FHFA Reports Fannie and Freddie Made Progress on 2018 Scorecard Objectives

The Federal Housing Finance Agency (FHFA) this morning released a Progress Report outlining the various activities Fannie Mae and Freddie Mac undertook in 2018 to meet FHFA’s regulatory objectives for the firms. FHFA first outlined its goals for Fannie Mae and Freddie Mac in its 2014 Strategic Plan for Enterprise Conservatorship and provided further details in its 2018 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions (CSS).

Both the Strategic Plan and the Scorecard laid out three core objectives for Fannie Mae and Freddie Mac: maintaining credit availability and foreclosure prevention activities; reducing taxpayer risk through increasing the role of private capital in the mortgage market; and continuing to build a new common securitization platform for Fannie Mae and Freddie Mac mortgage-backed securities (MBS). In general, the report finds that both firms have made progress toward meeting their objectives for all three categories.

Credit Availability and Foreclosure Prevention Activities

The report outlines various activities Fannie Mae and Freddie Mac undertook last year to help increase single-family lending to underserved borrowers. The 2018 Scorecard included as part of this objective having Fannie Mae and Freddie Mac look to increase their partnerships with state HFAs. The report credits both firms with working with HFAs and stakeholders to explore common elements in various HFA programs and how certain program aspects can be streamlined. It also cites efforts by both firms to increase access to credit for non-English-speaking borrowers, implement a new aligned forbearance program and other loss mitigation updates, study ideas for modernizing the appraisal process, and encourage lenders to finance more small balance loans. Fannie Mae and Freddie Mac also continued their multi-year study, started in 2017, of the challenges and opportunities facing the mortgage servicing market.

In addition, the report finds that Fannie Mae and Freddie Mac continued to support financing for underserved sectors of the multifamily market, including units affordable to low- and moderate-income tenants, subsidized affordable housing, manufactured housing communities, small multifamily properties, affordable rural housing, and energy. FHFA has excluded financing for these types of activities from the annual caps on new multifamily business that it places on the firms each year ($35 billion 2018). Such excluded activities accounted for a majority of both Fannie Mae’s (54 percent) and Freddie Mac’s (58 percent) multifamily business in 2017.

Increased Private Capital

The 2018 Scorecard directed Fannie Mae and Freddie Mac to increase their use of risk-sharing transactions in both single-family and multifamily activities to reduce their risk exposure. Specifically, it mandated that both firms transfer a “meaningful” portion of the credit risk on at least 90 percent of the unpaid principal balance of most newly acquired single-family mortgages and 80 percent of the unpaid principal balance of newly acquired multifamily loans. According to the report, both firms exceeded these objectives in 2018. The report also credits Fannie Mae and Freddie Mac with reducing their retained mortgage portfolios, though the vast majority of that reduction was due to loan prepayments.

Common Security and Platform

FHFA also outlines the steps both Fannie Mae and Freddie Mac took to develop and implement both a Common Securitization Platform (CSP) and a common MBS. FHFA says in the report that both firms remain on track to begin issuing the common MBS, through the CSP, on June 3, 2019. Freddie Mac has traded and administered its own securities through the CSP since November 2016. The report also details recent actions taken by Fannie Mae, Freddie Mac, and FHFA to facilitate the transition to the CSP and common MBS, including a rule published in February requiring Fannie Mae and Freddie Mac to align their policies and procedures that could impact the prepayment speeds of their mortgage-backed securities (MBS) in the to-be-announced (TBA) market. NCSHA summarized the rule on our blog.

This was the first progress report FHFA has issued under new director Mark Calabria.