James B. Lockhart III, director of the Federal Housing Finance Agency (FHFA), has testified before the Senate Committee on Banking, Housing and Urban Affairs on the appointment of FHFA as conservator for government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac.
‘Although it is very early, the first signs are that the conservatorships have had a very positive impact on mortgage markets,’ Lockhart stated in his testimony. ‘A lack of confidence had resulted in continued widening of the spread between yields of their MBS and yields of Treasury securities, which meant that virtually none of the large drop in Treasury interest rates over the past year had been passed on to the mortgage markets.
‘On top of that, Freddie Mac and Fannie Mae, in order to try to build capital, may have raised prices and tightened credit standards beyond what was necessary for sound underwriting,’ he continued.
‘I am pleased to say early indications are that the enterprises' funding costs have declined, as have spreads on mortgage securities,’ he added. ‘This lower cost has been passed on to home buyers, with 30-year fixed-rate mortgage rates below 6 percent for the first time since January.’
FHFA is scheduled to act as the conservator to operate Fannie and Freddie until they are stabilized.
‘During the conservatorship period, FHFA will continue to work expeditiously on the many regulations needed to implement the new law,’ Lockhart noted. ‘Some of the key regulations will be minimum capital standards, prudential safety and soundness standards and portfolio limits. It is critical to complete these regulations so that any new investor will understand the investment proposition.’
Source: Federal Housing Finance Agency