Remarks as Prepared for Delivery

Melvin L. Watt, Director

Federal Housing Finance Agency

Greenlining Institute 22^nd Annual Economic Summit

Los Angeles, CA

May 8, 2015

​​​​​Thank you for that introduction and good afternoon to everyone.  It’s a real pleasure to be in Los Angeles, both because I get to speak at this important Greenlining Summit and because later I get to hang out with my only grandson. 

I know that you have a number of important topics on your agenda today related to economic opportunity, and housing finance is certainly among the most critical of economic issues.  The work we do at the Federal Housing Finance Agency (FHFA) focuses on regulating and overseeing Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System, which are all entities that play significant roles in our country’s housing finance system.  While none of these entities are lenders, their policies have important impacts on individuals and families looking to buy a house or find an apartment to rent, especially those who continue to face challenges following the recent financial crisis.  

In our job as regulator of the Federal Home Loan B​ank System and as regulator and conservator of Fannie Mae and Freddie Mac, we are constantly working to balance our statutory obligations to ensure the safety and soundness of our regulated entities and ensure that there is broad liquidity in the housing finance market.  In meeting these obligations, we expect Fannie Mae, Freddie Mac and the Federal Home Loan Banks to support credit access for homeownership and facilitate the financing of affordable rental housing for low- and moderate-income families, and we insist that they do these things in a safe and sound way.  

I’d like to spend my time today talking about two different, but related, areas of the work we are undertaking to fulfill our statutory missions.  First, I will focus on some of our conservatorship priorities for Fannie Mae and Freddie Mac that affect homeowners and renters.  Second, I will address FHFA’s work to achieve diversity and inclusion in our own shop at FHFA as well as what we are doing to ensure that our regulated entities are taking aggressive steps to do the same. 

​Updates on FHFA Conservatorship Priorities for Fannie Mae and Freddie Mac  

Regarding our recent conservatorship activities with Fannie Mae and Freddie Mac, I should start with our announcements last month about the fees the Enterprises charge to guarantee loans and about the counterparty standards that will be applicable to the Enterprises’ private mortgage insurance company counterparties.  Reaching these decisions was a high FHFA priority that required very careful analysis because both decisions not only impact Fannie Mae and Freddie Mac, but they also impact the broader housing finance market and the costs to borrowers looking to become homeowners.  

Some of you may recall that the first decision I announced after I became the Director of FHFA (a decision I actually made before being sworn in as Director) was to suspend guarantee fee changes that would have increased these fees in a way that I thought warranted further review.  Since then, after a very deliberative process, we announced our new guarantee fees decision just last month.  We decided to leave the guarantee fees charged by the Enterprises essentially unchanged.  While we made some small adjustments, when taken all together, the overall level of guarantee fees will continue to be comparable to the Enterprises’ current guarantee fee levels.  

On the counterparty standards for private mortgage insurers, we worked closely with the Enterprises to develop updated and more stringent eligibility requirements for all mortgage insurers looking to do business with Fannie Mae and Freddie Mac. With these updated standards, the Enterprises will have greater confidence that private mortgage insurers will have sufficient financial strength to pay their claims to the Enterprises whether economic times are good or bad.  This is important both to reduce risk to Fannie Mae and Freddie Mac and to permit continued access to credit for borrowers who get lower down payment loans.  These borrowers may not have the funds to make a 20 percent down payment, but options like private mortgage insurance enable creditworthy borrowers to get a mortgage with a lower down payment.  

In addition to our priorities on the loan origination side, we have also made decisions about the status of modification and refinance programs that are currently scheduled to end on December 31, 2015.  This enables me to announce today that FHFA has decided to extend the Enterprises’ participation in the Home Affordable Modification Program (HAMP) and the Home Affordable Refinance Program (HARP) for an additional year, until the end of 2016.  

Since HAMP and HARP were first launched in 2009, these programs have provided critically important relief for many borrowers by allowing them to lower their monthly payments and, as a result, have prevented many foreclosures.  HAMP provides modifications that allow borrowers significant payment reductions that are tied to their income.  This gives borrowers a more stable, affordable monthly payment and improves performance rates.  The HARP program allows borrowers, including those who are underwater on their mortgage and who are regularly making their mortgage payments, to refinance their loans to take advantage of historically low interest rates. 

