FHFA 2018 Scorecards Calls for GSEs to Explore HFA Partnerships

Shortly before the end of 2017, the Federal Housing Finance Agency (FHFA) released its 2018 Scorecard for Fannie Mae, Freddie Mac, and Common Securitization Solutions (CSS).

The scorecard outlines the steps FHFA expects each of the firms to undertake next year to fulfill FHFA’s Strategic Plan for Enterprise Conservatorship, which was finalized in 2014. FHFA recently proposed an amended Strategic Plan for Fiscal Years 2018-2022, which has not yet been finalized.

The 2018 scorecard includes a new provision directing Fannie Mae and Freddie Mac to "[R]esearch and assess opportunities to further partnerships with housing finance agencies." Similar language was included in FHFA’s current Strategic Plan and the proposed new plan for 2018-2022.

The scorecard lays out three core activities that Fannie Mae and Freddie Mac will be required to support in 2017: maintaining credit availability and foreclosure prevention activities; reducing taxpayer risk through increasing the role of private capital in the mortgage market; and continuing to build a new common securitization platform for Fannie Mae and Freddie Mac mortgage-backed securities (MBS). The HFA provision is included as part of the first core activity.

Credit Availability and Foreclosure Prevention Activities

In addition to expecting Fannie Mae and Freddie Mac to explore partnership opportunities with HFAs, the scorecard instructs each firm to help increase single-family lending to underserved borrowers through market research, finishing their assessments of alternative credit scoring models, studying appraisal modernization, and researching the availability of low-balance financing. It will also require Fannie Mae and Freddie Mac to continue efforts to increase access to credit for non-English-speaking borrowers, complete their loss mitigation toolkits, and conduct research on the singe-family rental market. Each firm is also expected to consider possible policies for improving the single-family loan servicing market.

FHFA also directs Fannie Mae and Freddie Mac to examine ways to increase credit availability for affordable multifamily housing. FHFA previously announced that both firms’ new multifamily business for 2018 will be capped at $35 billion, down from $36.5 billion in 2017. To encourage Fannie Mae and Freddie Mac to support lending for underserved market segments, FHFA will continue to exempt certain loans for affordable multifamily housing from each firms’ lending cap. Loans exempt from the cap include those for Housing Credit properties, small multifamily properties, and other categories listed in the scorecard’s appendix.

Increased Private Capital

The scorecard mandates that both Fannie Mae and Freddie Mac increase their use of risk-sharing transactions. FHFA expects both firms to transfer a "meaningful" portion of the credit risk on all newly acquired multifamily mortgages on at least 90 percent of the unpaid principal balance of most newly acquired single-family mortgages. Fannie Mae and Freddie Mac will also be required to examine their capital standards for private mortgage insurers and determine whether they should be adjusted.

Common Security and Platform

The scorecard also expects Fannie Mae and Freddie Mac to continue working with FHFA and CSS to develop and implement both a common MBS and the Common Securitization Platform. Freddie Mac started using the platform to sell its securities in 2016. Both firms are expected to have fully adopted the platform and common security by the second quarter of 2019.

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