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43 » VISIT US ONLINE @ DSNEWS.COM FHFA DIRECTOR WATT SAYS HE IS POWERLESS TO ALTER GSE BAILOUT AGREEMENT As stakeholders continue to battle with the government over what they say should be their share of Fannie Mae and Freddie Mac's profits, the regulator in charge of overseeing the two GSEs says he's not in a position to act on that situation. In a meeting with reporters in early Febru- ary, Mel Watt, former U.S. representative and chief of the Federal Housing Finance Agency (FHFA) since December 2013, discussed a number of key issues facing the GSEs and the agency, touching on topics ranging from recently introduced low down-payment programs to the often debated subject of principal reduction for struggling homeowners. One thing Watt said he has no plans to change is the GSEs' current bailout agreement with the government, which has allowed the Treasury Department to sweep nearly all of their profits since August 2012. Despite protests and lawsuits from politi- cians, industry groups, and investors about the terms, Watt told reporters he doesn't perceive "that it's [his] responsibility to start that discus- sion," according to the Wall Street Journal. "I inherited a set of agreements," he said. "I know why they were put in place, basically as a quid pro quo for rescuing Fannie and Freddie. ... I just have to live with it." Bruce Berkowitz, CEO of Fairholme Funds, said he does not believe Watt is powerless to act in this situation. Fairholme, one of the GSEs' largest investors, has a lawsuit pending against the government, claiming the sweeping of GSE profits into Treasury is unconstitutional. "According to recent Congressional testi- mony, Mel Watt, our conservator at FHFA, claims he is unable to end his own conservator- ship," Berkowitz said in a conference call earlier this week. "In the history of conservatorships, this is a first. ink about it." Another issue Watt stayed relatively quiet on was the Home Affordable Refinance Program (HARP), which is set to expire at the end of this year. Since debuting in 2009, the program has reached more than 3 million U.S. homeowners, though its numbers have fallen off dramatically over the last year. FHFA estimates there are some 700,000 borrowers who are still eligible for HARP refinances. While some industry participants say they would like to see a new expansion to allow more homeowners to refinance under HARP, Watt said that is not in the cards. On the topic of Fannie and Freddie's recent move to lower down-payment requirements to 3 percent for qualified borrowers, the FHFA leader kept up the same kind of defense he of- fered to Republicans critical of the change. "ere's not the kind of correlation that peo- ple say there is between a down payment and paying a loan," he said, adding that the new loan programs are substantially different from the types of offerings that led to the housing crash. Finally, Watt also discussed the idea of reducing principal on severely underwater properties, a strategy his predecessor, Edward DeMarco, was staunchly against. While noting that the idea had never been taken off the table, he said any cuts will be "sub- stantially narrower" than what some housing advocates have called for, adding that the focus would be to reduce the risk to both the GSEs and taxpayers. "Reducing everybody's principal would cost taxpayers billions," Watt said. FHFA OUTLINES 2015 GOALS FOR FANNIE MAE, FREDDIE MAC e Federal Housing Finance Agency (FHFA) released its 2015 Scorecard for Fannie Mae and Freddie Mac, outlining the steps the two GSEs are expected to take this year to sup- port the U.S. housing market. As FHFA Director Mel Watt revealed in his first public speech as the agency's chief, the companies' new direction revolves around three main objectives: maintain, reduce, and build. "Fannie Mae and Freddie Mac made sig- nificant progress toward achieving the goals in FHFA's Strategic Plan for the Conservatorships last year, and we look forward to building on that progress in 2015," Watt said. e chief goal, maintain (which accounts for 40 percent of the scorecard), largely focuses on efforts to increase access to mortgages for creditworthy borrowers while still sticking to responsible risk management practices. Among the goals in that category are in- structions for the GSEs to finalize their rep and warranty frameworks (a process started late last year), encourage more participation from smaller lenders, and continue watching for other hurdles to credit access. Also included on the "maintain" list are instructions to practice loss mitigation strate- gies by directing eligible homeowners to take advantage of the Home Affordable Refinance Program (HARP) and developing plans to cut down on severely delinquent mortgages in the GSEs' portfolios with loan modifications, short sales, and other actions. e next step in FHFA's plan, "reduce," outlines expectations for Fannie and Freddie to reduce their own presence in the mortgage market and boost the role of private capital. Instructions in this category were separate for each GSE: In 2015, Fannie Mae will make credit transfers on reference pools of single- family mortgages with an unpaid principal balance of at least $150 billion, while Freddie Mac is expected to do the same for a balance of $120 billion. e balance requirement for both enterprises will be reviewed and adjusted when needed to reflect market conditions, FHFA said. Finally, both Fannie and Freddie are ex- pected to work with FHFA and each other to build and test a platform designed for a common security between the two of them. While FHFA estimates it will still be years before the development of a common securitiza- tion platform , the agency and the GSEs have already made the first steps by establishing a joint venture—called Common Securitization Solutions (CSS)—to oversee the process. For its part, CSS is tasked with designing the platform, focusing this year on including any functions the GSEs need for their securitization activities and working with them to get input from the public and the mortgage industry. "ese objectives will allow FHFA to work with Fannie Mae, Freddie Mac, and Com- mon Securitization Solutions to build a strong, vibrant national housing finance market, which will create new homeownership and rental op- portunities for existing and potential borrowers," Watt said. There were approximately 563,000 completed foreclosures for the full year of 2014, a decline of 15 percent from the previous year, according to CoreLogic. KNOW THIS

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