MBA To FHFA: More Specificity, Please

The Mortgage Bankers Association (MBA) this week sent a letter to the Federal Housing Finance Agency (FHFA) in response to the FHFA's proposal to establish a framework for the conservatorship and receivership for the government-sponsored enterprises (GSEs).

In the letter, dated Sept. 7 and addressed to FHFA General Counsel Alfred M. Pollard, the MBA's chairman-elect, Michael D. Berman, and president and CEO, John A. Courson, outlined three primary concerns with the proposal, which they call ‘overly theoretical.’

First, the MBA says the FHFA's proposal speaks in generalities about how the FHFA would resolve claims among competing claimants if the GSEs were to fall into receivership. The trade group pushes for greater specificity, such as identifying how each class of claimants would be handled. The FHFA's proposal notes that preferred shareholders would be wiped out, but it does not address subordinated debt holders.

The FHFA's proposal also does not provide details on what would happen to mortgage servicing rights or shared-risk arrangements (e.g., lender agreements entered into under Fannie Mae's Delegated Underwriting and Servicing Program). The MBA recommends designating servicing and shared-risk arrangements as ‘qualified financial contracts,’ which are afforded certain protections.

‘For many reasons, FHFA should make clear that existing servicing arrangements and agreements will not be candidates for repudiation under receivership, and that keeping existing servicing rights in place would be a precondition of any sale or transfer of [mortgage-backed security] guarantee assets to a qualified purchaser,’ the letter says.

The MBA's second major concern with the FHFA's proposal is that it offers no guidance on what type of event would cause the GSEs to be placed into receivership.

‘Fannie and Freddie have already moved well beyond the points where any other financial institution would have been put into receivership,’ the letter states, adding later that the FHFA ‘should discuss the criteria it will use in deciding when to finally put Fannie Mae and Freddie Mac into receivership, particularly because the ultimate costs to the taxpayers increase the longer a decision is postponed.’

Criteria for a trigger point, as suggested by the MBA, include the point at which new secondary market entities have been agreed on or the point at which the costs of maintaining conservatorship outweigh the costs of operating under receivership.

Lastly, the MBA recommends that the FHFA specify its goals in receivership, such as whether the FHFA would follow the least-cost model of receivership (i.e., the model used by the Federal Deposit Insurance Corp. in taking over failed banks) or a different strategy.


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