Latest GSE Rule Protects Taxpayers and Businesses from Government Overreach

In 2020, the Federal Housing Finance Agency, which is the regulator for the two Government-Sponsored Enterprises known as Fannie Mae and Freddie Mac, has taken a slew of actions to ensure taxpayers never foot the bill for a future bailout like the one in 2008. Even in the midst of severe economic uncertainty, FHFA has taken steps to give homeowners leeway on mortgage payments (forbearance), and create a good starting point for a post-conservatorship capital framework (capital rule). Earlier this week, FHFA announced yet another constructive step that protects taxpayers and private businesses from government overreach. 

On Monday, FHFA announced a proposed rule that would require Fannie and Freddie to provide advance notice to FHFA on planned activities before introducing new products to market. That means before Fannie or Freddie can begin offering pilot programs or new business products, it will need the sign off from its regulator. 

In the 11 years since their federal conservatorship began, Fannie Mae and Freddie Mac have both dramatically expanded their operations by offering new products and services beyond the secondary mortgage market. These pilot programs and products serve a varying number of functions but have mostly added to the level of risk exposure to taxpayers. Given the unique position and size of the GSEs, developments to broaden the government’s leverage in the mortgage market raise serious questions. There is little transparency or accountability in the development and implementation of pilot programs, and despite the Housing and Economic Recovery Act setting clear guidelines for the types of products the GSEs can offer, they and FHFA have too often paid insufficient attention to the statute. 

The GSEs’ expansion into nontraditional businesses includes credit enhancement, single-family rentals, and financing mortgage servicing rights. In many cases these pilot ventures, such as Freddie’s IMAGIN program and Fannie’s EPMI program, were implemented in direct competition against private sector companies..

While the new rule is not a moratorium on IMAGIN and EPMI, and we continue to urge FHFA to rescind those two projects, the rule is an improvement for transparency and will hopefully keep Fannie and Freddie from straying too far out of the secondary mortgage market sandbox. These safeguards in the proposed rule would help to ensure that the GSEs are neither crowding out private market competitors nor expanding obligations back-stopped by taxpayers. NTU will continue to review the details of the proposed rule and looks forward to submitting written comments on how FHFA can capitalize on this encouraging step forward.