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FHFA Announces Increase in Guarantee Fees

Posted on September 13, 2018October 29, 2018 by Safeguard

On December 9, the Federal Housing Finance Agency (FHFA) released an update titled FHFA Takes Further Steps to Advance Conservatorship Strategic Plan by Announcing an Increase in Guarantee Fees.

FHFA Takes Further Steps to Advance Conservatorship Strategic Plan by Announcing an Increase in Guarantee Fees

Washington, DC – The Federal Housing Finance Agency (FHFA) today took additional steps toward fulfilling the Strategic Plan for Enterprise Conservatorships that FHFA published in February 2012. That Plan established a conservator goal of gradually contracting Freddie Mac and Fannie Mae’s dominant presence in the marketplace while simplifying and shrinking their operations. The basic premise behind the “contract” goal is that with an uncertain future and a general desire for private capital to re-enter the market, the companies’ market presence should be reduced gradually over time.

When FHFA set forth the 2013 Conservatorship Scorecard in March, it also set an expectation that guarantee fees would continue to be gradually increased in 2013 in furtherance of the strategic plan. Today, FHFA directed Freddie Mac and Fannie Mae to raise guarantee fees in three components:

The base g-fee (or ongoing g-fee) for all mortgages will increase by 10 basis points;
The up-front g-fee grid will be updated to better align pricing with the credit risk characteristics of the borrower; and
The up-front 25 basis point adverse market fee that has been assessed on all mortgages purchased by Freddie Mac and Fannie Mae since 2008 is being eliminated except in the four states whose foreclosure carrying costs are more than two standard deviations greater than the national average.

FHFA expects these increases and decreases to produce an overall average g-fee increase of approximately 11 basis points based on loan purchases of Fannie Mae and Freddie Mac in the third quarter of 2013. This represents an average increase of 14 basis points on typical 30-year mortgages and 4 basis points on 15-year mortgages. This increase follows FHFA-directed increases of 10 basis points each announced in December 2011 and August 2012.

“Today’s price changes improve the relationship between g-fees and risk,” said FHFA Acting Director Edward J. DeMarco. “The new pricing continues the gradual progression towards more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital. The price changes provide better protection of and return to taxpayers, who are providing the capital support that keeps these companies operating. These changes should encourage further return of private capital to the mortgage market,” DeMarco said.

Today’s increases not only advance the previously stated conservatorship goals and commitments, they also advance:

the statutory directive in the Temporary Payroll Tax Cut Continuation Act of 2011 for adjusting g-fees based on risk levels;
the 2013 Financial Stability Oversight Council recommendation that g-fee increases be used to attract private capital to the mortgage market; and
the President’s August, 2013 request for FHFA to reduce taxpayers’ credit exposure by accelerating actions to draw private capital into the market to stand ahead of the Fannie Mae and Freddie Mac guarantee.

The g-fee changes being made today, including the improved risk sensitivity of the pricing framework, are important steps to enabling Freddie Mac and Fannie Mae to deepen and broaden the risk-sharing transactions with private investors they initiated this year. In the coming years, FHFA expects risk-sharing transactions to cover a growing portion of the companies’ new business and for the amount of risk transferred to private capital to continue to increase.

Elimination of the across-the-board adverse market fee (except as noted) provides recognition that the nationwide stress in housing markets has eased. The experience with mortgage defaults the past several years, however, has amply demonstrated that mortgage investors and guarantors have significantly greater costs carrying out foreclosures in the few states that stand far apart from the rest of the country. As described in more detail in the paper entitled State-Level Guarantee Fee Analysis, maintaining the 25 basis point adverse market fee in New York, Florida, New Jersey and Connecticut will provide taxpayers, as investors in Freddie Mac and Fannie Mae, an approximate compensation for the difference in foreclosure costs in those states relative to the average costs across the country. FHFA anticipates that this adverse market fee will be re-evaluated and refined at least annually. While the broad adverse market fee is being eliminated, other changes to the up-front pricing grid offset this decrease for certain mortgages.

For loans exchanged for mortgage-backed securities, the price changes will be effective with settlements starting April 1, 2014. For loans sold for cash, the price changes will be effective with commitments starting March 1, 2014. Freddie Mac and Fannie Mae will work directly with lenders to implement the changes.

