Fannie Mae and Freddie Mac: Recent
July 19, 2024
Administrative Developments
Darryl E. Getter
Conservatorship Status and Related Directives
Updated August 25, 2026
(R46746)
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Summary
Congress chartered Fannie Mae and Freddie Mac, also known collectively as the Enterprises, to Congress chartered Fannie Mae and Freddie Mac, also known collectively as the Enterprises, to
Specialist in Financial
promote homeownership by providing liquidity to the secondary mortgage market. The promote homeownership by providing liquidity to the secondary mortgage market. The
Economics
Enterprises specifically facilitate financing for single-family residential mortgages and Enterprises specifically facilitate financing for single-family residential mortgages and
multifamily (apartment and condominium) construction. After purchasing pools of single-family multifamily (apartment and condominium) construction. After purchasing pools of single-family
30-year fixed rate mortgages, the Enterprises retain the credit (default) risks from the whole 30-year fixed rate mortgages, the Enterprises retain the credit (default) risks from the whole
mortgages and subsequently issue mortgage-backed securities (MBSs), which are bond-like mortgages and subsequently issue mortgage-backed securities (MBSs), which are bond-like
securities. Investors who purchase MBSs are guaranteed a return on their initial principal and interest, but they assume securities. Investors who purchase MBSs are guaranteed a return on their initial principal and interest, but they assume
prepayment risk, which is the risk that borrowers prepayment risk, which is the risk that borrowers
will prepay their mortgages ahead of schedule. In contrast to the original prepay their mortgages ahead of schedule. In contrast to the original
mortgages, the MBSs are relatively more liquid, meaning mortgages, the MBSs are relatively more liquid, meaning
that they can be they can be
exchanged forbought and sold as well as converted into cash more quickly with little change in cash more quickly with little change in
their quoted prices. If institutional investors from around the globe are willing to hold liquid MBSs, then additional funds are their quoted prices. If institutional investors from around the globe are willing to hold liquid MBSs, then additional funds are
channeled to the channeled to the
nation’sU.S. mortgage market (particularly to support 30-year fixed rate mortgages). National mortgage rates mortgage market (particularly to support 30-year fixed rate mortgages). National mortgage rates
tend to fall as the supply of funds in this market increases, making homeownership more affordable.tend to fall as the supply of funds in this market increases, making homeownership more affordable.
The Federal Housing Finance Agency (FHFA), an independent federal government agency created by the Housing Economic The Federal Housing Finance Agency (FHFA), an independent federal government agency created by the Housing Economic
and Recovery Act of 2008 (HERA, P.L. 110-289), is the Enterprisesand Recovery Act of 2008 (HERA, P.L. 110-289), is the Enterprises
’' primary regulator. FHFA regulates the Enterprises for primary regulator. FHFA regulates the Enterprises for
, among other things, prudential safety and soundness and to ensure that they meet their affordable housing mission goals. In September 2008, prudential safety and soundness and to ensure that they meet their affordable housing mission goals. In September 2008,
above-normal mortgage defaults caused the the Enterprises Enterprises
experiencedto experience losses that exceeded their statutory minimum capital requirement levels losses that exceeded their statutory minimum capital requirement levels
as a result of above-normal mortgage defaults. The Enterprises also experienced losses following spikes in short-term borrowing rates that occurred . The Enterprises also experienced losses following spikes in short-term borrowing rates that occurred
while they were funding long-term assets held in their portfolios. The Enterprises were subsequently placed into while they were funding long-term assets held in their portfolios. The Enterprises were subsequently placed into
conservatorship by FHFA, which currently has the powers of management, boards, and shareholders until the Enterprisesconservatorship by FHFA, which currently has the powers of management, boards, and shareholders until the Enterprises
’ ' financial safety and soundness can be restored. In addition, the U.S. financial safety and soundness can be restored. In addition, the U.S.
TreasuryDepartment of the Treasury (Treasury) provides financial support through the provides financial support through the
senior preferred stock purchase agreements (PSPAs), which stipulate that the Enterprises must pay dividends to Treasury rather than preferred stock purchase agreements (PSPAs), which stipulate that the Enterprises must pay dividends to Treasury rather than
to private shareholders while they are under conservatorship. private shareholders while they are under conservatorship.
On September 30, 2019, Treasury announced stipulations to the PSPAs that would allowWhile the PSPAs have had multiple amendments, Treasury's September 30, 2019 stipulations allowed the Enterprises to retain their earnings for the purpose of accumulating capital reserves in the Enterprises to retain their earnings for the purpose of accumulating capital reserves in
preparation for eventual release from conservatorship.preparation for eventual release from conservatorship.
Congressional interest in the Enterprises has continued since conservatorship. For one reason, the final costs to the U.S. Congressional interest in the Enterprises has continued since conservatorship. For one reason, the final costs to the U.S.
Treasury (and, by proxy, to U.S. taxpayers) of providing the Enterprises financial support are unknown. In addition, the Treasury (and, by proxy, to U.S. taxpayers) of providing the Enterprises financial support are unknown. In addition, the
Enterprises’Enterprises' future viability could affect the availability of single-family 30-year fixed rate mortgage loan products. Although future viability could affect the availability of single-family 30-year fixed rate mortgage loan products. Although
these mortgage products are arguably popular with borrowers, private lenders may be reluctant to retain in portfolio and fund these mortgage products are arguably popular with borrowers, private lenders may be reluctant to retain in portfolio and fund
relatively less liquid mortgages for several decades. Congressional interest has been reflected by various draft proposals, relatively less liquid mortgages for several decades. Congressional interest has been reflected by various draft proposals,
bills, and oversight hearings on housing finance reform. During the bills, and oversight hearings on housing finance reform. During the
118th119th Congress, for example, Congress, for example,
H.R. 1209, the End of GSE [Government-Sponsored Enterprises] H.R. 5549, End of GSE Conservatorship Preparation Act of Conservatorship Preparation Act of
20232025, would require the Treasury Secretary to submit to Congress completed proposals , would require the Treasury Secretary to submit to Congress completed proposals
for the termination of the Enterprisesfor the termination of the Enterprises
’' conservatorships. conservatorships.
