Yesterday, Democratic senators Mark Warner and Elizabeth Warren sent an open letter to FHFA head Mel Watt supporting his overall approach on GSE reform, and urging him to go even further with many of his current plans for Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), including development of the Common Securitization Platform (CSP).
“We believe that the government conservatorship of Fannie Mae and Freddie Mac (the Enterprises) is not a long-term solution to provide access to mortgages, and that Congress should enact comprehensive housing finance reform,” they write. “In the interim the Federal Housing Finance Agency (FHFA) can and should take step to build a housing finance infrastructure for the future.”
It is ironic that Warner and Warren specifically wrote the letter together, since Warren was one of the Democratic skeptics of the Crapo-Johnson housing reform bill, which was based on the Corker-Warner before it.
Fannie Mae: Extending the CSP to private label MBSs
As Warner and Warren are no doubt aware, the odds of a legislative overhaul of Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) in the near term are basically nil, and they support Watt’s plan to start issuing a single security using the CSP. They would like to have a more transparent process with a formal advisory board that could reach out to different stakeholders and industry leaders to make sure the final form of the CSP will really work.
And in a nod to the proposed Federal Mortgage Insurance Corp (FMIC), they ask Watt to make sure that the CSP is structured in a way that it could eventually be used for private label MBS as well. In a sense, they really are asking Watt to move toward the Crapo-Johnson (or Corker-Warner) approach to replacing Fannie and Freddie even though reform legislation is stalled.
Affordable housing initiatives
Warren’s objection to Crapo-Johnson was that she thought it could do more to provide support for affordable housing, and the letter has a few specific recommendations along these lines. They urge Watt to include insurance premiums as available capital in the Private Mortgage Insurance Eligibility Requirements (PMIERs) that are still be finalized would likely lead to lower rates for some marginal borrowers. Similarly, since the FHFA is already looking at alternatives to FICO credit scores, they ask Watt to look into allowing mortgage originators to also use alternative measures of creditworthiness.
They also want Watt to go further with the First Look program, which gives owner-occupants the right to bid first on foreclosed homes before investors get to bid, and to favor investors who intend to ultimately sell the home to an owner-occupant down the line.
The full letter can be found here FHFA_Warner_Warren_letter