Also today, FHFA released its fifth annual report on single-family guarantee fees, covering the years 2011 and 2012. The g-fee changes being announced today respond in part to the findings in this report regarding shortfalls in the risk-based pricing at the two companies.

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The Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks. These government-sponsored enterprises provide more than $5.5 trillion in funding for the U.S. mortgage markets and financial institutions.

Please click here to view the online update.

Related Media
National Mortgage News – FHFA Orders Fannie, Freddie to Raise Fees, Again

About Safeguard
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders, and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

FHFA Announces GSE Mortgage Insurance Master Policy Requirements

Posted on September 13, 2018September 13, 2018 by Safeguard

On December 2, the Federal Housing Finance Agency (FHFA) released a statement titled FHFA Announces Overhaul of Fannie Mae and Freddie Mac Mortgage Insurance Master Policy Requirements.

FHFA Announces Overhaul of Fannie Mae and Freddie Mac Mortgage Insurance Master Policy Requirements

Washington, DC – The Federal Housing Finance Agency (FHFA) today announced that Fannie Mae and Freddie Mac have completed the first major overhaul of mortgage insurance master policy requirements in many years. FHFA’s 2013 Conservatorship Scorecard calls for Fannie Mae and Freddie Mac to develop aligned requirements for master policies.

Through this ongoing effort, Fannie Mae and Freddie Mac, with FHFA oversight, have worked with the mortgage insurance industry to address and update gaps in the existing master policy framework. The new requirements will, among other things, facilitate timely and consistent claims processing.

Key improvements include:

Loss mitigation – requires that master policies support various loss mitigation strategies that were developed during the housing crisis to help troubled homeowners.
Claims – establishes specific timeframes for processing claims, including requests for additional documentation.
Assurance of coverage – sets standards for determining when, and under what circumstances, coverage under the mortgage insurance policy must be maintained and when it may be revoked.
Enhanced communication – promotes information sharing among mortgage insurers, servicers and Fannie Mae and Freddie Mac.

“Updating the mortgage insurance master policy requirements is a significant accomplishment for Fannie Mae and Freddie Mac,” said FHFA Acting Director Ed DeMarco. “The new standards update and clarify the responsibilities of insurers, originators and servicers and they enhance the insurance protection provided to Fannie Mae and Freddie Mac, which ultimately benefits taxpayers.”

Mortgage insurance master policies specify the terms of business interaction between seller-servicers and mortgage insurers. Mortgage insurers will incorporate the aligned requirements into new master policies, which will be filed with state insurance regulators for their review and approval. FHFA, Fannie Mae and Freddie Mac anticipate that the master policies will go into effect in 2014, pending review and approval by state insurance regulators. In the coming weeks, Fannie Mae and Freddie Mac will provide guidance to lenders and servicers regarding specific effective dates.

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To view the online release, please click here.

Link to Fannie Mae statement

Link to Freddie Mac statement and update

FHA Issues Annual Financial Status Report to Congress

Posted on September 13, 2018September 13, 2018 by Safeguard

On December 13, the U.S. Department of Housing and Urban Development (HUD) released an update titled FHA Issues Annual Financial Status Report to Congress.

FHA ISSUES ANNUAL FINANCIAL STATUS REPORT TO CONGRESS

WASHINGTON – The U.S. Department of Housing and Urban Development (HUD) today released its annual report to Congress on the financial condition of the Federal Housing Administration (FHA) Mutual Mortgage Insurance (MMI) Fund. The independent actuarial report shows that FHA’s Mutual Mortgage Insurance Fund (MMIF) has gained $15 billion dollars in value over the last year and now stands at negative $1.3 billion. The current capital ratio is negative0.11 percent. The actuary anticipates that the Fund will return to the required two percent capital reserve ratio in 2015, two years sooner than projected last year. Meanwhile, FHA maintains over $48 billion in liquid assets to pay expected claims.

“What is clear from the independent actuarial report is that the aggressive steps we have taken have made FHA stronger and put it on a sustainable path to fulfill its dual mission of supporting access to homeownership for underserved and low-wealth borrowers as well as supporting and stabilizing the housing market,” stated Secretary Donovan. “We look to the future and remain committed to continuing our progress to strengthen the MMI Fund so that ladders of opportunity are available to all Americans for generations to come.”