Meanwhile, FHFAMeanwhile, FHFA
’'s conservatorship goals have focused primarily on managing the Enterprisess conservatorship goals have focused primarily on managing the Enterprises
’' liquidity, operational, and liquidity, operational, and
credit risks. FHFA has directed the Enterprises to standardize numerous processes to foster greater liquidity in the market for credit risks. FHFA has directed the Enterprises to standardize numerous processes to foster greater liquidity in the market for
their MBSs. The Enterprises are also being required to share more of the credit risk linked to their single-family mortgage their MBSs. The Enterprises are also being required to share more of the credit risk linked to their single-family mortgage
purchases with the private sector. Greater uniformity is expected to provide greater data integrity and reduce pricing purchases with the private sector. Greater uniformity is expected to provide greater data integrity and reduce pricing
irregularities, thereby fostering efficient operation of the primary and secondary mortgage markets.irregularities, thereby fostering efficient operation of the primary and secondary mortgage markets.
On October 28, 2019, FHFA announced a strategic plan to prepare the Enterprises for their eventual exit from On October 28, 2019, FHFA announced a strategic plan to prepare the Enterprises for their eventual exit from
conservatorship. FHFA also adopted a final rule on December 17, 2020, conservatorship. FHFA also adopted a final rule on December 17, 2020,
that establishesestablishing a capital regulatory framework for a capital regulatory framework for
the Enterprises to be in place once they exit conservatorship. The capitalization requirements are designed to increase the the Enterprises to be in place once they exit conservatorship. The capitalization requirements are designed to increase the
Enterprises’Enterprises' resiliency to another severe financial downturn. Furthermore, FHFA directs the Enterprises to pursue programs resiliency to another severe financial downturn. Furthermore, FHFA directs the Enterprises to pursue programs
to meet affordable mission goals for low- and moderate-income households as mandated in their congressional charters. to meet affordable mission goals for low- and moderate-income households as mandated in their congressional charters.
However, FHFA has also limited the EnterprisesHowever, FHFA has also limited the Enterprises
’' activities in the multifamily (e.g., apartments) lending space that are not activities in the multifamily (e.g., apartments) lending space that are not
explicitly linked to their affordable mission goals. If the Enterprises were to exit conservatorship under current circumstances, their attempts to sustain profitability levels to meet shareholder equity requirements with limitations on lending activities could pose a future dilemma.
Congressional Research Service
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Contents
Introduction ..................................................................................................................................... 1
Enterprises’ Secondary Mortgage Market Activities ....................................................................... 2
Transfer of Mortgage Prepayment Risk, Retention of Credit Risk ........................................... 2
MBSs Markets and Liquidity Premium Management ............................................................... 4
FHFA’s Conservatorship Priorities .................................................................................................. 6
Directives to Reduce the Enterprises’ Credit Risks ................................................................... 6
Loan-to-Value Ratios and Mortgage Reinsurance Transactions ......................................... 6
Guarantee Fees and Loan Level Price Adjustments ............................................................ 7
Credit Risk Transfer Programs ............................................................................................ 8
Standardization Initiatives to Foster MBS Liquidity .............................................................. 10
Uniform Mortgage Data Program ..................................................................................... 10
Common Securitization Platform ...................................................................................... 11
Uniform MBS Single Security Initiative .......................................................................... 12
Post-Conservatorship Operations .................................................................................................. 14
Heightened Capital Buffer Requirements ............................................................................... 14
The Enterprises’ Multifamily Business Models ...................................................................... 17
Duty to Serve: Manufactured Housing Chattel Loans ............................................................ 19
Contacts
Author Information ........................................................................................................................ 21
Congressional Research Service
Fannie Mae and Freddie Mac: Recent Administrative Developments
Introduction
Congress chartered Fannie Mae and Freddie Mac, also known collectively as Enterprises,1 to promote homeownership by providing liquidity to the secondary marketsexplicitly linked to their affordable mission goals. If returned to private markets, the Enterprises' prioritization of shareholder profitability could reverse the operational standardization efforts achieved while under conservatorship, thereby reintroducing inefficiencies in the distribution of mortgage risks.
Introduction
Fannie Mae and Freddie Mac (the Enterprises1) were chartered by Congress to support housing finance.2 The Enterprises' core business is to guarantee mortgage credit (default) risk, and doing so fosters greater liquidity for single-family for single-family
residential residential
mortgages and multifamily (apartment and condominium) mortgages. and multifamily (apartment and condominium) mortgages.
Guaranteeing the credit (default) risk linked to single-family residential mortgages is their core business activity. SpecificallyFor example, the Enterprises retain the credit risks from the , the Enterprises retain the credit risks from the
single-family residential mortgages they purchase mortgages they purchase
from loan originators and subsequently issue bond-like instruments known as mortgage-backed from loan originators and subsequently issue bond-like instruments known as mortgage-backed
securities (MBSs).securities (MBSs).
23 Investors who purchase the MBSs are guaranteed to get their initial principal Investors who purchase the MBSs are guaranteed to get their initial principal
investment returned, but they assume investment returned, but they assume
prepayment risk, the risk of declining cash flows if borrowers repay their the risk of declining cash flows if borrowers repay their
mortgages ahead of schedulemortgages ahead of schedule
, referred to as prepayment risk.3 Hence, unlike mortgages .4 In comparison to traditional 30-year fixed rate mortgages (with both with both
prepayment and default risksprepayment and default risks
), MBSs are more liquid (e.g., they can be traded or sold , MBSs are more liquid (e.g., they can be traded or sold
for cash more quickly) largely because only one type of lending risk is attached. Thus, MBSs can attract private sector funds that can be used to offer relatively less liquid mortgages—namely 30-year fixed-rate mortgages. National mortgage rates tend to fall as the supply of funds in the MBS market increases, making U.S. homeownership more affordable.
more quickly) because they have only one embedded lending risk and shorter durations (e.g., typically 7-10 years), which is more appealing to private sector investors. As more funds flow into the MBS market, mortgage rates tend to fall, increasing the affordability to finance home purchases.5
The Federal Housing Finance Agency (FHFA), an independent federal agency created by the The Federal Housing Finance Agency (FHFA), an independent federal agency created by the
Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289), is the EnterprisesHousing and Economic Recovery Act of 2008 (HERA, P.L. 110-289), is the Enterprises
’' primary regulator for compliance with primary regulator.4 FHFA regulates the Enterprises for prudential safety and soundness prudential safety and soundness
and ensures they meetrequirements and their affordable housing mission goals. their affordable housing mission goals.