Although the number of new borrowers entering these two programs continues to decline, in part because many eligible borrowers have already taken advantage of them and in part because of recovering house prices, lenders and servicers are continuing to approve new HAMP modifications and HARP refinances.  Extending HAMP and HARP through the end of 2016 will provide real relief for borrowers who continue to face challenges either paying their mortgage or refinancing their loan. 

In addition to these declining participation rates, HAMP and HARP were never intended to be permanent programs.  As a result, this will be the final extension that FHFA will make for the Enterprises’ participation in HAMP and we anticipate that this will also be the final extension for HARP.  

FHFA will use the time between now and the end of 2016 to consider how best to build on the lessons of HAMP for 2017 and beyond.  In the meantime, we have determined that it is appropriate to maintain the Enterprises’ streamlined modification program as part of their loss mitigation toolkit.  Because streamlined modifications require less paperwork and are easier for borrowers to use, they have proven to be an important foreclosure prevention tool since they were first offered in March 2013.  

For HARP, we are also going to use this time to explore possible streamlined refinance solutions for future Enterprise loans. This evaluation will consider the lessons learned from the HARP program and how those might apply in a non-crisis environment.  In the meantime, we want to encourage the 600,000 plus borrowers nationwide who would still benefit from the HARP program to take advantage of HARP while they still have the opportunity to do so and while interest rates remain low. Approximately 31,000 of these borrowers are right here in California, and we want them to join the nearly 3.3 million borrowers who have already taken advantage of HARP to reduce their monthly payments and obtain some financial relief. 

I also want to spend a minute talking about the Enterprises’ activities in the multifamily market.  While the Enterprises have a role to play in the broader multifamily finance market, we believe that their most important role is in supporting affordable rental housing and other underserved market areas.  For that reason, when FHFA imposed a $30 billion cap on each Enterprises’ multifamily purchase volume for 2015, we made exceptions to the cap for certain affordable multifamily loan purchases.  

After taking a fresh look at this issue, FHFA announced yesterday that we are expanding the list of affordable housing categories that are excepted from the overall multifamily cap.  For example, we are putting in place a new exception tied to rental units that are affordable to borrowers earning 60 percent or less of area median income.  Additionally, we are adjusting this income threshold for more expensive housing markets where renters often spend a higher percentage of their incomes on rent.  By responding to continued strong growth in the overall multifamily finance market and making these adjustments, we have sought to achieve two objectives – facilitating ongoing liquidity in the multifamily market and further encouraging the Enterprises’ involvement in affordable rental housing.

As a result of these changes, we want to reinforce our expectation that the Enterprises should dedicate the necessary time, attention and resources to support this important part of the multifamily market.  The adjustments we have made should also support our ongoing work to develop a final housing goals rule and to re-propose a duty to serve rule for the Enterprises, both of which rules will address affordable multifamily housing, as well as single-family homeownership lending.  FHFA has been working on these matters for a good while and we expect to publish our final housing goals rule and re-propose our duty to serve rule in the coming months.

​FHFA’s Commitment to Diversity and Inclusion 

Now let me turn my attention to FHFA’s diversity and inclusion initiatives, which I know are of particular importance to the Greenlining Institute and to many of you here today.  Under the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Housing and Economic Recovery Act of 2008, FHFA was given statutory responsibility for ensuring diversity and inclusion both in our own shop at FHFA and at our regulated entities.  

Here in Los Angeles, I’d definitely be remiss not to highlight the critical role played by my former colleague on the House Financial Services Committee, Congresswoman Maxine Waters, in shaping the diversity and inclusion provisions in both of these statutes.  Without her, I dare say that there probably would be no Office of Minority and Women Inclusion (OMWI) requirements.  And, FHFA is fully committed to meeting those requirements both at FHFA and at our regulated entities.  

