GSEs Break with Regulator on Product Review Rule

Fannie Mae and Freddie Mac — which are wards of the government — are seeking significant revisions to a regulatory rule that forces them to submit all new products and activities for review, arguing it is too restrictive and goes against congressional intent. In a rare joint comment letter sent this week to the Federal Housing Finance Agency, the two GSEs objected to several parts of the July 2 interim rule, saying it was unnecessarily burdensome and ineffective, and could make it difficult for the GSEs to help during a financial crisis. The letter marked one of the first times the two companies have publicly taken issue with their regulator, which seized them nearly a year ago and continues to manage them in conservatorship. No doubt because the companies are writing to their conservators, the letter is exceedingly polite, but it still makes clear that the GSEs think the current rule needs critical changes. On Wednesday the Mortgage Bankers Association released a working paper on overhauling the secondary mortgage market which assumes that Fannie Mae and Freddie Mac will no longer exist in the future but also calls for the creation of up to five mini-GSEs that would act as loan guarantors but without holding large on-balance sheet portfolios.