The Federal Housing Finance Agency (FHFA) is requesting feedback on its proposed strategic plan for fiscal years 2015-2019.
The strategic plan sets the agency's priorities as regulator of the Federal Home Loan Bank System and as regulator and conservator of government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
The strategic plan sets forth three general goals for the agency:
- Ensure safe and sound regulated entities;
- Ensure liquidity, stability and access in housing finance; and
- Manage the enterprises' ongoing conservatorships.
Although it includes the priorities outlined in the FHFA's 2014 Strategic Plan for the Conservatorships of Fannie Mae and Freddie Mac, which the agency released in May, the FHFA has made it clear that GSE reform – including any proposed plan to bring the GSEs out of conservatorship – is not in its purview and, therefore, is not part of the overall plan.
Mel Watt, director of the FHFA, made some adjustments to the strategic plan for the GSEs after taking the helm of the agency earlier this year. Specifically, he put a stronger emphasis on bringing private capital back into the mortgage market but reduced the FHFA's focus on transitioning the GSEs out of conservatorship.
This was a fundamental change in philosophy compared to the previous iteration of the strategic plan, which included measures to reduce the GSEs' dominance in the marketplace. The 2014 plan for the GSEs no longer includes measures to reduce their combined footprint – rather, the emphasis has been shifted entirely to reducing the level of taxpayer risk, mainly by increasing the role of private capital in the mortgage market.
‘We have reformulated this goal so that it no longer involves specific steps to contract the enterprises' market presence, which could have an adverse impact on liquidity,’ Watt said when he unveiled the plan for the GSEs in May. ‘Instead, the 'reduce' goal focuses on ways to scale back Fannie Mae and Freddie Mac's overall risk exposure. This approach allows us to meet our mandates of upholding safety and soundness and ensuring broad market liquidity.’
Earlier this month, the FHFA unveiled its proposal to create a single, common security that would be issued and guaranteed by both Fannie and Freddie – and put out a request for feedback on that proposal separately.
Specifically, the agency is requesting feedback from mortgage industry professionals on all aspects of the proposed single security structure and in particular, issues regarding the transition from the current system to a single security.
Basically, the proposed structure is an amalgam of the GSEs' existing security structures. As per the FHFA's announcement, it would ‘encompass many of the pooling features of the current Fannie Mae mortgage-backed security (MBS) and most of the disclosure framework of the current Freddie Mac participation certificate [PC].’
‘FHFA's goal for the proposed single security structure is for legacy Fannie Mae MBS and legacy Freddie Mac PCs (legacy securities) to be fungible with the Single Security for purposes of fulfilling 'to-be-announced' (TBA) contracts,’ the FHFA said in a statement. ‘Because the proposed single security design would include most of the features of the current Fannie Mae MBS, an exchange option for legacy Fannie Mae MBS to Single Securities may not be necessary. To achieve the goal of maintaining maximum market liquidity, it is important to ensure that the legacy Freddie Mac PC is fully fungible with the single security as well. Therefore, if necessary, investors would be offered an option to exchange a legacy PC for a comparable single security.’
Watt announced the agency's intention to get the GSEs onto a single security when he unveiled the strategic plan for the GSEs in May. As part of that plan, the FHFA has directed the GSEs to accelerate their project to build a common securitization platform, which will likely take years to complete.
In October, the FHFA announced that the GSEs had formed a joint venture to build and operate the new platform. In addition, it established a new technology company, Common Securitization Solutions, to develop and operate the new platform.
Feedback for the FHFA's plan for a single common security for the GSEs is due by Oct. 13.
Unlike the strategic plan specifically for the GSEs, which is updated annually, the FHFA's general strategic plan covers the agency's goals over the next four years.Â
Feedback on the proposed strategic plan for 2015-2019 is due by Sept. 15.
To view the proposed plan, click here.