There are five key issues confronting the Federal Housing Finance Agency (FHFA) its director told a banking audience on Monday.  The five, taken together, Director Mel Watt said, address both of FHFA's roles; conservator of the two government sponsored enterprises (GSEs) Freddie Mac and Fannie Mae and regulator of the two GSEs and the Federal Home Loan Banks.   

Watt, speaking to the North Carolina Bankers Association's American Mortgage Conference, said his agency has requested public comment on all five of the issues and Monday was the deadline for comments on the first two; guarantee fee levels for the GSEs and eligibility requirements for their private mortgage insurer counterparties. 

One of the first decisions he made as Director, Watt said, was to suspend the increases in guarantee fees announced last December.  He believed that it was critical to evaluate the fees and get feedback from stakeholders because of the significant impact the increases could have on the GSEs, housing finance markets, and borrowers.  The request for comment asked for specific responses of how the fees affect various aspects of the mortgage market.

Another area on which FHFA has focused has been efforts to strengthen the GSE's counterparty requirements for private mortgage insurers.  These PMI companies have always played an important role in meeting the statutory requirement that borrowers with less than a 20 percent down payment have some private capital standing behind the loan to be eligible for GSE purchase.  The recent financial crisis made it clear that it is critical to ensure PMI is available in both good times and bad. FHFA has drafted new eligibility standards for these lenders is designed as a counterparty risk management tool for the GSEs.  

With the comment period on these two issues ended, FHFA will review and consider responses, Watt said, and consistent with FHFA's statutory mandates, will assess and make policy decisions taking into account both safety and soundness considerations and possible impacts on access to credit and housing finance market liquidity.  Watt said that the inter-related nature of the two topics led FHFA to align the comment periods but that the decisions on each would be separate. 

In August FHFA's proposal for a Single Security structure for the GSEs was issued and comments requested as were proposed housing goals for the GSEs for 2015 through 2017.  Last week the fifth issue, a proposed rule to update and clarify certain aspects of Federal Home Loan Bank membership requirements was released for comment.

The Request for Input on the Proposed Single Security Structure comes in the early stages of developing that security, Watt said, because FHFA wanted to facilitate robust discussions from all stakeholders and the public.  He highlighted four aspects of that structure.   

First, FHFA's top priority in pursuing the Single Security is to deepen and strengthen liquidity in the housing finance markets and getting it right will have real world benefits for the markets and for borrowers.  An effective Single Security will support a more liquid "to-be-announced" (TBA) market for mortgage-backed securities and can also further strengthen market liquidity by reducing the trading disparities between Fannie Mae and Freddie Mac securities.   

Second, FHFA hopes to leverage the existing security structures used by the GSEs and avoid designing a structure from scratch.  In the proposal, the Single Security would use many of the security features in Fannie Mae MBS and the disclosure regime used by Freddie Mac PCs. 

Third, FHFA's proposal also focuses on the importance of making Fannie Mae and Freddie Mac's existing securities equally interchangeable with the future Single Security. Without this flexibility current market liquidity could be impacted.   Getting feedback on this approach is critical to the Security's success.  

The fourth point Watt touched on is the agency's timing for developing the Security.  He stressed that the Request for Input and the proposal are just the first steps in a multi-year process.  The next step is to work with the GSEs to process the feedback that is received.  FHFA, he said, will continue to produce updates on both the Common Securitization Platform and the Single Security where appropriate.

The last two areas involve FHFA as regulator.  The agency has proposed affordable housing goals for the GSEs for the next three years and the comment period on that proposal remains open until the end of October.  Watt said that challenges exist in today's housing market that make it difficult for many lower-income families to access mortgage financing or to find an affordable apartment to rent.  The goals measure GSE mortgage purchases for both homeownership and the provision of affordable rental housing opportunities for these families.

For affordable single-family mortgages FHFA is asking for feedback on three alternative ways to set these goals.  On the goals that address affordable rental units in multifamily buildings, FHFA has asked for comments on creating a new category for small multifamily properties that have apartments affordable to low-income families.  In recent years the GSEs have had limited purchases in this market segment which can be an important source of affordable rental housing.  

Finally, last week FHFA released another proposed rulemaking involving membership requirements for the Federal Home Loan Banks (Banks) and this, Watt said, has generated significant discussion within the industry.   The Banks have a mission to support housing finance and it is FHFA's role as Regulator to ensure they are doing so in a safe and sound manner that complies with their statutory requirements, Watt said.  To this end, FHFA has proposed requiring Bank members to demonstrate ongoing mortgage lending activity instead of a one-time test used when an institution applies for membership. 

In addition, FHFA has proposed clarifying the definition of insurance company in such a way that captive insurers would no longer be eligible for Bank membership.  While captive insurers may, in some cases, be involved in housing finance, Watt said, their access to the Federal Home Loan Bank System raises a number of concerns that are discussed in the proposed rule. 

Watt concluded by saying that FHFA will consider the feedback received from stakeholders as part of its further evaluation of these five policy areas.  Its evaluations and decision making will continue to balance its mandates of ensuring safety and soundness and ensuring broad liquidity in the housing finance markets.  ​