FHFA Conservatorship Plan Envisions New Securitization Model
Deutsche-Borse Wire
The Federal Housing Finance Agency sent a letter to Congress Tuesday that outlines its strategic goals to reduce the presence of Fannie Mae and Freddie Mac in the mortgage market while simultaneously building a new infrastructure for the secondary mortgage market.
“With the conservatorship operating for more than three years and no near-term resolution in sight, it is time to update and extend the goals and directions of the conservatorship,” FHFA Acting Director Edward DeMarco wrote in a letter to Members of Congress Tuesday.
“FHFA is contemplating next steps to build an infrastructure for the secondary mortgage market that is consistent with existing policy proposals and will support any outcome of the leading legislative proposals,” DeMarco added.
In a document that elaborated further on the FHFA’s strategic goals, the FHFA said a new secondary mortgage market without Fannie and Freddie would have to include:
- A framework to connect capital markets investors to homeowners — specifically, a securitization platform that bundles mortgages into any of an array of securities structures and provides all the operational support to process and track the payments from borrowers through to the investors.
- A standardized pooling and servicing agreement that replaces the Enterprises’ current Servicer Participation Agreement and corrects the many shortcomings found in the pooling and servicing agreements used in the private-label MBS market before the housing bubble burst.
- Transparent servicing requirements that set forth requirements for mortgage servicers’ responsibilities to borrowers and investors across a spectrum of issues including delinquent loan servicing, solicitation for refinance or loan modifications, and servicing transfers.
- A servicing compensation structure that promotes competition for, rather than concentration of, mortgage servicing. Such a structure would take full account of mortgage servicers’ costs and requirements, and consider the appropriate interaction between origination and servicing revenue.
- Detailed, timely, and reliable loan-level data for mortgage investors at the time a security is issued and throughout the life of the security. Such transparency is a prerequisite for private capital to bear a meaningful portion of mortgage credit risk.
- A sound, efficient system for document custody and electronic registration of mortgages, notes, titles, and liens that respects local property laws but also enhances the liquidity of mortgages so that borrowers may benefit from a liquid secondary market for buying and selling mortgages. Such a system should be especially attuned to privacy and security issues while providing full transparency where required by law or in the interest of borrowers.
- An open architecture for all these elements, to facilitate entry to and exit from the marketplace and an ability to adapt to emerging technologies and legal requirements over time.