“As the value of the Fund continues to improve, FHA will make every effort to maintain this positive momentum while simultaneously ensuring qualified borrowers in underserved markets can responsibly access mortgage credit,” noted FHA Commissioner Carol Galante. “Throughout the economic crisis, FHA continued to fulfill its mission of stabilizing the housing market and providing responsible access to mortgage credit. The fact that the economy and the housing market are on the road to recovery is in part due to FHA’s efforts.”

The independent actuarial report identified several factors as drivers for the improvement in FHA’s position compared to last year, including:

Early payment delinquency rates are at their lowest levels in seven years which shows that changes in credit and underwriting policy have improved the performance of the newest books of business.
An 18 percent drop in serious delinquency rates and a 20 percent drop in foreclosures starts as a result of enhanced loss mitigations policies.
FHA REO recovery rates up 28 percent from last December, and this figure does not account for the future impact of FHA’s new streamlined short sale program which was launched in July.

The report makes clear that the steps this Administration has taken to improve the health of the Fund are beginning to take hold and we are starting to turn the page on the financial crisis that brought many institutions to their knees. These actions include tightened credit standards, adjustments to premiums, and improved and expanded use of loss mitigation and REO alternatives all while protecting access to affordable credit for qualified borrowers.

However, FHA continues to seek a number of legislative changesto build upon this momentum. These include:

Ability to seek indemnification from all classes ofFHA approved lenders;
Authority to terminate lender approval on a national, instead of regional, basis;
Revision of the compare ratio statute, to provide agilityto FHA in lender monitoring;
Tools to enable FHA to more efficiently acquire the resources necessary to monitor its portfolio and
Facilitating servicing by specialty servicers, which assists borrowers and ultimately reducescosts to the Fund.

Through the coming years, FHA will continue to focus on protecting and improving the performance of the Fund – playing its critical role of ensuring access to credit for qualified borrowers in underserved markets.

The FHA’s Role in the Housing Market

The FHA was established in response to the failure of the banking system during the Great Depression to help stabilize the economy and the housing market. When the private market couldn’t or wouldn’t provide access to credit, FHA was there, investing in our economy and preserving pathways to the middle class – just as it was designed to do. During this most recent crisis, FHA experienced a nearly five-fold increase in market share enabling it to provide critical access to credit when most needed. Today, the number of single-family loan endorsements has declined to pre-crisis levels. This decline indicates the housing market and economy are beginning to recover.

Today, nationwide foreclosure rates are down, unemployment continues to fall, and home prices are rising at their fastest rate in seven years. Further, in the first half of 2013 more than 3.5 million families are back above water on their mortgages. Despite the signs of recovery and pre-crisis level loan volumes, FHA’s market share remains higher than normal; this is a reflection of a substantial decrease in the total size of the mortgage market.

FHA continues to do its job—expanding and contracting its volume to best serve the American people when needed. During its nearly 80-year history, FHA has helped approximately 40 million Americans purchase or refinance homes—nearly 7 million of those just during the most recent crisis.

Read a comprehensive briefing on the Independent Actuary’s Report and FHA’s Financial Outlook

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HUD’s mission is to create strong, sustainable, inclusive communities and quality
affordable homes for all. HUD is working to strengthen the housing market to bolster
the economy and protect consumers; meet the need for quality affordable rental
homes: utilize housing as a platform for improving quality of life; build inclusive and
sustainable communities free from discrimination; and transform the way HUD does
business. More information about HUD and its programs is available on the
Internet at www.hud.gov and http://espanol.hud.gov. You can also follow HUD on
twitter @HUDGov, on facebook at www.facebook.com/HUD, or sign up for news
alerts on HUD’s Email List.

Please click here to view the online release.

“From the Desk Of Commissioner Carol Galante” on the release of FHA’s Annual Report

Federal Reserve Releases Guidance Holding Banks Responsible When Using Service Providers

Posted on September 13, 2018September 13, 2018 by Safeguard

On December 5, The Federal Reserve Board released guidance reminding financial institutions it supervises to exercise appropriate risk management and oversight when using service providers.

The Federal Reserve Board on Thursday released guidance reminding financial institutions it supervises to exercise appropriate risk management and oversight when using service providers.

The guidance describes factors financial institutions should consider when choosing a service provider and how service providers should be overseen. A service provider is defined as any organization or entity–such as a consultant–that enters into a contractual relationship with a financial institution to provide business functions or activities, such as accounting, auditing, loan review, compliance, and risk management.

