a vested interest in Fannie and Freddie to take advantage of this opportunity. The comment period closes Tuesday, Oct. 28.
Check out Mortgage News Daily for a good write-up on this. You can submit your comment via webform here. The agency asks that if you use the web portal that you also email your comment to them at [email protected] and include in the subject line, “Comments/RIN 2590-AA65.”
Your comment doesn’t need to be long or complex or contain reams of data. And if you do submit a comment, let us know! We’ll reprint comments from Investors Unite members here on the blog so be sure to email your comment to us after you submit it.
We have already submitted our comment. Click here to read the full comment; here’s an excerpt:
“Affordable housing, as a matter of policy, is an admirable goal for the federal government. There are countless families and individuals working hard to save up enough for a down payment on a home. But we’re concerned about recent proposals that would wind down Fannie and Freddie, because these institutions are an indispensable part of making home ownership affordable. Proposals to eliminate that GSEs would be disruptive to mortgage markets, threaten home ownership, and be at odds with the responsibilities of FHFA as the conservator of these institutions under the HERA statute.”
… “The government’s conservatorship was not created to be longstanding or permanent. It could have placed them into receivership but did not. HERA, passed by Congress and signed into law by the President, prescribes FHFA’s duty to conserve value for shareholders and to nurture the institutions back to profitability. Shareholders have rights under the constitution, and FHFA has responsibilities under the law – and both preclude the Treasury’s decision in 2012 to take 100% of profits on an ongoing basis, which permanently undercapitalizes the institutions and does not allow investors any return on their investments.
“With this as context, Investors Unite believes the best way to ensure the availability of affordable housing is to immediately stop the illegal Third Amendment Sweep and allow the GSEs to begin rebuilding their capital base. Eventually a reformed Fannie and Freddie should be released from conservatorship. None of this would prevent the government from making a substantial return on its loans to these institutions: Besides the principal pay-down through excess dividend payments that has already occurred under the sweep, the U.S. owns 80% of the equity through common stock, which some have estimated to be worth more than $200 billion alone. This would be a huge return for the taxpayer, and would actually produce funds that could be placed into an affordable housing trust to help troubled borrowers.”