MReport August 2018

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TH E M R EP O RT | 63 SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T Fannie Mae Addresses Allegations Hensarling intends to investigate allegations that Fannie Mae executives have been lobbying Congress. R ep. Jeb Hensarling (R-Texas), Chairman of the House Financial Services Committee, said in May that the committee would launch a full investigation into recent allegations in a Bloomberg report that high-ranking Fannie Mae employees were intentionally violating their government prohibition on lobbying. Hensarling said if the media report was true, this violation was "more than an outrage, it is a direct affront on taxpayers and the current structure of the federally backed conservatorship that has allowed Fannie Mae to operate for the last decade." Fannie Mae received a bailout of more than $120 billion during the financial crisis. "As a condition of receiving those funds, Fannie Mae was explicitly prohibited from engaging in 'all political activities—including all lobbying,' a prohibition which it is now being reported Fannie has deliberately violated," Hensarling said. However, Fannie Mae has denied these allegations. "Fannie Mae does not lobby and has not advocated for any specific policy outcomes on housing finance reform," Pete Bakel, a spokesperson for Fannie Mae, told MReport. Calling on the Congress to truly solve the problem of "the broken GSE hybrid finance model," Hensarling said, "Congress must enact sustainable housing finance reform as soon as possible and once and for all get rid of any backdoor attempts to resurrect the old, failed ways of the past." These allegations stem from a recent report that quoted unnamed sources saying some of Fannie Mae's executives were secretly lobbying among housing finance stakeholders that the best outcome for the GSEs would be to be released from government control without the involvement of the Congress. "As part of our normal course of business, we analyze policy proposals and existing law," Bakel said. "We answer questions from customers, industry groups, and similar stakeholders and provide information about potential implications of the proposals on the market. It is up to Congress, not Fannie Mae, to determine the future of housing finance reform legislation." Watt: 'These Conservatorships are Unsustainable' Watt closes out his term as FHFA Director by reiterating his view that GSE conservatorship is "unsustainable" and that it is up to Congress to create and enact housing finance reform. I n what is being widely viewed as his last testimony as Director of the Federal Hous- ing Finance Agency (FHFA), Melvin Watt appeared before the Senate Banking Committee to appraise members on the status of the housing finance system. Setting the tone of the hearing titled, "Ten Years of Conservatorship: The Status of the Housing Finance System," Sen. Mike Crapo (R-Idaho), Chairman of the Banking, Housing, and Urban Affairs Committee, said housing finance reforms remained one of his top priorities as chair- man of the committee. "The status quo is not a viable option. The government plays too big a role in the mortgage market today," Crapo said in his opening remarks. Speaking about the recent pro- grams of the GSEs, Crapo said over the past couple of years FHFA, Fannie Mae, and Freddie Mac had all been busy. "Both enterprises have experimented with pilot pro- grams that allow certain lenders to sell loans with 1 percent or even 0 percent down; additionally, Fannie and Freddie have continued to expand into other markets, such as single-family rentals," Crapo said. "I also appreciate that Fannie's and Freddie's underwriting standards remain tighter than they were at the peak of the housing boom." Despite this progress, Crapo said the overall trends that leaned toward greater taxpayer risk and greater government presence in the mortgage market were a concern and "further demonstrate the need for Congress to turn to housing finance reform expeditiously." Speaking on FHFA's role as the conservator the GSEs, Watt said FHFA's role was unprecedented in "its scope, complexity, and duration, especially when you consider Fannie and Freddie Mac's role in supporting over $5 trillion in mortgage loans and guarantees. This is an extraordinary role for a regulatory agency also because we are obligated to fulfill both the role of supervisor and conservator at the same time." "I have expressed this opinion, perhaps using different words on numerous occasions since then. I have also expressed repeatedly my firm belief that these conservator- ships are unsustainable," Watt told the committee, adding that it was the prerogative and responsibility of Congress, not FHFA, to decide on housing finance reform. Speaking about the chal- lenges that were compounded by conservatorship, Watt said one of the challenges was the ability to plan and manage in the face of uncertainty about the future. "Our experience as conservator con- firms that it is extremely difficult to manage the Enterprises in the present without establishing some kind of plans for the future." Ensuring market discipline was another challenge Watt outlined during the hearing. "Because the Enterprises have been insulated while operating in conservator- ship from normal market forces that would otherwise inform their operations and business decisions, FHFA has had the responsibility for creating its own regime for market discipline," he told the committee. FHFA took several steps to address this challenge, the most important one being "to require the Enterprises to use an aligned capital framework when evaluat- ing business decisions even though they were not able to build capital beyond the limited buffer agreed," Watt said. "Fannie Mae does not lobby and has not advocated for any specific policy outcomes on housing finance reform." — Pete Bakel, spokesperson for Fannie Mae

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