In September 2008, the Enterprises experienced losses that exceeded their statutory minimum capital requirement levels due to the6 FHFA is also authorized to act as conservator (or receiver) for the Enterprises when their capital levels are too low to absorb losses from defaults or cover other financial obligations. In September 2008, a high rate of high rate of
mortgage defaultsmortgage defaults
. At the same time, the triggered losses that exceeded the Enterprises' statutory minimum capital requirement levels. The Enterprises also experienced losses following spikes in Enterprises also experienced losses following spikes in
short-term borrowing rates that short-term borrowing rates that
occurred while they were fundingincreased the costs to fund the long-term assets held in their long-term assets held in their
portfolios. portfolios.
TheConsequently, the Enterprises subsequently agreed to be placed under Enterprises subsequently agreed to be placed under
conservatorship, meaning that FHFA hasconservatorship, which transfers the powers of management, boards, and shareholders to FHFA until the Enterprises' financial safety and soundness is restored.7 Thus, FHFA currently acts as both regulator and conservator for the Enterprises.
The U.S. Department of the Treasury (Treasury) provides the Enterprises with financial support during their conservatorships as specified by the terms outlined in the preferred stock purchase agreements (PSPAs).8 In return, Treasury received $1 billion of senior preferred stock in each Enterprise, securing the right to receive payment distributions over all other equity holders. The PSPAs are indefinite in duration, initially stipulating that the Enterprises pay all net earnings to Treasury as cash dividends rather than to private shareholders during conservatorship in exchange for its funding commitment. Treasury also received warrants (which are functionally equivalent to financial call options) for the purchase of 79.9% of the common stock of each government-sponsored enterprise (GSE) at a nominal cost.9 The PSPAs have since been amended numerous times in response to changing financial circumstances as well as to minimize possible taxpayer losses. Notably, the September 2019 PSPA amendments allowed the Enterprises to retain their earnings and build capital reserves to prepare for release from conservatorship.10
Congress continues to monitor the Enterprises' financial health amid affordability challenges in housing and mortgage markets. Whether Treasury will provide additional financial support to the Enterprises is a concern expressed by stakeholders. the powers of management, boards, and shareholders until restoration of the Enterprises’ financial safety and soundness.5 The terms in the senior preferred stock purchase agreements (PSPAs) between the Enterprises and the U.S. Treasury stipulate the conditions under which it will provide them with financial support while they are under conservatorship.6 The PSPAs have been amended numerous times such that the initial requirement to pay cash
1 Fannie Mae and Freddie Mac are often referred to as government-sponsored enterprises (GSEs). However, entities such as the Federal Home Loan Bank System and the Farm Credit System are also GSEs.
2 Fannie Mae calls its securities MBSs, and Freddie Mac calls its securities participation certificates. Common industry practice is to refer to both Fannie’s MBSs and Freddie’s participation certificates collectively as MBSs. 3 In addition to Fannie Mae and Freddie Mac, Congress created Ginnie Mae, a federal corporation that guarantees the timely repayment of principal and interest to investors in MBSs (created by Ginnie Mae–approved issuers) linked to mortgages in which the default risk has already been guaranteed by federal agencies, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA). Hence, Ginnie Mae does not retain credit risk.
4 Prior to FHFA’s creation, the Office of Federal Housing Enterprise Oversight (OFHEO), which was an agency under the Department of Housing and Urban Development (HUD), was the safety and soundness regulator for Fannie Mae and Freddie Mac. OFHEO ensured that the Enterprises complied with their statutory capital requirements. The Enterprises’ annual housing mission goals were set by HUD but not by OFHEO.
5 See FHFA, “Conservatorship,” https://www.fhfa.gov/Conservatorship. 6 P.L. 110-289 gave the Treasury Secretary authority to lend or invest in the Enterprises. The Treasury’s response to the Enterprises after they were undercapitalized was similar to its response after the banking system became undercapitalized, in which it purchased preferred shares from the banks via the Troubled Assets Relief Program. For information, see CRS Report R43413, Costs of Government Interventions in Response to the Financial Crisis: A
Retrospective, by Baird Webel and Marc Labonte.
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Fannie Mae and Freddie Mac: Recent Administrative Developments
dividends to Treasury has been modified, currently allowing the Enterprises to accumulate the necessary capital reserves to exit conservatorship.7
Congressional interest in the Enterprises since they were placed in conservatorship has continued due to uncertainty in the housing, mortgage, and financial markets. For example, whether Treasury may have to provide additional financial support to the Enterprises is difficult to predict. In addition, reforming or replacing the Enterprises might affect the availability of single-family In addition, reforming or replacing the Enterprises might affect the availability of single-family
30-year fixed30-year fixed
- rate mortgage loan products, which are arguably more popular with borrowersrate mortgage loan products, which are arguably more popular with borrowers
(rather than private lenders that are more reluctant to retain the liquidity risks associated with these loans in their lending portfolios).8.11 Congressional interest has been reflected by various draft Congressional interest has been reflected by various draft
proposals, bills, and oversight hearings on housing finance reform. For example, H.R. proposals, bills, and oversight hearings on housing finance reform. For example, H.R.
55491209, the , the
End of GSE Conservatorship Preparation Act of End of GSE Conservatorship Preparation Act of
20232025, which was introduced during the , which was introduced during the
118th 119th Congress, would require the Treasury Secretary to submit to Congress completed proposals for Congress, would require the Treasury Secretary to submit to Congress completed proposals for
the termination of the Enterprisesthe termination of the Enterprises
’' conservatorships. conservatorships.
9
This report begins with an overview of Fannie MaeThis report begins with an overview of Fannie Mae
’'s and Freddie Macs and Freddie Mac
’'s secondary mortgage s secondary mortgage
market activities. It then discusses FHFAmarket activities. It then discusses FHFA
’'s administrative directives pertaining to the management s administrative directives pertaining to the management
of the Enterprisesof the Enterprises
’' credit and liquidity risks. The directives credit and liquidity risks. The directives
specifically focuswere focused on reducing on reducing
potentialpotential
financial risks that could be borne by U.S. taxpayers, standardizing numerous processes to foster risks that could be borne by U.S. taxpayers, standardizing numerous processes to foster
greater liquidity in the market for their MBSs, and increasing their capital reserves to prepare for greater liquidity in the market for their MBSs, and increasing their capital reserves to prepare for
their exit from conservatorship. their exit from conservatorship.
FinallyNext, this report discusses , this report discusses
how the Enterprises may operate following their conservatorships.
