MBA’s Stevens: ‘Recap And Release’ Of GSEs Would Be A Big Mistake
One thing that David Stevens, president and CEO of the Mortgage Bankers Association (MBA), made perfectly clear during his opening remarks during the MBA’s National Secondary Market Conference and Expo, held April 30 to May 3 in New York City, was that recapitalizing government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac and releasing them back to the private sector “as is” would be an irresponsible means of achieving GSE reform.
“Advocating for ‘recap and release,’ especially without significant reform first, is crazy,” Stevens told the crowd of mortgage bankers and secondary market participants. “And you know the definition of insanity: doing the same thing over and over again hoping for a different result. We have come too far. Let’s move forward, not backward, and recognize that this is moving forward one way or the other.”
Indeed, the topic of GSE reform was front and center throughout much of this year’s conference. That’s partly because the MBA recently released its own proposal for GSE reform in the form of a white paper, “GSE Reform: Creating a Sustainable, More Vibrant Secondary Mortgage Market,” which calls for the GSEs to be “congressionally re-chartered” – in other words, re-privatized but operating with an “explicit guarantee” on the mortgage-backed securities they issue. The white paper offers a more detailed description of the MBA’s previously announced GSE reform proposal, which was first introduced in January.
Whether any of the MBA’s recommendations actually make it into GSE reform legislation – and further, whether any legislation is actually drafted – remains to be seen. As Stevens pointed out, the Trump administration and certain Senate and House leaders have indicated that GSE reform is a “top priority” for this year. For example, Secretary Steven Mnuchin said during a recent interview that he is “committed that under this administration, we’re going to have housing reform so that we don’t just leave these entities the way they are. They’ve been sitting there for too long of a period of time, and we need a solution.” In addition, Mark Calabria, Vice President Mike Pence’s chief economist, said in March that “a set of principles” for GSE reform would likely emerge in the coming months. Still, many others point out that GSE reform will likely take years to implement, even if a definitive proposal is approved this year.
There are some – including investors who held onto their stock following conservatorship – who feel that the best thing to do is to return Fannie Mae and Freddie Mac back to the private sector under the current rules under which they operate, and if they fail, they fail.
Stevens implied that to do so would be a huge mistake.
“Simply put, ‘recap and release’ is more like rewind and repeat,” he said. “It would return the GSEs to their previous state without safeguards to ensure the positive progress during conservatorship remains and without any guarantee the agencies will operate in a manner that protects the taxpayer going forward. This is dangerous ground that destabilizes the system and does nothing to protect our economy, our homes or taxpayers from another bailout. Rather, recap and release is a ‘solution’ designed to protect the personal pocketbooks of a select few.
“This misguided dialog threatens to recreate the very crisis it purports to avoid and destabilize the level playing field for all eligible lenders to compete in this market equally,” Stevens added. “The financial crisis plainly exposed the structural conflicts, misaligned incentives and other weaknesses associated with the GSE business model and regulatory framework. The result was a catastrophic failure of the secondary mortgage market that required more than $187 billion in direct taxpayer support and a continuing federal commitment of more than $240 billion.”
Stevens, however, acknowledged that the GSEs, under their regulator, the Federal Housing Finance Agency (FHFA), have made great strides to fix the operational problems that led to these failures.
“[The] FHFA has made significant progress mitigating some of the key flaws in the GSEs’ operations that distorted the market in the run-up to the crisis, including bringing parity and transparency to their pricing models, moving toward a single security, and developing the common securitization platform,” Stevens said.
Still, “simply recapitalizing the firms and releasing them – without structural reforms – would threaten to bring back the same flawed incentive structures that contributed to the GSEs’ failure,” he said.
Regardless, Stevens said he is optimistic that GSE reform is finally going to happen this year.
“While we have come a long way and made many substantial changes to protect the housing system, GSE reform is the last piece of unfinished business before we can move forward with true housing recovery,” Stevens said. “On the Hill, within the administration and among major stakeholders, activities around housing run high, showing a lot of promise for housing finance reform.
“Both Congress and the administration are pursuing GSE reform legislatively – that is a fact,” he later added. “The teams are on the field, and the game is in play; the choice is to either stand on the sidelines and protest or get in the game. [The] MBA plans to get in the game to help craft a solution that works for all lenders, consumers and the housing finance system. There is no other option but to engage and lead on this subject.”
CoreLogic Introduces New Mortgage Portfolio Valuation Tool
CoreLogic has introduced a new tool to help lenders and investors evaluate and understand the collateral value of their mortgage portfolios on a periodic basis.
The new, self-service, on-demand, fixed-cost solution, dubbed Total Home Value for Portfolio Monitoring, leverages CoreLogic’s suite of automated valuation models (AVMs).
The company claims its AVMs deliver the highest levels of accuracy, as well as excellent geographic coverage.
Valuation hit rates of 97% have been achieved by early client adopters of the new portfolio monitoring solution, CoreLogic says in a release.
Using this new solution, organizations will be able to proactively monitor their entire mortgage portfolio, which, in turn, will help them properly set reserves. Users will also gain insight into changes in mortgage portfolio valuations. The solution will help them to identify trends and risky markets early and better align risk with business policy, the company says.
Freddie Mac Completes Its Second Seasoned Credit Risk Transfer Offering
As part of its ongoing effort to transfer mortgage credit risk away from taxpayers and into the private market, Freddie Mac recently completed its second Seasoned Credit Risk Transfer offering – a rated securitization of approximately $1.12 billion of both guaranteed senior and unguaranteed subordinate securities.
More specifically, the deal includes the issuance of approximately $926 million in guaranteed senior certificates and approximately $190 million in unguaranteed mezzanine and subordinate certificates.
The collateral backing the certificates is 4,361 fixed- and step-rate modified seasoned loans. These loans were modified to assist borrowers who were at risk of foreclosure to help them keep their homes and have all been performing for at least 12 months as of issuance, the company says in a press release.
The loans will be serviced by Select Portfolio Servicing Inc., which will service them in the same careful and thorough way that a pool of nonperforming loans would be serviced.
To date, Freddie Mac has sold about $7 billion in nonperforming loans, securitized about $26 billion in re-performing loans and transacted about $2 billion in structured offerings as part of its effort to get more distressed assets off its books.
Clayton Holdings Now Offering Enhanced Internal Audit Services Program
Clayton Holdings says it has developed an enhanced internal audit services program designed to help bank and lender clients develop, manage and enhance their internal risks and controls programs, as well as comply with new government-sponsored enterprise (GSE) and Consumer Financial Protection Bureau (CFPB) requirements.
The new internal audit program leverages Clayton’s in-depth industry knowledge and combines it with seasoned professionals to deliver operational efficiencies, the company says in a release.
The provider of loan due diligence, surveillance, real estate owned management, consulting, valuation, title and settlement services says this new audit program will help lenders strengthen their internal audit activities in several areas, including risk assessment design/performance; turnkey development of internal audit functions; internal audit process reviews/enhancement; and remediation of gaps in existing audit programs.
“The GSEs, investors, corporate boards and regulators are all focusing on the importance of managing internal risks and controls,” says Jeff Tennyson, president of Clayton. “Fannie Mae now requires seller/servicers to have internal audit and management control processes, and the CFPB is mandating and examining for compliance management systems. Our new offering helps clients identify gaps and inadequacies in existing functions before GSE and regulatory reviews and to design and build stronger processes. Depending on the client’s need, our role can range from reviews to training and from problem remediation to turnkey audit process development.”