The guidance does not discourage financial institutions from outsourcing activities to service providers, but says firms should be aware of the potential risks. If service provider relationships are not managed effectively, they may expose financial institutions to risks that can result in reputational problems, financial loss, or regulatory actions, according to the guidance.

Furthermore, the guidance states that the use of service providers does not relieve a financial institution’s board of directors or senior managers of responsibility for the activities performed by service providers. Financial institutions are responsible for ensuring that all activities conducted by service providers comply with applicable laws and regulations and are consistent with safe and sound banking practices.

The guidance is applicable to state-chartered banks that are members of the Federal Reserve System, bank and savings and loan holding companies and their nonbank subsidiaries, and U.S. operations of foreign banking organizations.

SR letter 13-19/CA letter 13-21, “Guidance on Managing Outsourcing Risk”

For media inquiries, call 202-452-2955.

2013 Banking and Consumer Regulatory Policy

Please click here to view the online release.

Fannie Mae FAQs for SVC-2012-22 Default Legal Services

Posted on September 13, 2018September 13, 2018 by Safeguard

On December 2, Fannie Mae released an update to its frequently asked questions (FAQs) for Default-Related Legal Services Questions and Answers Servicing Guide Announcement SVC-2012-22.

Fannie Mae announced new servicer requirements with respect to default-related legal services, which include foreclosure, loss mitigation (for example, deeds-in-lieu of foreclosure), bankruptcy, and related litigation, in connection with single-family mortgage loans owned or securitized by Fannie Mae.

This document provides a list of questions and answers related to Fannie Mae Servicing Guide Announcement SVC-2012-22. If you have additional questions, contact default_attorney@fanniemae.com.

Please click here to view the FAQs.

Fannie Mae Announces Eviction Moratorium During Holidays

Posted on September 13, 2018September 13, 2018 by Safeguard

On December 12, Fannie Mae released an update titled Fannie Mae Announces Eviction Moratorium for the Holidays.

Fannie Mae Announces Eviction Moratorium for the Holidays

WASHINGTON, DC – Fannie Mae (FNMA/OTC) announced today that it will issue an eviction moratorium for the holidays, as it has done in previous years. The company will suspend evictions of foreclosed single family and 2-4 unit properties from December 18, 2013 through and including January 3, 2014. For this period, legal and administrative proceedings for evictions may continue, but families living in foreclosed properties will be allowed to remain in the home.

“The holiday season is meant for quality time with family and we want to relieve anyone of the anxiety of leaving their home during this season,” said Terry Edwards, Chief Operating Officer for Fannie Mae. “We encourage any homeowner who is having difficulty making their mortgage payment to reach out for help right away. Fannie Mae will continue to help borrowers avoid foreclosure whenever possible.”

This year, Fannie Mae made it easier for a delinquent borrower to stay in their home when we introduced the Streamlined Modification which is available once someone experiences a hardship that causes them to be 90 days late with their mortgage payment.

Homeowners with Fannie Mae-owned loans can visit www.knowyouroptions.com or call Fannie Mae’s Mortgage Help Center at 866-442-8575 for information and resources on foreclosure prevention options. To find out if Fannie Mae owns your loan, visit www.knowyouroptions.com/loanlookup.

Fannie Mae enables people to buy, refinance, or rent a home.

Visit us at: http://www.fanniemae.com/progress.

Please click here to view the online release.

VA Servicer Newsflash: Loss Mitigation Clarification, Compromise Sale

Posted on September 13, 2018September 13, 2018 by Safeguard

On November 26, the U.S. Department of Veterans Affairs (VA) released a VALERI Servicer Newsflash regarding the loss mitigation process and compromise sales.

VALERI Servicer Newsflash

IMPORTANT – PLEASE READ

Clarification – Loss Mitigation Process
Servicers have the authority to assist Veteran borrowers to retain their homes or to explore options to avoid foreclosure. Borrowers must have the financial ability to support the retention options, along with a desire to retain their property. If the borrower does not want to retain the property based on the circumstances provided, servicers should document their records, and explore an alternative to foreclosure. Veterans should be advised that an alternative to foreclosure may result in a claim by VA, which will cause the loss of their entitlement.

