DeMarco Discusses The New Securitization System Set To Replace Fannie / Freddie
Edward J. DeMarco, Acting Director ofrnthe Federal Housing Finance Agency (FHFA) sketched in a broad outline of thernagency’s vision for the future of the mortgage finance markets in the comingrnyears, a future that may or may not include Fannie Mae and Freddie Mac. Speaking to the National Association ofrnFederal Credit Unions Congressional Caucus, DeMarco said his agency hasrnidentified three goals for the next phase of its conservatorship of the tworngovernment sponsored enterprises (GSEs):</p
1. rnBuildrna new infrastructure for the secondary mortgage market.</p
2. rnGraduallyrncontract the GSEs’ dominant presence in the marketplace while simplifying andrnshrinking their operations; and</p
3. rnMaintainrnforeclosure prevention activities and credit availability for both new andrnrefinanced mortgages.</p
DeMarco said that building toward arnfuture housing finance system requires building systems like a securitizationrnplatform and standards for the secondary market that are accessible to small,rnmid-size, and large markets alike. A newrnsecuritization platform for the secondary market is key to this vision. </p
There may be confusion, he said, betweenrna platform and the establishment of a single GSE security. Security performance has been a long standingrnissue and establishment of the conservatorship has affected this issue inrnvarious ways. “Our immediate priority isrna single, common platform not a single security,” he said.</p
FHFA plans that this platform would be arnutility that would outlast the GSEs. rnDeMarco said he strongly believes in competitive markets and, as arnutility, the platform should enhance liquidity, standardization, andrntransparency, all of which should foster that competition. Whatever the structure of the secondaryrnmarket of the future, certain key functions will need to be performed and inrnmany cases, like developing data reporting standards, the standardization ofrnsuch functions will benefit the overall market. </p
In building a platform the agency isrncommitted to obtaining input from all market stakeholders. The GSEs arernparticipating in developing this infrastructure and identifying the issues thatrnwould benefit from public input and DeMarco said he expects the actual buildingrnthe platform to be a multi-year effort and rnFHFA will release a white paper next month on a proposed platformrninfrastructure to service as a basis for public comment.</p
DeMarco said that as FHFA and otherrnplayers prepare to transition to a new secondary post-conservatorship market hernanticipates that the GSEs will maintain their own distinct securitizationrnoperations and continue to issue their own securities. </p
DeMarco also restated announcements he had made earlier in the week aboutrnthe future path of guarantee fees and a new structure for representations andrnwarrantees. He told an audience of attendees at American Mortgage Conference onrnTuesday that guarantee fees, which have risen twice in the last year, willrncontinue on a path of gradual increases to bring GSE pricing closer to what itrnwould be were mortgage credit risk borne solely by private capital. This, it is hoped, could begin to incentivizernprivate firms to increase their participation in the mortgage market.</p
In addition, a new framework for representations and warrantees will go intorneffect on January 1 which will clarify lenders’ repurchase exposure andrnliability for future deliveries and relieve lenders of certain repurchase obligationsrnfor loans that meet specific payment requirements including exempting new loansrnthat have had on-time payment performance for 36 months and refinancing loansrnwith that record over 12 months.
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