Enterprises’ Secondary Mortgage Market Activities
FHFA's modifications that, even with some adjustments, may remain in place after conservatorship. Finally, it summarizes some issues and broad ramifications that Congress may choose to consider if the Enterprises were to promptly exit conservatorship. Specifically, the Enterprises would prioritize shareholder profitability if returned to private markets, potentially reversing the operational standardization efforts achieved under conservatorship and reintroducing inefficiencies in the distribution of mortgage risks.
Enterprises' Secondary Mortgage Market Activities
By law, the Enterprises cannot originate mortgages directly to borrowers, who obtain their By law, the Enterprises cannot originate mortgages directly to borrowers, who obtain their
mortgages from loan originators in the primary marketmortgages from loan originators in the primary market
..12 Instead, the Enterprises operate in the Instead, the Enterprises operate in the
secondary mortgage market, interacting with loan originators (which sell mortgages to the secondary mortgage market, interacting with loan originators (which sell mortgages to the
Enterprises) and investors (which purchase the EnterprisesEnterprises) and investors (which purchase the Enterprises
’' debt and MBS issuances). The debt and MBS issuances). The
Enterprises interact with MBS investors in both the primary and secondary MBS markets. The Enterprises’Enterprises' securitization activities, which facilitate the acquisition of funds from the ultimate securitization activities, which facilitate the acquisition of funds from the ultimate
lenders to mortgage borrowers, are discussed in the sections below.lenders to mortgage borrowers, are discussed in the sections below.
Transfer of Mortgage Prepayment Risk, Retention of Credit Risk
In the secondary market, the Enterprises purchase homeownersIn the secondary market, the Enterprises purchase homeowners
’' conforming mortgages from loan from loan
originators. Conforming mortgages are single-family mortgages that meet certain eligibility originators. Conforming mortgages are single-family mortgages that meet certain eligibility
criteria set by the Enterprises criteria set by the Enterprises
based on on the basis of size and creditworthiness.size and creditworthiness.
1013 These mortgages must meet These mortgages must meet
the Enterprisesthe Enterprises
’' underwriting standards and cannot exceed the underwriting standards and cannot exceed the
conforming loan limit, which is , which is
adjusted each year to reflect the changes in the national average home prices.11 The Enterprises
7 For more historical information about the chartering of Fannie Mae and Freddie Mac, see “Why Were Fannie Mae and Freddie Mac Created?” in CRS Report R44525, Fannie Mae and Freddie Mac in Conservatorship: Frequently
Asked Questions, by Darryl E. Getter.
8 See Richard K. Green and Susan M. Wachter, “The American Mortgage in Historical and International Context,” Journal of Economic Perspectives, vol. 19, no. 4 (Fall 2005), pp. 93-114.
9 H.R. 5549 was introduced in the House and referred to the House Committee on Financial Services. 10 These mortgages tend to have fixed interest rates with a 30-year maturity. 11 FHFA establishes the annual conforming loan limits for one-to-four-unit properties. For most areas in which the median local house value exceeds the national average house value by 115%, the conforming loan limit is set at 115% of the median home value. FHFA establishes separate conforming loan limit for Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
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Fannie Mae and Freddie Mac: Recent Administrative Developments
adjusted each year to reflect the changes in the national average home prices.14 The Enterprises use two methods to acquire conforming mortgages. An Enterprise may pay cash (directly from its use two methods to acquire conforming mortgages. An Enterprise may pay cash (directly from its
cash window) to a loan originator for delivery of a small number of mortgages. Alternatively, an cash window) to a loan originator for delivery of a small number of mortgages. Alternatively, an
Enterprise may enter into a Enterprise may enter into a
swap agreement with a loan originator to purchase a large number (or with a loan originator to purchase a large number (or
pool) of mortgages. In exchange for a pool, the purchasing Enterprise delivers one (or more) pool) of mortgages. In exchange for a pool, the purchasing Enterprise delivers one (or more)
MBS that is linked to the MBS that is linked to the
MBS trust holding the mortgages. An MBS trust is a legal entity holding the mortgages. An MBS trust is a legal entity
established to hold pools of conforming established to hold pools of conforming
mortgage loans.12
mortgages, thereby keeping the loans off the Enterprises' balance sheets.15
As borrowers repay their mortgages, As borrowers repay their mortgages,
the streams of principal and interest principal and interest
streams are collected by loan are collected by loan
servicers and forwarded to servicers and forwarded to
investors in MBSs issued by the Enterprises.MBS investors.16 An investor that An investor that
purchases an MBS receives a purchases an MBS receives a
coupon, which is the yield composed of the principal and interest , which is the yield composed of the principal and interest
repayments from borrowers whose mortgages are held in MBS trusts.repayments from borrowers whose mortgages are held in MBS trusts.
1317 However, various fees are However, various fees are
subtracted before the coupons are paid to investors.subtracted before the coupons are paid to investors.
1418 For example, a designated mortgage For example, a designated mortgage
servicer retains a fee to collect borrowersservicer retains a fee to collect borrowers
’' regular payments, resolves borrower delinquency and regular payments, resolves borrower delinquency and
default problems, and disburses payments to the Enterprises (which subsequently disburse default problems, and disburses payments to the Enterprises (which subsequently disburse
payments to MBS investors). Other fees related to the home purchase (e.g., settlement costs) that payments to MBS investors). Other fees related to the home purchase (e.g., settlement costs) that
borrowers may have chosen not to pay borrowers may have chosen not to pay
upfrontup front may also be subtracted. Simply put, the MBS may also be subtracted. Simply put, the MBS
coupon is the coupon is the
rate of return net of fees that an investor receives for purchasing orinterest rate—after subtracting fees—passed on to an investor for investing in an investing in an
MBS.MBS.