Compromise Sale
A compromise sale is a sale to a third party for a lesser amount than the borrower’s total indebtedness on the loan. Servicers may consider a compromise sale after determining that no home retention options are feasible. Servicers may file a claim upon completion of a compromise sale to recoup the remaining debt owed by the borrower, up to maximum guaranty. The incentive payment for a compromise sale is paid with the claim payment.

FOR YOUR INFORMATION
Supporting Documentation for Appeals
Servicers are required to submit supporting documentation for an appeal within established timeframes. Loan Technicians base their review of the appeal on the documentation received within the allowed timeframe. However, Technicians have the discretion to grant extensions if they determine that extenuating circumstances will prevent the servicer from submitting the documents on time. Therefore, please contact the assigned Loan Technician prior to the appeal due date if you are encountering issues with providing documentation. Documentation provided must clearly state the basis of the appeal and support your request.

Pre-Approval Requests
As a reminder, servicers may submit a pre-approval request to VA to deviate from the requirements of a VA regulation more than once if circumstances change during the life of the loan. However, if a servicer needs to deviate from multiple regulations at one time, when making a pre-approval request they should reference all affected regulations in that one pre-approval request.

Uploading Documents in Servicer Web Portal (SWP)
If you encounter problems uploading documents in SWP, please be aware files cannot exceed 5 MB (megabytes). Check the size of your file if you receive a timeout error and try dividing the document into several smaller files. Please reach out to the VALERI Help Desk if this does not resolve the issue.

Servicer Loan Listing Report
The Servicer “Loan Listing Report” is highly useful because it provides servicers a comprehensive picture of all their VA loans in one report. Information contained in the report includes borrower name, property address, loan origination, unpaid principal balance, the latest event reported to VALERI, and more.

Please click here to view the online newsflash.

VA Increases Maximum Allowable Attorney Fees

Posted on September 13, 2018September 13, 2018 by Safeguard

On November 12, the U.S. Department of Veterans Affairs (VA) announced the Federal Register contains a notice that the VA is increasing the maximum allowable attorney fees for all terminations completed on or after December 12, 2013.

DEPARTMENT OF VETERANS AFFAIRS

Loan Guaranty: Maximum Allowable Attorney Fees

AGENCY: Department of Veterans Affairs (VA).

SUMMARY: This notice provides information to participants in the Department of Veterans Affairs (VA) Home Loan Guaranty program concerning the maximum attorney fees allowable in calculating the indebtedness used to determine the guaranty claim payable upon loan termination. The table in this notice contains the amounts the Secretary has determined to be reasonable and customary for all States, following an annual review of amounts allowed by other government-related home loan programs.

DATES: The new maximum attorney fees will be allowed for all loan terminations completed on or after December 12, 2013.

Please click here to view the notice in its entirety.

USDA Announces Funding to Improve Rural Housing

Posted on September 13, 2018September 13, 2018 by Safeguard

On November 12, the United States Department of Agriculture (USDA) released an update titled USDA Announces Funding to Improve Rural Housing.

USDA Announces Funding to Improve Rural Housing

WASHINGTON, Nov. 12, 2013 – Agriculture Secretary Tom Vilsack today announced that recipients in 45 states, the Western Pacific and the Commonwealth of Puerto Rico will receive grants to make housing repairs and improve housing conditions for limited income rural residents. Acting Under Secretary for Rural Development Doug O’Brien announced the selections on Secretary Vilsack’s behalf.

“Providing safe, reliable housing to rural residents is key to maintaining stable communities and creating jobs,” O’Brien said. “USDA has developed strategic partnerships with Tribes, community organizations and non-profit groups to improve the living conditions for thousands of rural residents.”

Funding is being provided through USDA Rural Development’s Housing Preservation Grant program. Funds are provided to intermediaries such as local governments, public agencies, federally-recognized Indian Tribes, and non-profit, faith-based and community organizations. These organizations then distribute the grants to homeowners and owners of multi-family rental properties or cooperative dwellings who rent to low- and very-low-income residents. Funds are not directly provided to eligible homeowners by USDA.

Grants may be used to make general repairs, such as installing or improving plumbing, or providing or enhancing access to people with disabilities. Funds may also be used to make homes more energy efficient.

