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The bill would replace the enterprises with a nonprofit National Mortgage Market Utility. The utility, which would not be a government entity, would operate the securitization infrastructure platform, currently being developed by FHFA and the enterprises, for eligible private-sector lenders. However, the utility would not originate, service, insure, or guarantee any residential mortgage or financial instrument associated with residential mortgages. 91 In August 2013, President Obama announced the Administration’s plans for reforming the enterprises. “I believe that our housing system should operate where there’s a limited government role and private lending should be the backbone of the housing market,” Obama said. “We can’t leave taxpayers on the hook for irresponsibility or bad decisions by some of these lenders or Fannie Mae or Freddie Mac. We’ve got to encourage the pursuit of profit, but the era of expecting a bailout after you pursue your profit and you don’t manage your risk well—well, that puts the whole country at risk. And we’re ending those days.” 92 The Administration’s plan includes four core principles: • Put private capital at the center of the housing finance system; • Wind down the enterprises; • Ensure widespread access to safe, responsible financing, like the 30-year fixed-rate mortgage; and When announcing the Administration’s plan, President Obama indicated that he supports the Senate bill. 94 Section 3 of this Semiannual Report provides a discussion of the roles of soundness, oversight, and balance in a reformed mortgage market. Lawsuits/Settlements On July 25, 2013, FHFA announced that it had reached an $885 million settlement with UBS Americas Inc. covering claims for alleged violations of federal and state securities laws in connection with private-label MBS purchased by the enterprises. Under the terms of the agreement, UBS Americas Inc. will pay approximately $415 million to Fannie Mae and $470 million to Freddie Mac to resolve claims related to securities sold to the companies between 2004 and 2007. 95 FHFA alleged that the company failed to perform proper due diligence during the underwriting process and that disclosure documents contained misstatements and omissions about the mortgage loans underlying the private-label MBS, including false or inadequate characterizations of the mortgage borrowers’ creditworthiness, the quality of the origination process, and the practices used to evaluate and approve the loans. 96 The case was 1 of 18 filed by FHFA against financial services firms involving private-label MBS; it is the third case that has been reported as settled. 97 • Support affordability and access for renters and homeownership for first-time buyers. 93 Semiannual Report to the Congress • April 1, 2013–September 30, 2013 51
Section 3: Lessons for Housing Finance Reform: Five Years After the Federal Government’s Takeover of Fannie Mae and Freddie Mac Introduction Five years have passed since the enterprises entered conservatorships in September 2008, where they still remain. In the meantime, Congress continues to consider the future of the secondary mortgage market and what, if any, role the government should play in it. 98 As policymakers deliberate, we offer this discussion, which draws on our experience, of three factors that are important to a safe, stable, and liquid mortgage market—whatever its ultimate structure. 99 • First, soundness. The recent housing crisis has shown that, at minimum, the secondary mortgage market needs quality underwriting, robust risk assessment, and market-aligned servicing. • Second, oversight. Our work demonstrates that effective housing finance oversight requires wellequipped regulators to verify decision making and to enforce compliance. • Third, balance. Whatever the future mortgage market’s structure, participants will have to find a balance among interrelated laws, roles, and practices. Below, we discuss how these factors bear on housing finance. Our goal is not to take sides but to provide our stakeholders—FHFA, Congress, policymakers, and the public—with information that will be useful during the debate on housing finance reform. Context: Reforms and Reformers Historically, the enterprises have facilitated the flow of mortgage credit by purchasing mortgages from lenders, who, in turn, are freed up to make more mortgage loans. 100 When the housing bubble burst, though, the enterprises became insolvent, which ultimately resulted in their entering conservatorships under FHFA’s supervision. Since then, the agency has worked to conserve and preserve their assets and to ensure that they follow prudent business practices. Initially, FHFA understood the conservatorships to be temporary while, in the Acting Director’s words, “Congress and the Administration could figure out how best to address future reforms.” 101 As the conservatorships became more long term, the agency advised that it would continue to guide the enterprises to accomplish generally agreedupon objectives—restoring their financial fitness and reducing their market footprint—while not precluding any of the major enterprise reform proposals, which range from privatization to elimination. In July 2010, Congress responded to the nation’s recession with Dodd-Frank. This law contains several housing finance reforms that are intended to address practices that contributed to the housing boom, including reducing the risk of borrowers defaulting. 102 It also requires MBS issuers to retain credit risk in the assets they securitize, that is, to keep some skin in the game. 103 Although this law addressed some important problems that led to the housing crisis—lenders with little to lose loaning to borrowers with little to repay—it did not resolve other fundamental concerns, such as the appropriate role for the government in housing finance. In February 2011, the Administration published its vision of the government’s role in Reforming America’s Housing Finance Market. In general, the Administration argues for replacing the enterprises with the private market as the primary source of 52 Federal Housing Finance Agency Office of Inspector General
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Transparency and Certainty for Lend
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