The Enterprises' primary revenue source is collecting guarantee fees (g-fees). G-fees, along with other fees, are deducted from the streams of principal and interest payments (made by borrowers) prior to forwarding the net coupons to MBS investors. G-fees compensate the Enterprises for guaranteeing timely MBS coupon paymentsThe Enterprises’ profits are related to lending spreads—the difference between lending at higher rates and borrowing at successive sequences of shorter rates—created to finance assets retained in their lending portfolios (on-balance sheet) and the conforming mortgages held in the MBS trusts (off-balance sheet). For the on-balance-sheet assets retained in their portfolios, the Enterprises issue to investors debt securities—referred to as unsecured debentures—with shorter maturities relative to the longer-term assets. By borrowing via successive sequences of lower-rate debentures, the Enterprises create portfolio lending spreads. For the off-balance-sheet MBS trusts, the Enterprises’ profits are subtracted from lending spreads, which are created as the difference between the longer-term mortgage rates paid by borrowers and the MBS coupons paid to MBS investors.15 In other words, the guarantee fee (g-fee)—the residual following the subtraction of the shorter-term MBS coupons as well as the loan servicing and other ancillary fees from the longer-term borrowers’ mortgage coupons—is the compensation the Enterprises receive for guaranteeing to investors timely payment of the MBS coupons and for retaining the default risks and for retaining the default risks
of the mortgages held in the MBS trusts.16
12 The MBS trusts are bankruptcy-remote or special-purpose entities, meaning that the parent company (e.g., one of the Enterprises) isolates and holds these assets in the trust rather than on its own balance sheets. If, for example, a parent company goes bankrupt, then the stipulated activities of a special-purpose entity are not disrupted given that the trust assets are legally not owned by the parent company. In this case, the assets (mortgages) held in the MBS trusts are funded by MBS issuances.
13 For detailed descriptions of loan securitizations and MBS trust guarantees, see Fannie Mae, Basics of Fannie Mae
Single-Family MBS, January 2019, http://www.fanniemae.com/resources/file/mbs/pdf/basics-sf-mbs.pdf.
14 For example, if the average interest rate of the underlying pool of mortgages is 4% or 400 basis points, an Enterprise may retain an average of 56 basis points and pass the remaining 344 basis points to the MBS holders after subtracting additional basis points for mortgage servicers (typically 25 basis points) and paying for other costs to originate the loan. See FHFA, “FHFA Issues 2017 Report to Congress on Guarantee Fees,” press release, December 10, 2018, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Issues-2017-Report-to-Congress-on-Guarantee-Fees.aspx.
15 For more information on the pricing of single-family mortgages—specifically how mortgage coupons paid by borrowers are calculated—see CRS Report R46980, Single-Family Mortgage Pricing and Primary Market Policy
Issues, by Darryl E. Getter.
16 The Enterprises, therefore, are monoline insurance companies. See FHFA, “Enterprise Capital Requirements,” 83
Federal Register 137, July 17, 2018. Bond insurers guarantee (for a fee) that the interest payment streams generated from a bond (or loan) will be made on time and that, if a default occurs, the initial principal investment will be returned (continued...)
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Fannie Mae and Freddie Mac: Recent Administrative Developments
The Enterprises’ securitization process, therefore, entails detachingof the mortgages held in the MBS trusts.19 The Enterprises can also generate returns from assets held on their balance sheets by borrowing at relatively lower rates through successive sequences of debentures—unsecured debt securities—issued to investors.
Stated differently, the Enterprises' securitization process (i.e., business model) essentially detaches two specific mortgage risks— two specific mortgage risks—
the risk the risk
of repayingthat borrowers will repay early and the risk early and the risk
of repayingthat they will repay late (or not at all)—into late (or not at all)—into
separatedistinct components. components.
Prepayment risk, the risk that borrowers will repay their mortgages ahead of schedule, results in , the risk that borrowers will repay their mortgages ahead of schedule, results in
lower lower
revenuesrevenue streams. For example, if mortgage rates decline, some borrowers may repay their existing . For example, if mortgage rates decline, some borrowers may repay their existing
mortgages early by refinancing mortgages early by refinancing
them into (replacing(replacing
) them them
intowith) new mortgages with lower rates. Borrowers new mortgages with lower rates. Borrowers
also prepay their mortgages when they move. In also prepay their mortgages when they move. In
this case, the Enterprises passthese cases, the applicable Enterprise passes on the repayment on the repayment
of principal but of principal but
reduce the investors’ reduces the MBS coupons by the amount of interest forgone.MBS coupons by the amount of interest forgone.
1720 The The
Enterprises Enterprises
retaincharge g-fees to cover the the
credit (default)default) risk, the risk that the mortgage obligation will not be repaid, , the risk that the mortgage obligation will not be repaid,
and charges g-fees. Shouldwhich also lowers revenues. If a delinquency or default a delinquency or default
occuroccurs, the applicable Enterprise purchases the , the applicable Enterprise purchases the
defaultednon-performing mortgage (for the mortgage (for the
amount of the remainingunpaid outstanding balance balance
owed) out of the MBS trust.18 After a borrower defaults, the purchase effectively reimburses the associated MBS trust and, therefore, prevents MBS investors from losing their initial principal investments.amount) from the linked MBS trust, thereby protecting the MBS investors from loss of their principal investment.21 The MBS coupon is The MBS coupon is
subsequently adjusted for the reduced stream of interest payments, thus making it appear to subsequently adjusted for the reduced stream of interest payments, thus making it appear to
investors that mortgage obligations have investors that mortgage obligations have
been repaidprepaid ahead of schedule (rather than defaulted). ahead of schedule (rather than defaulted).
MBSs, therefore,Consequently, MBSs are conceptually equivalent to are conceptually equivalent to
derivative products that contain one, rather than both, of the financial risks attached to the original mortgages that the Enterprise purchased.19 derivatives, which expose investors to a single rather than all the financial risks attached to an underlying asset (e.g., whole mortgages).22
MBSs Markets and Liquidity Premium Management
In the In the
secondary mortgage market, the Enterprises acquire existing mortgages, the Enterprises acquire existing mortgages
, which are used to to
subsequently create new MBSssubsequently create new MBSs
for issue in the primary MBS market. In other words, the Enterprises deliver new MBSs to investors in the primary MBS market. The Enterprises promise future delivery of new MBSs—via swap agreements—to MBS investors, otherwise referred to as , otherwise referred to as
the the
to-be-announced (TBA) market market
, via swap agreements.20 The TBA market is a forward market, meaning that a swap agreement to simultaneously sell a pool of mortgages to an Enterprise and purchase MBSs linked to the underlying pool occurs in advance of the MBS securities’ delivery and settlement date. Interest rates—and, therefore, bid-ask spread movements.23 Instead of purchasing an MBS for cash, an investor can use a swap to deliver pools of mortgages directly to an Enterprise for purchase of an MBS (linked to the underlying pool), with the delivery and settlement taking place at a later date in the TBA market. Interest rates—and, therefore, movements in MBS bid (offer) and ask (sell) prices—may occur over —may occur over
the gap period between entering and settlement of a swap agreement.the gap period between entering and settlement of a swap agreement.
