The Congressional Oversight Panel assessing the impact of
the Troubled Asset Relief Program (TARP) on financial stability is currently holding its
last few hearings before issuing a final report.
The panel heard last week from Patrick Lawler, chief economist for the
Federal Housing Finance Agency who was asked to address three specific issues from the perspective of FHFA.
The impact of TARP on financial stabilization and
recovery in the U.S. economy and financial sector.
Lawler told the panel that FHFA worked with the Departments
of the Treasury and Housing and Urban Development (HUD) and others to assist
borrowers who were struggling to make payments on poorly structured and
unaffordable loans. Programs developed
to some degree with TARP funds included a Streamlined Modification Program
(SMP) for Fannie Mae and Freddie Mac (GSE) loans and the Home Affordable
Mortgage Program (HAMP) for both GSE and non-GSE loans. Outside of TARP, FHFA developed the Home
Affordable Refinance Program (HARP) to facilitate refinancing of borrowers who
were upside down in their mortgages and worked again with Treasury on methods
of aiding the funding of state housing finance agencies.
Lawler said that due to these and other programs, especially
the Federal Reserve's purchase of mortgage securities, the cost of mortgage
borrowing declined and cheaper financing and foreclosure prevention programs
helped stabilize house prices. Delinquencies
continued to rise sharply as the recession worsened but have now started to
ease. Inventories of houses for sale and
the shadow inventory of homes, either withdrawn from the market by discouraged
sellers or potential foreclosures, remain high in portions of the country. "Continuation of the recent price
stability or resumption of gains in prices cannot be assumed," he
said. "But lower unemployment rates
would help considerably.
Fannie Mae and Freddie Mac's responsibilities with respect
to TARP.
Making Home Affordable (MHA) and related programs at FHFA
are funded by TARP. Comparable programs
at the GSEs, however, do not use TARP monies to support their lending and
workout activities. None-the-less the
GSE's active involvement in homeownership preservation is consistent with
FHFA's goals for safeguarding GSE assets and restoring public confidence in the
two.
Even though they do not receive TARP funds for modifications
and servicer incentives, he said, the GSEs contribute significantly to the HAMP
loan modification program volume.
Although their mortgages represent 33 percent of delinquent mortgages
eligible for HAMP they represent 54 percent of trial and permanent modifications.
In 2010 the GSEs completed 946 thousand workouts (a 120
percent increase over 2009).
Approximately 88 percent of workouts are home retention actions
including modifications, repayment and forbearance plans. The remainder are foreclosure alternatives
such as short sales and deeds in lieu which reduce the severity of the GSE
losses while minimizing the impact of foreclosures on borrowers, communities and
neighborhoods. The GSEs foreclosed on
392 thousand homes during 2010.
Lawler said that HAMP did not produce the volume of loan
modifications that Treasury initially hoped for but FHFA believes it has been instrumental
in standardizing and streamlining the industry's modification process and in
that way has contributed greatly to the sharp rise in non-HAMP modifications
that have taken place over the last two years.
Similarly, the volume of HARP refinances was much less than hoped, but
refinances outside of HARP, many using the same structure, have been ten times
as large.
The GSEs have also served as agents for TARP funded
programs. Fannie Mae acts as Treasury's
MHA program administrator and oversees the implementation and execution of new
and existing MHA programs. Its role
includes designing and implementing standards programs, serving as record
keeper and pipeline manager and coordinating with the paying agent for the
disbursement of Treasury and Enterprise funded incentives. Fannie Mae also provides guidance to
borrowers and servicers, develops and maintains websites, systems and program
tools, trains servicers and sponsors outreach in hard hit cities. Freddie Mac acts as Treasury's compliance
agent, conducting examinations and reviews of servicers' compliance with MHA
published program rules,
FHFA's interaction with Treasury with respect to the GSE
and the federal government's initiatives to promote financial stability.
Lawler said that in both the Bush and Obama Administrations
FHFA has worked closely with Treasury on critical issues brought on by the
housing crisis. He presented some
highlights of that interaction.
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Worked together to address the deteriorating
financial condition of the GSEs, addressing both financial support and a
framework for the conservatorship.
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The Emergency Economic Stabilization Act of 2008
(EESA) formed the statutory basis for Treasury and FHFA to work together on an
array of foreclosure avoidance activities as outlined above.
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The FHFA Director is a member of the Financial
Stability Oversight Board.
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The Dodd-Frank Act created numerous requirements
for FHFA-Treasury interaction on an array of activities and rulemakings
designed to promote financial stability.