Evercore analysts Bradley Ball, Arren Cyganovich, and Anthony Cyganovich give their input on the Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) / Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) agreement recently struck in the Senate.

Fannie Mae Freddie Mac FHFA Federal National Mortgage Assctn Fnni Me (FNMA)
Fannie Mae

Housing reform agreement reached. Senate Banking Committee Chairman Tim Johnson (D-SD) and ranking Member Mike Crapo (R-ID) announced today that they have reached an agreement on a housing finance reform proposal. According to the press release, the agreement includes measures and support from both Democrats and Republicans. The agreement aims to: 1) protect taxpayers from bearing the cost of a housing downturn; 2) promote stable and efficient mortgage markets; 3) ensure 30-year fixed rate mortgages continue to be available; 4) provide equal access for lenders of all sizes in the secondary market; and, 5) facilitate broad availability of mortgage credit for all eligible borrowers.

Timeline

Both Johnson and Crapo are working on finishing up the legislative draft text that is planned to be released publicly in the coming days. Note: the Senators had previously targeted YE13 for completion. They plan to hold a markup in the coming weeks (a markup is the process by which congressional committees and subcommittees debate, amend, and rewrite proposed legislation).

Uses Corker-Warner bill as base

According to the press release, the agreement starts with the base text and generally maintains the overall architecture of S.1217 – Housing Finance Reform and Taxpayer Protection Act of 2013 (also known as the Corker-Warner bill). Thus, the new legislation maintains a fairly prominent federal government role by providing a catastrophic backstop for mortgage securities that are partly backed by private capital. Note: S.1217 was introduced in the Senate last June. See summary of S.1217 below.

Highlights of the Fannie Mae, Freddie Mac agreement

The agreement 1) calls for a winddown and elimination of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC); 2) provides specific benchmarks and timelines to guide Federal Mortgage Insurance Corporation (FMIC – established by S.1217); 3) mandates 10% private capital, up front, and creates a mortgage insurance fund for the system; 4) creates a member-owned securitization platform to issue a single, standardized FMIC-wrapped security, and permit private label securities to be issued in a manner than encourages standardization ; 5) establishes a mutual cooperative jointly owned by small lenders to ensure institutions of all sizes have direct access to the secondary market; 6) provides rules for servicers that choose to participate in the FMIC system; 7) eliminates affordable housing goals and establishes a housing related fund that focuses on ensuring there is sufficient housing available (the funds are paid through a small FMIC user fee of 10 bps that only those who choose to use the system pay); 8) allows current conforming loan limits to be maintained; 9) maintains broad liquidity in the To-Be- Announced (TBA) market and directs FMIC to take into account the impact of new products in the TBA market.

DC-Day on March 18th

To dig more deeply into mortgage-related political and regulatory topics, we will be hosting a series of meetings in D.C. next week (3/18). Please contact your Evercore sales representative for further details.