21 Investors wanting to 24 If this happens, investors may choose to hedge against adverse bid-ask hedge against adverse bid-ask
price movements prior to delivery of movements prior to delivery of
their MBS purchases may require higherthe MBSs by requiring additional compensation (e.g., hedging fees, premiums) to compensation (e.g., hedging fees, premiums) to
cover the possibility ofoffset possible adverse price adverse price
movements that could movements that could
cause the securities to becomemake their securities less liquid prior to the settlement date. less liquid prior to the settlement date.
These costs These costs
maycan be passed be passed
on to homebuyersto homeowners, particularly those , particularly those
willingchoosing to lock in their mortgage to lock in their mortgage
rates over the period of time untilrates to protect against interest rate upticks prior to their closing settlement dates. their closing settlement dates.
Following TBA market issuance
After issuance in the TBA (primary MBS) market, the Enterprises, the Enterprises
’' MBSs—just like MBSs—just like
other types ofall bonds and bonds and
securities—can subsequently trade directly (via broker-dealers) between two parties in what are
to the bondholder. Likewise, the Enterprises facilitate the equivalent transaction on a larger scale, referring to the process as securitization.
17 The process when borrowers prepay mortgages that underlie Ginnie Mae MBSs is similar. 18 The Enterprises define default as 120 days late. 19 In finance, a derivative is a financial instrument with value linked to at least one but not all of the risks contained in a reference bond. In this case, the MBS derivative instruments have the prepayment risk but not the default risk that is contained in the underlying reference mortgage.
20 Ginnie Mae facilitates MBSs that it issues in the TBA market. Ginnie Mae transfers prepayment risk in a similar manner as the Enterprises, but it does not retain default risk. The default risk is retained by the federal agencies—FHA, VA, and USDA—that provide mortgage insurance.
21 For example, following a decline in mortgage rates during the COVID-19 pandemic, mortgage pools scheduled for delivery experienced an increase in prepayment risk, thereby reducing their liquidity. The liquidity loss was reflected by a widening gap between the present value of the mortgage pool and the future MBS prices at settlement. See Jiakai Chen et al., Dealers and the Dealer of Last Resort: Evidence from the MBS Markets in the COVID-19 Crisis, Federal Reserve Bank of New York, July 2020, https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr933.pdf.
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referred to as over-the-counter (OTC) market or secondary securities market transactions.22 Secondary bond markets are typically thin, meaning that bonds generally trade infrequently, and the trade sizes vary, which may cause valuation (pricing) challenges—sometimes leading investors and market-makers to perceive that the bonds may be illiquid.23 Illiquid securities—can subsequently trade directly (via broker-dealers) between two parties in the over-the-counter (OTC) market, the secondary market for securities.25 Valuation (pricing) challenges occur in secondary bond markets that are thin—meaning that these assets generally trade infrequently and their trade sizes vary—causing investors and market-makers to regard bonds as illiquid.26 Illiquid bond securities securities
cannot easily becannot easily be
converted into cash or traded within a reasonable time traded within a reasonable time
—that is, or converted into cash without affecting without affecting
their quoted prices. Investors arguably might their quoted prices. Investors arguably might
offer (bid) “bid "too muchtoo much
”" to buy or to buy or
sell (ask)ask for a for a
price price
“too low” when trading"too low" to sell illiquid securities. illiquid securities.
Consequently, investorsInvestors may require additional require additional
compensation, referred to as a compensation, referred to as a
liquidity premium, to , to
buy or selltrade illiquid securities. illiquid securities.
2427 Widening bid- Widening bid-
ask spreads mightask price spreads signal the emergence of signal the emergence of
a liquidity liquidity
premiumpremiums being incorporated in being incorporated in
securities prices.25 Likewise, liquidity premiumsbond prices, which can also emerge can also emerge
even when more liquid when MBSs trade in the OTC (i.e., secondary) MBS market. Persistent liquidity premiums MBSs trade in OTC markets.28 Persistent liquidity premiums—just as in TBA markets—may result in higher mortgage rates for may result in higher mortgage rates for
future future
homeownershomebuyers if investors demand higher yields (i.e., higher coupons) to offset the risk that if investors demand higher yields (i.e., higher coupons) to offset the risk that
future sales of their MBSstheir future MBSs sales would occur at prices considered would occur at prices considered
“"too lowtoo low
”" due to market illiquidity. due to market illiquidity.
26
29
Prior to conservatorship, the Enterprises could actively trade their own MBSs in the secondary Prior to conservatorship, the Enterprises could actively trade their own MBSs in the secondary
OTC market to facilitate liquidity.OTC market to facilitate liquidity.
2730 By conducting OTC market trades when the bid-ask spreads By conducting OTC market trades when the bid-ask spreads
for MBS widened, the Enterprises for MBS widened, the Enterprises
couldwere able to abate rising liquidity premiums and reduce mortgage abate rising liquidity premiums and reduce mortgage
costs for borrowers.costs for borrowers.
2831 Hence, high-volume trading by the Enterprises facilitated narrower bid-ask Hence, high-volume trading by the Enterprises facilitated narrower bid-ask
MBS spreads and hedging fees in both the OTC and TBA markets, respectively.MBS spreads and hedging fees in both the OTC and TBA markets, respectively.
2932 (The (The
Enterprises held their own MBSs to show incentive alignment with investors, meaning the Enterprises held their own MBSs to show incentive alignment with investors, meaning the
Enterprises were willing to hold the same risks that they were selling.Enterprises were willing to hold the same risks that they were selling.
3033) Thus, despite ) Thus, despite
intermittent episodes of budding liquidity premiums, MBSs issued by the Enterprises were intermittent episodes of budding liquidity premiums, MBSs issued by the Enterprises were
considered to be almost as liquid as U.S. Treasury bonds.considered to be almost as liquid as U.S. Treasury bonds.
31
34
The current $250 billion cap on the EnterprisesThe current $250 billion cap on the Enterprises
’' asset portfolios (resulting from the PSPAs) asset portfolios (resulting from the PSPAs)
may limit their ability to buy and sell MBSs at the volumes necessary to influence market pricing.