Today’s announcement includes a $38,860 grant to Bishop Sheen Ecumenical Housing Foundation, Inc., in Rochester, N.Y., to assist 12 very-low income households. The grant will be used to repair foundations, roofs and electrical wiring, and make energy efficiency and accessibility improvements. Coupled with funding from Rural Development, the foundation’s effort will make a significant impact in rural New York. ACTION Inc. in Athens, Ga., has been selected to receive a $30,000 Housing Preservation Grant to help very-low income and low-income elderly households make repairs.

In 2009, Neighborhood Housing Services of the Black Hills, Inc., in Western South Dakota, received a $50,000 Housing Preservation Grant to help 14 families with electrical repairs, roofing and plumbing. These 14 families now have safe, secure housing.

O’Brien said that today’s announcement is another reason why Congress must get a comprehensive Food, Farm and Jobs Bill passed as soon as possible. Farm Bill programs are important to the economic vitality of rural America, and a comprehensive new Food, Farm and Jobs Bill would further expand the rural economy, he added.

View the list of recipients for Housing Preservation Grants. Each award is contingent upon the recipient meeting the terms of the grant agreement.

President Obama’s plan for rural America has brought about historic investment and resulted in stronger rural communities. Under the President’s leadership, these investments in housing, community facilities, businesses and infrastructure have empowered rural America to continue leading the way – strengthening America’s economy, small towns and rural communities. USDA’s investments in rural communities support the rural way of life that stands as the backbone of our American values.

USDA is an equal opportunity provider and employer. To file a complaint of discrimination, write: USDA, Office of the Assistant Secretary for Civil Rights, Office of Adjudication, 1400 Independence Ave., SW, Washington, DC 20250-9410 or call (866) 632-9992 (Toll-free Customer Service), (800) 877-8339 (Local or Federal relay), (866) 377-8642 (Relay voice users)

Please click here to view the online release.

US Banking Committee Statement on Housing Finance Reform

Posted on September 13, 2018September 13, 2018 by Safeguard

On November 21, the United States Senate Committee on Banking, Housing, & Urban Affairs held a hearing titled Housing Finance Reform: Powers and Structure of a Strong Regulator. Both Chairman Tim Johnson and Ranking Member and U.S. Senator Mike Crapo gave statements as prepared for delivery.

United States Senate Committee on Banking, Housing, & Urban Affairs
Housing Finance Reform: Powers and Structure of a Strong Regulator

JOHNSON ON CREATING A STRONG SECONDARY MORTGAGE MARKET REGULATOR

WASHINGTON – Today, Senate Banking Committee Chairman Tim Johnson (D-SD) held a hearing titled “Housing Finance Reform: Powers and Structure of a Strong Regulator.”

Below is Chairman Johnson’s statement as prepared for delivery:

“I call this hearing to order.

“This hearing continues the Committee’s effort to examine housing finance reform proposals. Today we will explore the current regulatory structure related to the secondary mortgage market and survey the issues related to the proposed regulatory structure in legislation.

“S. 1217 creates a new regulator—the Federal Mortgage Insurance Corporation or FMIC. This new regulator would wear many hats, as the operator of the insurance fund, the regulator of the Home Loan Banks, mutual organization, and Common Securitization Platform, and authorizer of issuers, servicers and guarantors with regard to guaranteed mortgages.

“Because the structure of the housing finance system is complex with a wide range of market participants taking part, it is critical that we have a strong, effective regulator. Any piece of legislation will need to clearly detail the structure, functions, and powers of the new regulator. This regulator will need to coordinate closely with a variety of other federal and state regulators to be effective, and have flexibility to set appropriate standards and rules. In addition, we need to consider whether the new regulator should regulate for safety and soundness, conduct exams, set capital standards, play a counter-cyclical role, crack-down on bad actors through enforcement actions, and resolve failed institutions it regulates.

“We should not forget that we have experience with a weak secondary mortgage market regulator. OFHEO was widely viewed as weak, which contributed to the problems at Fannie and Freddie and Congress created FHFA in 2008 in response. We cannot afford to return to the days of weak regulatory oversight of the secondary mortgage market, so Congress should be clear and explicit about the responsibilities and range of tools any new regulator should have.

“Today’s witnesses bring a wealth of experience to this important conversation. They will outline essential tools needed by the new regulator, as well as important lessons they have learned as regulators of the deposit insurance fund, insurance companies, and the secondary mortgage market.

