Fannie Mae and Freddie Mac Preparing to Exit Federal Control and Extend Flexible Policies
Eric House - Jul 28 2020Fannie Mae and Freddie Mac have recently taken steps to transition out of government conservatorship and have extended several loan origination flexibilities.
Fannie Mae and Freddie Mac have recently taken steps to transition out of government conservatorship and have extended several loan origination flexibilities until 31 August, 2020, providing continued support for borrowers during the COVID-19 pandemic.
The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) are two home mortgage companies created by the U.S. Congress in 1938 and 1970, respectively. Through buying and guaranteeing mortgages through the secondary mortgage market, they serve to make the market more liquid, stable, and affordable. As government-sponsored enterprises (GSE), they’re directly supervised by the Federal Housing Finance Agency (FHFA) and the Department of Housing and Urban Development (HUD), and have come under more control since the 2008 housing market crash.
Fannie Mae and Freddie Mac’s Exit from Government Conservatorship
Forbes reported last month that the two entities have hired Morgan Stanley and J.P. Morgan Chase to advise on their transition away from government conservatorship. The two GSEs are said to have the $234 billion on hand required for the transition from conservatorship to publicly traded companies. Fees charged to lenders and borrowers would likely need to increase for improved returns, likely by 20% to 40%, or 10 to 20 basis points, according to analysis by Don Layton of the Joint Center For Housing Studies at Harvard. However, the proposed exit would likely not happen before 2024 according to FHFA director Mark Calabria.
This issue will likely have political ramifications. The Supreme Court’s recent decision that affirmed the President’s power to remove the director of the Consumer Financial Protection Bureau (CFPB) is thought by some to signal that the same could apply to the FHFA. Should Joe Biden win the November presidential election, there is the possibility that he could remove the Trump-appointed Mark Calabria and slow down or reverse the exit of government conservatorship.
COVID-Related Loan Processing Flexibility for Fannie Mae and Freddie Mac Customers
Developments to exit government conservatorship are likely not to occur soon. Until then, the FHFA announced this month that Fannie Mae and Freddie Mac will extend several loan origination flexibilities until 31 August, 2020. The flexibilities, which were set to expire on 31 July, would ensure that borrowers are supported throughout the continued COVID-19 pandemic. According to the FHFA announcement, the flexibilities include:
- Alternative appraisals on purchase and rate term refinance loans;
- Alternative methods for documenting income and verifying employment before loan closing; and
- Expanding the use of power of attorney and remote online notarizations to assist with loan closings.