Taking the Bait

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Th e M Rep o RT | 61 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET Department the latest FHFa director lays Out new Plan Mel Watt signals a shift in the agency's course in his first major speech as director. a fter staying quiet for months following his swearing-in as head of the agency, Federal Housing Finance Agency (FHFA) director Mel Watt took the stage at the Brookings Institution to outline his own plans for the GSEs. Like FHFA's original Strategic Plan for Enterprise Conservatorships, released under the direction of former acting director Edward DeMarco in 2012, the newly unveiled plan is built on three blocks: maintain, reduce, and build. However, Watt's revised plan suggests a shift in focus toward broadening credit access. The first—and perhaps big- gest—difference in the new plan is a greater emphasis on the "maintain" portion, which calls for the continued push for foreclosure prevention efforts and greater liquidity in the single- family market. While that point originally counted for 20 percent of FHFA's yearly Conservatorship Scorecard, it now has double weight at 40 percent. "[O]ur overriding objective is to ensure that there is broad liquidity in the housing finance market and to do so in a way that is safe and sound," Watt said. To help ease uncertainties in the lending space and facilitate growth, Watt revealed FHFA is "making a number of refinements" to address concerns about repur- chase risk, including relaxing the payment history requirement for granting representation and war- ranty relief. According to Watt, under FHFA's direction, both Fannie Mae and Freddie Mac are now allowing two delinquent payments in the first 36 months following a loan's acquisition. The enterprises have also been directed to eliminate automatic repurchases when a loan's pri- mary insurance is rescinded. In addition, Watt announced that the agency will not use its conservator authority to bring down current loan limits in response to industry reactions following a proposed reduction last year. "This decision is motivated by concerns about how such a reduction could adversely impact the health of the current housing finance market," he said. One topic not discussed in Watt's inaugural speech was the ongoing discussion over hous- ing finance reform, in particular what will happen to the GSEs. That doesn't mean he avoided it completely, however: "I am well aware, and regularly express my belief, that conservator- ship should never be viewed as permanent or as a desirable end state and that housing finance reform is necessary. However, Congress and the administration have the important job of decid- ing on housing finance reform legislation, not FHFA," he said. "Instead, our task is to continue to fulfill our statutory mandates, to execute our strategic plan, and to manage the present status of Fannie Mae and Freddie Mac."

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