The Federal Housing Finance Agency (FHFA) released a report providing an update on its efforts to develop a common structure and Common Securitization Platform (CSP) for mortgage-backed securities (MBS) guaranteed and sold by the government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac. FHFA is developing the common security and trading infrastructure to facilitate more efficient trading of GSE MBSs and to eliminate pricing disparities between Fannie Mae and Freddie Mac MBSs. The report notes that the first phase of the transition, referred to as "Release 1," was finished on time late last year when Freddie Mac began to trade its current MBSs (known as Participation Certificates and Giants) through the newly developed CSP. The CSP is designed to support the GSEs' single-family securitization activities.
FHFA hopes that other market participants will able to utilize CSP as well sometime in the future. FHFA's report says it is now working to complete the second phase of the transition (Release 2), in which both GSEs will adopt and begin issuing the new Uniform Mortgage-Backed Securities (UMBS), instead of their current separate MBSs, and sell the new securities through CSP. The report announces that the deadline for completing this phase has been extended from 2018 to the second quarter of 2019 so FHFA may seek more input from market participants and they have more time to prepare.
A proposal by the Trump administration to cut $190 million in funding for updating U.S. maps of flood-prone areas would trigger higher insurance rates or more homebuilding in risky locations, a consumer group said. Flood-mapping provides important details about where it is safe to build, whether flood insurance is needed and how to price coverage, Robert Hunter, director of insurance for the Consumer Federation of America, said in a statement. Slashing funding for the National Flood Insurance Program’s (NFIP) retooling of U.S. flood maps will lead to relying on old maps and construction in areas that are now flood prone, or hiking insurance premiums to pay for new maps, Hunter said.
Ginnie Mae staffing levels and FHA infrastructure will both suffer
Richard Green, who currently serves as director and chair of the USC Lusk Center for Real Estate and served as HUD Senior Advisor on housing finance from July 2015-June 2016, said that the cuts come at a potentially dangerous time. Green, who took over as HUD Senior Advisor for Edward Golding when Golding became head of the Federal Housing Administration, identified three issues with Trump’s budget proposal. Specifically, Green said that there are three operations within HUD that need more money, not less - first, Green said that the FHA needs money to update its systems, second, Green argues that Ginnie Mae is understaffed, especially considering the market share of the FHA, and third Green identifies issue of the lack of funding for housing assistance.
Report suggests wide-reaching implications
A ratings agency report indicates that reforming the government-sponsored enterprises could have wide-reaching implications for a range of sectors and entities. A potential reform of the U.S. housing finance that is centered around Fannie Mae and Freddie Mac is possible but not likely imminent. The pair of secondary mortgage lenders were at the center of the financial crisis and thrust into conservatorship in September 2008 by the Federal Housing Finance Agency. But more than eight years later, both GSEs remain in conservatorship, and their resolution remains one of the largest pieces of unfinished business remaining from the global financial crisis, according to Reform of Fannie Mae and Freddie Mac Has Potential to Reshape US Mortgage Markets from Moody's Investors Service.
The Internal Revenue Service (IRS) released Revenue Procedure 2017-27, which establishes the nationwide average purchase price limits and average area purchase price safe harbors for the Mortgage Revenue Bond (MRB) and Mortgage Credit Certificate (MCC) programs. The Revenue Procedure sets the national average purchase price at $276,100, an increase of around 3.5 percent from last year's limit of $266,400. HFAs and other MRB and MCC issuers must use the national purchase price figure when computing the housing cost/income ratio, which provides for an upward adjustment to the percentage limitation in high housing cost areas. The average area purchase price safe harbors are based on the Federal Housing Administration's (FHA) program loan limits for each metropolitan statistical area (MSA) as of December 1, 2016. If FHA adjusts the loan limit for an MSA, housing bond issuers can calculate a new safe harbor by dividing the new limit by .9775.
Representative Luke Messer (R-IN) introduced the Municipal Finance Support Act of 2017 (H.R. 1624). The legislation would allow large banks to count some of their municipal bond investments, including tax-exempt housing bonds, as high-quality liquid assets under federal bank liquidity standards. H.R. 1624 would modify a regulation the Federal Reserve, the Department of Treasury, and the Federal Deposit Insurance Corporation (FDIC) released in October 2014 to ensure that large banks hold enough liquidity to continue making payments during periods of financial stress. Under the rule, banks with at least $250 billion in assets (or $10 billion in foreign exposure on their balance sheet) must maintain a minimum liquidity coverage ratio (LCR) comprised of certain financial investments that are considered "High-Quality Liquid Assets (HQLAs)." The rule took effect at the beginning of 2017.
Senior Ways and Means Committee member Pat Tiberi (R-OH) and Committee Ranking Member Richard Neal (D-MA) introduced the Affordable Housing Credit Improvement Act of 2017, H.R. 1661. The bill is companion legislation to the bill Senator Maria Cantwell (D-WA) and Senate Finance Committee Chairman Orrin Hatch (R-UT) introduced earlier this month. While the House bill does not contain the 50 percent phased-in cap increase, which is part of the Senate version of the bill, it includes all the other provisions of the Senate legislation. It would significantly strengthen the Housing Credit program by providing increased flexibility, simplifying program requirements, supporting the preservation of existing affordable housing, and facilitating Housing Credit development in challenging markets and for hard-to-reach populations.
Importantly, it includes provisions that would significantly strengthen the 4 percent Credit and tax-exempt bond portion of the program by setting a minimum 4 percent rate for bond-financed units and providing states with the authority to give a 30 percent basis boost to those units. The only other difference between the House and Senate bills is a modification to the provision regarding taking certain energy tax credits for Housing Credit properties. Specifically, both the Senate and House bills would eliminate the basis reduction associated with taking the Section 48 investment credit used to finance solar panels; however, only the Senate bill also eliminates the basis reduction associated with the Section 45L Energy Efficient Home Credit and Section 179D Energy Efficient Commercial Buildings Deduction. This section-by-section description of the bill provides more details on the bill's provisions.
