Lawmakers Request More Transparency From FHFA On Transfer of Credit Risk

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A bipartisan group of Senate Banking Committee members wrote aletter to the Federal Housing Finance Agency (FHFA) requesting that the agency expand and provide better transparency of the development of the credit risk transfer programs. These programs shift credit risk from Fannie Mae and Freddie Mac to the private sector, according to apress release.

“We supported the direction of the risk sharing language within Title VII of The Financial Regulatory Improvement Act of 2015, and we strongly support the expansion of these transactions, given they provide a vehicle for moving the government out of the first loss position and inform the process for policymakers looking to invite greater private capital into the market,” the senators noted in the letter.

U.S. Senators Mark R. Warner (D-Virginia), Bob Corker (R-Tennessee), Heidi Heitkamp (D-North Dakota), Mike Crapo (R-Idaho), Jon Tester (D-Montana), and Dean Heller (R-Nevada) sent a letter to the FHFA Director Mel Watt, requesting for clarity in risk sharing transactions to help drive competition in the secondary mortgage market. Sen. Warner spearheaded today’s letter and leads efforts to reform the housing finance system, according to the release.

“The credit risk transfers are a vehicle for moving the housing market forward by attracting private sector investors, improving access to credit, and reducing taxpayer risk,” the senators said in the letter. “As such, we ask that you prioritize work with the Enterprises on transactions designed specifically to push out first loss credit risk to the market, and to encourage transparency for investors and the public so that we can all better judge how these transactions impact returns to the Enterprises, costs to the taxpayer, and effects to the health of the broader housing finance system.”

The senators’ letter requested that the FHFA:

  1. Provide a description of the new credit risk sharing pilot programs that FHFA intends to roll out over the next five years and steps the FHFA intends to take to solicit new ideas for new and innovative ways to lay off first loss and front-end credit risk, transferring credit risk away from the Enterprises and the taxpayers. Please include a description of steps FHFA intends to take to ensure its credit risk transfer goals can be met throughout the credit cycle.
  2. Provide a description of how FHFA intends to move forward with mortgage insurance-focused transactions following the recently finalized mortgage insurance master policy requirements and Private Mortgage Insurer Eligibility Requirements (PMIERs).
  3. Describe the amount of credit risk that has been transferred from the Enterprises on an annual basis. Explain how FHFA intends to better incorporate actual loss-based risk transfers rather than relying on fixed loss calculations.
  4. Provide a description of steps FHFA intends to take to broaden the eligible investor base for credit risk transfer programs.
  5. Provide a list of any suggested legislative text that you believe would help facilitate any of these objectives above.
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