To further this objective, we have taken a number of steps since I became Director of FHFA.  First, we named a permanent OMWI Director and placed her on our executive management team reporting directly to me.  In establishing the criteria for the person we selected, we insisted on someone who had both OMWI experience and someone who knew housing finance and could understand how to get minorities and women included in the business line activities at the regulated entities.  

Second, at the beginning of this year, as part of developing our 2015 Scorecard for Fannie Mae and Freddie Mac, we included commitment to diversity and inclusion as one of the overarching criteria we will use to assess Fannie Mae and Freddie Mac’s performance on all Scorecard objectives.  We’re already seeing the impact that this can have on opportunities for minorities and women to be included in the Enterprises’ business transactions.        

For example, the Enterprises are now making efforts to get minority-, women- and disabled-owned businesses and non-profit organizations involved in their non-performing loan (NPL) sales.  These sales provide a means for the Enterprises to sell severely delinquent loans to new buyers using new servicers who will work aggressively with borrowers to help them avoid foreclosure.  Conducting the right kind of outreach to entities that will maximize borrower engagement and neighborhood-based solutions is a critical component of successfully executing these sales in ways that will help keep more borrowers in their homes and help stabilize neighborhoods.      

Both as part of the 2015 Scorecard and as a result of NPL sale requirements that FHFA announced in March, the Enterprises are taking concrete steps to conduct outreach to educate minority-, women-, and disabled-owned businesses, as well as non-profit stakeholders, about NPL sales opportunities.  Both Enterprises have pages on their websites ^[1]​ that prov​ide information about their NPL sales, including ways for interested parties to register for future NPL sale announcements.  The Enterprises are also setting up outreach sessions about the NPL sale process and FHFA’s requirements, and Freddie Mac held its first daylong seminar on this topic last week with over 100 attendees representing a broad range of stakeholders.  As part of this effort, both Enterprises are working to create smaller NPL pools for sale.  We believe this will encourage participation by more non-profit organizations and minority-, women- and disabled-owned businesses.  Freddie Mac recently announced its first small NPL pool in Miami-Dade County, Florida. 

Fannie Mae and Freddie Mac also, of course, engage in substantial credit risk transfer transactions, and the Enterprises are having success involving minority-, women-, and disabled-owned businesses in some aspects of these capital market transactions and are exploring ways to involve them in other aspects.      

Finally, following the issuance of a proposed minority and women inclusion regulation last year relating to the Federal Home Loan Banks, earlier this week FHFA published the final rule in the Federal Register.  I want to thank the Greenlining Institute for the feedback submitted as part of this process.  This Rule puts in place new reporting requirements for the Federal Home Loan Banks about the makeup of their boards of directors.  The Rule also requires the Federal Home Loan Banks to report and describe the outreach activities they are using to encourage the consideration of diverse candidates for board positions. This additional data collection will allow FHFA to better assess trends in the Federal Home Loan Banks’ board diversity, in addition to facilitating continued dialogue between FHFA and the Federal Home Loan Banks about how best to enhance their board diversity outreach efforts.  

Our engagements with the Federal Home Loan Banks through our OMWI office are stimulating new conversations and excitement about how we can, working together, break through historical barriers that have existed and facilitate greater minority and women participation in this important segment of our economy.    

Moving forward, FHFA is working to build on our recent progress in a systematic way.  Recognizing that minority and women inclusion involves a lot more than collecting and reporting data, FHFA is in the process of finalizing a Strategic Plan for our Office of Minority and Women Inclusion that will chart our roadmap for furthering diversity and inclusion both within FHFA and at our regulated entities.  Through this Strategic Plan, we believe that FHFA can create a model OMWI program.  We know that this is an important part of the economic opportunity conversation you are having here today, and we look forward to ongoing dialogue with the Greenlining Institute and other stakeholders about our efforts.  

Thank you again for having me with you this afternoon and for giving me the opportunity to discuss the important work we have underway at FHFA. 

^[1] Freddie Mac: ​ http://www.freddiemac.com/npl/. Fannie Mae: http://www.fanniemae.com/portal/funding-the-market/npl/index.html​