22 See Financial Industry Regulatory Authority, “Unraveling the Mystery of Over-the-Counter Trading,” The Alert
Investor, January 4, 2016, https://www.finra.org/investors/unraveling-mystery-over-counter-trading.
23 The increase in electronic trading has increased price transparency in many OTC markets. See Randall Dodd, “Markets: Exchange or Over-the-Counter,” International Monetary Fund, https://www.imf.org/external/pubs/ft/fandd/basics/markets.htm.
24 See Douglas J. Elliott, “Market Liquidity: A Primer,” Brookings Institution, June 2015, https://www.brookings.edu/wp-content/uploads/2016/07/Market-Liquidity.pdf.
25 See Rich Podjasek et al., “Has MBS Market Liquidity Deteriorated?,” Federal Reserve Bank of New York, February 8, 2016, https://libertystreeteconomics.newyorkfed.org/2016/02/has-mbs-market-liquidity-deteriorated.html.
26 Whether investors found MBSs attractive due to their lack of credit risk or their OTC market liquidity is subject to debate. See James Vickery and Joshua Wright, TBA Trading and Liquidity in the Agency MBS Market, Federal Reserve Bank of New York, May 2013, http://www.newyorkfed.org/research/epr/2013/1212vick.pdf.
27 See Scott Richardson and Diogo Palhares, “(Il)liquidity Premium in Credit Markets: A Myth?,” Journal of Fixed
Income, vol. 28, no. 3 (Winter 2019), pp. 3-21.
28 See Congressional Budget Office, Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage
Market, December 2010, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/12-23-fanniefreddie.pdf.
29 See Karan Kaul, “The Past, Present and Future of Agency MBS Liquidity,” prepared for Ginnie Mae by State Street Global Advisors and the Urban Institute’s Housing Finance Policy Center, October 2016, https://www.ginniemae.gov/newsroom/publications/Documents/agency_mbs_liquidity.pdf.
30 See Robert Van Order, “Government-Sponsored Enterprises and Resource Allocation: Some Implications for Urban Economics,” in Brookings-Wharton Papers on Urban Affairs, ed. Gary Burtless and Janet Rothenberg Pack (Washington, DC: Brookings Institution, 2007), pp. 151-203.
31 See Karan Kaul and Laurie Goodman, “Declining Agency MBS Liquidity Is Not All About Financial Regulation,” Urban Institute, November 2015, https://www.urban.org/sites/default/files/publication/72621/2000503-Declining-Agency-MBS-Liquidity-Is-Not-All-about-Financial-Regulation.pdf.
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Fannie Mae and Freddie Mac: Recent Administrative Developments
limit their ability to buy and sell MBSs at the volumes necessary to influence market pricing. Although the Federal Reserve has purchased large amounts of the EnterprisesAlthough the Federal Reserve has purchased large amounts of the Enterprises
’ MBS' MBSs while while
carrying out its carrying out its
lender-of-last-resortstatutory responsibilities, it has largely retained responsibilities, it has largely retained
themthe MBSs in its asset in its asset
portfolio rather than actively trading them.portfolio rather than actively trading them.
3235 Hence, less active trading of MBSs by the Hence, less active trading of MBSs by the
Enterprises and more holding (rather than actively trading) of MBSs by the Federal Reserve Enterprises and more holding (rather than actively trading) of MBSs by the Federal Reserve
might explain declines in market liquidity observed prior to the COVID-19 pandemic.might explain declines in market liquidity observed prior to the COVID-19 pandemic.
33 36
FHFA’'s Conservatorship Priorities
Since conservatorship, FHFA has released various versions of strategic plans and performance Since conservatorship, FHFA has released various versions of strategic plans and performance
goals.goals.
3437 FHFA has focused primarily on (1) reducing the credit risks (which pose a direct risk to FHFA has focused primarily on (1) reducing the credit risks (which pose a direct risk to
U.S. taxpayers) retained by the Enterprises and (2) increasing the liquidity of their MBS U.S. taxpayers) retained by the Enterprises and (2) increasing the liquidity of their MBS
issuances. The directives that focus on those risks are highlighted in this section.issuances. The directives that focus on those risks are highlighted in this section.
Directives to Reduce the Enterprises’' Credit Risks
The PSPAs The PSPAs
requiredrequire the Enterprises to reduce taxpayers the Enterprises to reduce taxpayers
’' credit risk. Various programs to facilitate credit risk. Various programs to facilitate
the Enterprisesthe Enterprises
’' credit risk management are discussed in this section. credit risk management are discussed in this section.
Loan-to-Value Ratios and Mortgage Reinsurance Transactions
By statute, additional credit risk reduction measures are required if the Enterprises purchase By statute, additional credit risk reduction measures are required if the Enterprises purchase
mortgages with loan-to-value mortgages with loan-to-value
ratios (LTVs)(LTV) ratios above 80%, meaning that the mortgage balance above 80%, meaning that the mortgage balance
exceeds 80% of the residential property value.exceeds 80% of the residential property value.
3538 If a borrower defaults, the Enterprise generally If a borrower defaults, the Enterprise generally
recovers losses by foreclosing (repossessing) and then liquidating (selling) the property. If a recovers losses by foreclosing (repossessing) and then liquidating (selling) the property. If a
repossessed property sells for at least 80% of its original value, then the 80% LTV requirement repossessed property sells for at least 80% of its original value, then the 80% LTV requirement
increases the likelihood that an Enterprise would recover enough proceeds to cover the remaining increases the likelihood that an Enterprise would recover enough proceeds to cover the remaining
mortgage balancemortgage balance
.36 and foreclosure expenses.39 Mortgage insurance is used when borrowers lack the funds to make down Mortgage insurance is used when borrowers lack the funds to make down
payments that would bring their payments that would bring their
LTVsLTV ratios to 80% or lower. to 80% or lower.
3740 Borrowers can purchase private Borrowers can purchase private
mortgage insurance, which mortgage insurance, which
would assumegenerally assumes the first 20% (or more in some cases) of losses the first 20% (or more in some cases) of losses
associated with a mortgage default.38
32 See Board of Governors of the Federal Reserve System, “Authority to Lend to Fannie Mae and Freddie Mac,” press release, July 13, 2008, http://www.federalreserve.gov/newsevents/press/other/20080713a.htm.
33 Kaul and Goodman, “Declining Agency MBS Liquidity.” 34 FHFA issues annual scorecards, which communicate the annual priorities and expectations that it sets for the Enterprises with respect to both of their single-family and multifamily mortgage businesses while under conservatorship. See FHFA, “Conservatorship.”
