FHFA Is Trying to Maintain Proper GSE Alignment

The trick has been to balance profitability and efficiency. Image: Fotolia.

The Federal Housing Finance Agency gets credit from securitization market participants for producing profitable and viable government-sponsored enterprises, but is facing questions about certain aspects of its most recent plans for maintaining or increasing the GSEs’ efficiencies.

“A number of trade groups have cautioned FHFA to prioritize some parts of the proposal over others, with contractual standardization in particular as a more distant priority,” said Wanda DeLeo, deputy director for the office of strategic initiatives at the Federal Housing Finance Agency.

“We’re considering this feedback and will likely issue another document seeking public input in this space in 2013, with additional specificity on the provisions that might be standardized,” DeLeo said.

“We’re also listening to commenters’ suggestions that we integrate lessons learned” from other efforts to set goals for standardization in securitization such as the American Securitization Forum’s Project Restart and not duplicate such efforts, she added.

“We’re sensitive to that,” said DeLeo, noting that commenters have also suggested the Federal Housing Finance Agency “be careful not to upset a functioning mortgage market” as it moves Fannie Mae and Freddie Mac toward an uncertain future.

“We certainly share that goal,” she said of the aim to ensure that credit availability for new and refinanced mortgages is maintained, noting that the agency is being careful to move forward in a “thoughtful and methodical” way.

As DeMarco noted at the meeting, the Federal Housing Finance Agency has been focused on “conserving and preserving functions of being able to execute in the secondary mortgage market” and has “tried to be smart with the use of taxpayer monies to do this.”

But some costs have been, and will continue to be incurred, to support the market, DeLeo said.

“The enterprises are in immediate need of updating their aging infrastructure,” she said. “They really need to make significant IT expenditures to keep up with the large volumes of securitizations going through their pipeline.”

In addition to getting credit for keeping a large, essential secondary mortgage market going during times when volumes have been high and financial resources have been scarce, there also is some support for the possibility that policies that might reduce differences between the two agencies’ securities might improve market efficiencies.

“The FHFA has managed a very challenging situation in a way that has kept the market functioning efficiently,” said Mahesh Swaminathan, a managing director at Credit Suisse, at the SIFMA meeting, adding that he appreciates efforts to standardize the two agencies’ processes.

“Historically, differences in Fannie and Freddie’s policies on their MBS have resulted in prepayment differences that have resulted in the market pricing those securities differently,” he told this publication. “FHFA’s efforts to align these policies are a positive development for the market.”

DeLeo at the meeting—referencing comments by DeMarco—stopped short of calling a single agency security a Federal Housing Finance Agency goal, at least in the near term.

“The goal itself is not a single security,” she said. “That being said, by having a securitization platform and by doing alignment work it does get us in a place that would make that [possible].”