Page 7 - February 2018 Disruption Report Flip Book

FANNIE MAE AND FREDDIE MAC
JAN.U-FAERBY. 2018
sings
ities | New York
ge insurance. The bill called for winding die Mac while FMIC administered the nded by guarantee fees), which would 10% losses were endured by private er-Warner bill, Johnson-Crapo kept nged. The bill faced opposition for not fordable housing. The bill was marked er put to a vote in the Senate.
ilken Plan)
reddie into lender-owned mutuals that ent. Uses the Ginnie Mae infrastructure
the Milken plan, also called the Bright- innie Mae at the center of the housing n buying and securitizing mortgages, be turned into lender-owned mutual ortgage insurance for non-catastrophic redit enhancement, Ginnie would issue ent of principal and interest to investors. Fannie and Freddie as lender-owned
risks they are willing to take.
ate regulated utilities to compete on c risk. These guarantors issue MBS via
igure 7).
plan is similar to that of the Bright-
difference is that the MBA uses the s mandated Fannie and Freddie to plan proposes that Fannie and Freddie provide non-catastrophic insurance aims to decrease their risk-taking by privately-owned utilities and by leaving mpetition from other private companies. into a government-owned corporation reddie, and other guarantors. Note that
ot yet been fully released.
ng PATH Act)
in 5 years and they are put into Mortgage Market Utility sets market
t guarantee or service mortgages.
the role of the government in housing
MBA’s PRIVATE UTILITY MODEL
Figure 7: Mortgage Bankers Association Plan
Homeowner
Servicer
Common Securitization Platform
Interest Rate Investors
Credit
Investors,
(CRT investors)
Lender
Guarantors
(Fannie, Freddie, new entrants)
Principal & interest
Provide mortgages
Principal & interest, except in default
Sell mortgages or pools
Principal & interest, even in default
CSP issues MBS and guarantees principal & interest payments
Distribute most non- catastrophic risk
Source: Mortgage Bankers Association, TD Securities
Figure 8: Declining Capital Buffers May Require Fannie and Freddie to Draw on Treasury Support
On6F.0ebruary13,2018,127mortgagebankingexecutivesattachedtheirnamestoanopenletter to membersFaonfnCieoCnogmrepsresh,eunrsgiviengIntchoemme not to cede the work of housing finance reform to the White
5.0 Freddie Comprehensive Income
House and the institutions it controls.
4.0
The correspondence asks lawmakers to back draft legislation that creates a new “guarantor-
3.0
based” system (i.e., the MBA model) that builds on the current infrastructure created and
2.0
1.0
0.0
The group believes a guarantor-based system—as opposed to an “issuer-based” system (i.e., the
maintained by Fannie Mae and Freddie Mac. The executives, members of the Mortgage Bankers Association, favor improving the system by having “two or more” guarantors.
-1.0
Milken Institute model described below)—is the best way to meet the nation’s housing finance
Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
needs. The letter’s signers believe than an issuer-based system is described as one that relies
Source: Bloomberg, TD Securities
on a “handful of larger ‘lender-aggregators’ to originate and/or acquire mortgages from smaller
on Financial Services Jeb Hensarling introduced this plan in July
lenders and issue the securities themselves, after securing the federal guarantee.”
2013. This bill aimed to repeal Fannie Mae and Freddie Mac charters 5 years after implementation, with the entities stripped of
Milken Institute’s Public/Private Plan. Milken Institute’s Michael Bright and Ed DeMarco their government charters and sold off in receivership. Under the
propose to transform Fannie and Freddie into lender-owned mutual insurance companies that
plan, FHFA would oversee a non-profit National Mortgage Market
provide credit enhancements from the private sector. The plan proposes using Ginnie Mae’s
Utility that would operate a CSP and develop market standards. The
infrastructure to issue MBS, rather than the GSEs’ CSP. The proposed structure would place
bill also prohibited the Utility from originating, servicing, or
Ginnie Mae in the center of the country’s housing finance system. Following private market credit
guaranteeing mortgages. This plan is unlikely to see support in
enhancement, Ginnie Mae would issue MBS and guarantee repayment of principal and interest to
Congress given the likely sharp increase in mortgage rates.
investors.
Timeline for reform
Despite Treasury Secretary Mnuchin’s suggestion that reform is
among the Trump administration’s top ten priorities, the initial focus
of the administration has fallen on health care, tax reform, and
© 2018 by Canfield Press, LLC. All rights reserved. www.canfieldpress.com 7
and Freddie charters 5 years after can Chairman of the House Committee
infrastructure spending. Given that the timeline for these has been pushed back, we are extremely unlikely to see GSE reform this year.
u r
a d u
k a f v
M
F m
.
G a
m c
g
F
A
y a
)
o P
F n
d
o e
i
$ Billion