Also Branded as Government Sponsored Enterprises (GSEs)
Late in February, the FHFA laid out their strategic plan for future actions they are going to take as conservators for Fannie Mae along with Freddie Mac, also branded as government sponsored enterprises (GSEs). The initial analysis from Washington was that FHFA was simply offering an outline of what Legislators should do with these GSEs. However, a careful analysis of this strategic blueprint clearly suggests that FHFA plans to do the majority, if not everything that's in the plan covering their present authority. Another way of saying that, within their conservatorship powers, they are going to embark on transforming the GSEs while at the same time making an attempt to shelter the taxpayers from additional losses and assist existing borrowers in dealing with loan defaults and other issues. The plan contains good, mixed and bad facets. Here are a few of the goods and not so good points.
FHFA is planning to transform and bring these GSE securitization platforms up to date. They are going to unite the two platforms while at the same time bring them up to date within a single securitization structure. It's a potentially good as it's a step toward maintaining a significant core function the GSEs have supplied a solid, uniform way of securitizing mortgage packages for sale. FHFA is quite aware of the essential role the GSEs play and signifies that at a minimum FHFA believes this role cannot be discarded without causing great harm to the financing of housing and the overall economy.
In the not so good category, at least for our current housing situation, FHFA is planning on continuing to increase guarantee fees and make adjustments to loan pricing as a way to increase revenue, and more significantly, make GSE finance products more costly, thus much less attractive. Much in the same way that the Federal Reserve increases interest rates as a way to decrease the demand, FHFA (and along the same lines, FHA) has been raising premiums, pricing and fees to have their loans become more unattractive and diminish market share. The big issue here is that now they are injuring borrowers who either must pay more than essential or cannot afford a mortgage loan at all. Credit already too tight and this is only going make it more stringent and expensive.
In a more encouraging area, FHFA will continue to assist troubled homeowners by improving upon the foreclosure avoidance procedures which includes short sales along with loan modifications. As almost everyone already knows, the handling of short sales is still broken, and for those homeowners who can no longer afford their homes, it is a better outcome than have a foreclosure on their credit. The same holds true for GSEs. On average they receive much less from a foreclosure sale than they receive from a short sale.
Another somewhat encouraging development is FHFA plans to become more transparent when it comes down to what instigates a loan buyback circumstance. Loan buybacks are the foremost cause of credit tightening at the lender stage. Lenders have added on credit overlays over and beyond the GSE and FHA rules simply because they live in fear of the possibility of every delinquent loan being returned to them in the form of a loan buyback circumstance. Bu making rules for representations warranties and buybacks clearer, will give lenders less to fear.
So the, FHFA plan has both good and bad points in it. NAR is going to be working on promoting the good points to help promote and nourish homeownership. NAR will also be seeking ways of preventing and minimizing the negative points. However the absolute best part of FHFA's plan is that they acknowledge there is no easy or quick way fix to the financial housing crisis. Abrupt and hasty changes could bring about catastrophic disorder.?
Apr 5, 2012
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