FHFA Outlines GSE Approach in Letter to Congress

On February 2, Federal Housing Finance Agency (FHFA) Acting Director Edward DeMarco outlined the FHFA’s goals and plans for supervising Government-Sponsored Enterprises Fannie Mae and Freddie Mac (the GSEs) while they are in conservatorship.  DeMarco laid out FHFA’s approach in a letter to House Financial Services Committee Chairman Barney Frank (D-MA) and Ranking Member Spencer Bachus (R-AL) and Senate Banking Committee Chairman Chris Dodd (D-CT) and Ranking Member Richard Shelby (R-AL).

DeMarco’s letter states that the FHFA’s central goal is to conserve the GSEs’ assets and minimize their credit losses from delinquent mortgages. 

The letter also states that FHFA remains committed to reducing the GSEs’ retained portfolios.  He said the FHFA does not expect the GSEs to be substantial buyers or sellers of mortgages, except for the possible purchase of delinquent mortgages out of guaranteed mortgage-backed security pools.

In the letter, DeMarco says he has instructed the GSEs not to submit new products for approval because he has determined that, “permitting the Enterprises to engage in new products is inconsistent with the goals of conservatorship.”

DeMarco’s letter also says FHFA expects the GSEs to continue to support affordable housing and will publish soon a proposed rule establishing the GSEs’ 2010 and 2011 affordable housing goals.  According to the letter, FHFA, “does not intend for the Enterprises to undertake uneconomic or high-risk activities in support of the goals nor does it intend for the state of conservatorship to be a justification for withdrawing support from these market segments.”