Ed DeMarco spoke about FHFA at the 19th Annual Financial Markets Conference at the Atlanta Fed yesterday. He posited that the FHFA had put a significant amount of work on “building something new in response to the shortcomings of previous structures.” Internally, he meant this as the creation and development of the FHFA to replace previous governmental agencies. Externally, he referred to the failure of the housing financial market.
Internal building at the FHFA
FHFA’s priorities focused on foreclosure prevention, problems in the servicing arena, and ultimately creating a long-term strategic plan for Fannie Mae and Freddie Mac.
Congress asked FHFA to be responsible for overseeing the functioning of a large part of the housing finance system – the secondary market and wholesale funding that provide the liquidity necessary to support most of a $10 trillion market. Demarco said, “We had to expand our focus from a narrow set of entities to thinking more broadly about the health and efficiency of the housing finance system. We pursued this objective on two fronts – safety and soundness supervision and housing policy.”
DeMarco detailed FHFA’s internal development to meet new challenges encountered by merging two previous federal agencies. He states that the FHFA as it now stands, represents the “enhancements and synergies I believe Congress sought in creating FHFA to replace its predecessors.”
Building a stronger, more stable, and more efficient housing finance system for the future
DeMarco said that FHFA spent time thinking about how the housing finance market itself had failed. He shared that in its attempt to focus its response to the housing crisis in a manner that would help rebuild the market, its goal was not institution-focused, but rather market-focused.
He went on to describe a few of the examples in of where FHFA has been working “to rebuild the housing finance system so that it may be able to operate as a more liquid, competitive, and efficient marketplace in the future.” These examples mainly centered on industry standards of data. These examples included the following 3 developments.
Unified Mortgage Data Program
FHFA had to deal with differences in reporting loan origination data to Fannie Mae as compared with Freddie Mac due to different reporting requirements and different data definitions between the two conservators. This made loan origination more costly and wasn’t limited to just that one aspect; it was also an issue regarding appraisals and appraisal data. FHFA decided that standardized data was an essential step in building the market’s foundation, resulting in the Unified Mortgage Data Program.
Uniform Residential Loan Application
FHFA has also been engaged in a similar effort in conjunction with the Federal Housing Administration, Veterans Administration, and Rural Development in regards to creating a Uniform Residential Loan Application. When the new form is complete, all of the data fields will be consistently defined, enabling widespread use of standard industry data formatting to collect critical borrower information.
Servicing Data and Technology Initiative
The Servicing Data and Technology Initiative will set forth a common set of data elements, with common definitions and common electronic reporting requirements for mortgage sellers and servicers.
DeMarco concluded with an emphasis on improving consistency and transparency within the housing financial market. He said, “we expect this will create a more inviting environment for private markets to return and, once in place, operate with less risk for borrowers and the economy, than they did in the past.”