The Federal Housing Finance Agency (FHFA) announced a new program under which Fannie Mae and Freddie Mac will forgive certain borrowers' outstanding mortgage principal to help them stay in their homes. The new Principal Reduction Modification program marks the first time that FHFA has allowed Fannie Mae and Freddie Mac to offer struggling borrowers principal reductions. The scope of the program is limited. To be eligible, a borrower must occupy the home as a principal residence, have been at least 90 days delinquent on their mortgage payments as of March 1, have a remaining mortgage principal balance of $250,000 or less, and have a total outstanding mortgage balance that is at least 115 percent above the current value of their home. FHFA estimates that 33,000 Fannie Mae and Freddie Mac borrowers will be eligible for assistance through this initiative. In a fact sheet describing the program, FHFA argues that the program's narrowly tailored eligibility standards will allow Fannie Mae and Freddie Mac to help struggling borrowers without putting the firms at risk of substantial financial losses.
The House Financial Services Committee recently voted to favorably report the Taking Account of Bureaucrats' Spending Act of 2015, H.R. 1486, which would authorize Congress to set annual funding levels for the Consumer Financial Protection Bureau (CFPB). The bill, introduced by Committee member Andy Barr (R-KY), passed on a party line vote of 33-20. Under current law, CFPB receives funding for its annual operations from the Federal Reserve. CFPB's supporters argue that providing the agency with an independent source of funding ensures that it will receive adequate funding every year and shield it from undue political influence.
How much capital would Fannie Mae and Freddie Mac need if operated as private companies? The question is likely to remain a theoretical one for the foreseeable future. The chances of the companies being released from conservatorship is extremely low. A far more probable outcome is that the companies eventually get wound down and replaced by a new system, perhaps along the line of the National Mortgage Reinsurance Corporation recently outlined in a paper by Jim Parrott, Lew Ranieri, Gene Sperling, Mark Zandi and Barry Zigas. Yet it is a question worth considering, if only to highlight just how high the hurdle to privatizing the companies would be.