“We are all aware that housing is a key part of our nation’s economy. A well-equipped, appropriately structured regulator will provide certainty to market participants and ensure a strong and stable housing finance system that provides mortgage credit to Americans across this country.”

Please click here to view the online statement.

CRAPO ON BEST STRUCTURE FOR A STRONG REGULATOR IN NEW HOUSING FINANCE MARKET

WASHINGTON – U.S. Senator Mike Crapo (R-Idaho), Ranking Member of the Senate Banking, Housing and Urban Affairs Committee, today delivered the following remarks during a Banking Committee hearing on how best to structure a strong and effective regulatory entity for taxpayer-guaranteed mortgages:

“Thank you, Mr. Chairman.

“Today, the Committee will discuss how best to structure a strong, independent regulator—with appropriate checks and balances—as part of the new housing finance system. We have a broad panel of witnesses and I thank you all for coming to testify.

“In past hearings, I have highlighted the mistakes of Fannie Mae and Freddie Mac before they were placed in conservatorship. Not only did they operate as undercapitalized companies, holding just 45 cents in capital for every 100 dollars in mortgages they guaranteed, but they acted like highly-leveraged hedge funds, purchasing nearly 40 percent of the private label subprime securities at the peak of the housing bubble.

“These forces culminated in a perfect storm whose clean-up cost taxpayers billions of dollars in bailouts, crushing our economy and undermining America’s international standing. We must learn from these mistakes.

“When considering reform we must address three pivotal issues about the new regulator: First, how can it appropriately balance its dual role as a regulator and a reinsurer in a highly complex market with diverse stakeholders? Second, what authorities and powers should be vested in the new agency to ensure it is effective without duplicating existing efforts? Third, how should we structure the governing board so that the agency is well equipped to carry out its responsibilities on day one?

“S. 1217 would create the Federal Mortgage Insurance Corporation, or FMIC, as the primary regulator for taxpayer-backed mortgages. The FMIC would provide catastrophic loss insurance funded by premiums and guarantee fees on eligible mortgage securitizations. As such, it would be a hybrid between the Federal Deposit Insurance Corporation and the Federal Housing Finance Authority.

“The FDIC was created as an independent federal agency in response to the bank failures in the 1920s and early 1930s. It is comprised of a five-person Board of Directors, with no more than three directors from the same political party. The FDIC has survived 80 years without depositors losing a single cent of insured funds, largely in part because its board is designed for long-term stability and continuity without sudden movements or extreme policy shifts.

“As the guaranteed mortgage industry will need similar stability and continuity, the new regulator should have a similar balance of views. In addition, the new regulator will serve as the principal line of defense for the taxpayers and should have a strong, clearly defined purpose.

“Its activities—and the activities of those it regulates—must result in strong underwriting standards and responsible homeownership. Any reinsurance fund, industry participant and ensuing mortgage or financial product must be well capitalized to insulate taxpayers from unwarranted risk. And, to adequately oversee a diverse industry and to coordinate with state and other regulators, the new agency will need superb technical expertise.

“In order to accomplish all these goals, we ought to reach consensus on key principles. The new regulator should be an independent agency—resolute in its mandate and unwavering to political winds. Its leadership has to be balanced out to ensure true political independence. Its safeguards and underwriting standards must be based upon qualifying standards to provide mortgages, but to protect taxpayers. Its finances must be frequently examined to ensure accountability and transparency including appropriate stress tests.

“Lastly, the agency cannot exist in a regulatory vacuum: it must coordinate with other agencies in a holistic approach to sensible regulation. Any new regulator must avoid regulatory duplication that leads to increased paperwork and regulatory burdens which increase the cost of credit while creating legal nightmares.

“Adopting these principles is crucial because the agency will be tested immediately upon it creation. Some of the immediate tasks it will have to undertake include: establish rules for the structure and use of a federally insured mortgage markets within perimeters set by Congress; determine approval criteria and guidelines for market participants; and set up a cooperative to ensure access for small participants in a manner that also maintains adequate taxpayer protections.

“Today’s hearing is a good platform to discuss how best to enable the new agency to succeed. Thank you, Mr. Chairman.”

Please click here to view the online statement.

Please click here for a related statement from the Federal Housing Finance Agency (FHFA).