35 12 U.S.C. §1717. 36 The property value would have been determined by an appraisal when the mortgage was originated. Property values, however, are not constant and might increase or decrease by the time a borrower officially defaults. The Enterprises’ definition of default is 120 days delinquent. A loss mitigation or workout option may be able to resolve a default if the property’s value exceeds the outstanding mortgage balance. If the property value falls below the outstanding mortgage balance, the likelihood that a loss mitigation option will succeed diminishes.
37 Certain borrowers may also qualify to obtain federal mortgage insurance from the FHA, VA, or USDA. Because federally insured mortgages are backed by the full faith and credit of the U.S. government, the Enterprises face no counterparty credit risk when borrowers choose this option. Another option for borrowers may be to obtain a junior (second) loan for some or all of the 20% down payment requirement. After the property is liquidated in a foreclosure sale, the recovered proceeds would be distributed first to the Enterprises. The junior lender would receive any proceeds left over to cover the unpaid portion of the junior loan. Given that foreclosure costs can be substantial, the mortgage insurer or second lender faces a greater possibility of little or no recoupment of loan proceeds.
38 According to FHFA, mortgage insurers represent the largest counterparty exposure for the Enterprises. See FHFA, (continued...)
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associated with a mortgage default.41
The Enterprises introduced additional methods to facilitate the transfer of credit risk stemming The Enterprises introduced additional methods to facilitate the transfer of credit risk stemming
from low-down-payment borrowersfrom low-down-payment borrowers
, referred to as referred to as
mortgage reinsurance transactions. In their . In their
pilot programs, the Enterprises initially paid the mortgage insurance premiums pilot programs, the Enterprises initially paid the mortgage insurance premiums
upfrontup front and were and were
reimbursed later by borrowers via interest rate adjustments on their loans, thus streamlining the reimbursed later by borrowers via interest rate adjustments on their loans, thus streamlining the
origination process for some borrowers in need of private mortgage insurance. Fannie Maeorigination process for some borrowers in need of private mortgage insurance. Fannie Mae
’'s pilot s pilot
program, the Enterprise-Paid Mortgage Insurance Option, and Freddie Macprogram, the Enterprise-Paid Mortgage Insurance Option, and Freddie Mac
’'s pilot program, s pilot program,
Integrated Mortgage Insurance, ended in June 2021.Integrated Mortgage Insurance, ended in June 2021.
39 42
Guarantee Fees and Loan -Level Price Adjustments
As previously discussed, the EnterprisesAs previously discussed, the Enterprises
’' revenues are generated by g-fees, which can be set to revenues are generated by g-fees, which can be set to
target returns by lines of business, cover potential credit losses, and mitigate losses to taxpayers.target returns by lines of business, cover potential credit losses, and mitigate losses to taxpayers.
40 G-fees are established at the same time when the interest rates for single-family mortgages are determined.4143 G-fees are included in the overall mortgage price.44 Specifically, a loan originator typically receives a Specifically, a loan originator typically receives a
rate sheet from Fannie Mae or from Fannie Mae or
Freddie Mac with a designated minimum base mortgage rate Freddie Mac with a designated minimum base mortgage rate
andas well as the various risk adjustments, the various risk adjustments,
referred to as referred to as
the loan-level price adjustments (LLPAs)loan-level price adjustments (LLPAs)
, which are subsequently added to the base rate. After gathering a mortgage. With the applicant applicant
’'s credit score and down payment amount, the loan s credit score and down payment amount, the loan
originator originator
goes to theuses LLPA matrixes to locate the corresponding fees LLPA matrixes to locate the corresponding fees
that are , which are then added to the added to the
minimum base base
rate. Borrowers with low default risk characteristics generally pay lower LLPAs compared to rate. Borrowers with low default risk characteristics generally pay lower LLPAs compared to
those with high default risk characteristics. The higher LLPAs are structured to compensate for those with high default risk characteristics. The higher LLPAs are structured to compensate for
elevated levels of default risk attributed to high-risk borrowers. elevated levels of default risk attributed to high-risk borrowers.
For loans such as aLoans for cash-out cash-out
refinances orrefinances or
for investment properties, which may be associated with higher default risk or are not investment properties, which may be associated with higher default risk or are not
directly related to the policy goal of increasing homeownership, respectively, directly related to the policy goal of increasing homeownership, respectively,
may incur additional LLPA additional LLPA
fees may be attached.
fees.
On January 19, 2023, FHFA directed the Enterprises to alter their g-fee schedules as part of the On January 19, 2023, FHFA directed the Enterprises to alter their g-fee schedules as part of the
strategic plan to improve their financial conditions.strategic plan to improve their financial conditions.
4245 Under the new LLPA fee structure, most Under the new LLPA fee structure, most
prospective borrowers pay higher LLPAs. All borrowers with low default risk characteristics prospective borrowers pay higher LLPAs. All borrowers with low default risk characteristics
will continue to pay lower LLPAs compared to those with high default risk characteristics.continue to pay lower LLPAs compared to those with high default risk characteristics.
4346 The The
increase in g-fee revenues may expedite the Enterprisesincrease in g-fee revenues may expedite the Enterprises
’' ability to accumulate more retained ability to accumulate more retained
earnings necessary to exit conservatorship.earnings necessary to exit conservatorship.
The EnterprisesThe Enterprises
’' g-fees can be separated into two components. First, the g-fees can be separated into two components. First, the
upfrontup-front g-fee is g-fee is
determined by the borrowerdetermined by the borrower
’'s risk characteristics (e.g., credit score, LTVs risk characteristics (e.g., credit score, LTV
ratio). Second, the ongoing g-). Second, the ongoing g-
fee, which is collected each month over the life of the loan, is determined by the product type fee, which is collected each month over the life of the loan, is determined by the product type
(e.g., fixed rate, adjustable). In December 2011, Congress directed the Enterprises to increase (e.g., fixed rate, adjustable). In December 2011, Congress directed the Enterprises to increase
their ongoing g-fees for all loans by 10 basis points (or 0.1% given that a single basis point is
Office of the Inspector General, Enterprise Counterparties: Mortgage Insurers, February 16, 2018, https://www.fhfaoig.gov/Content/Files/WPR-2018-002.pdf.
39 See FHFA, Office of the Inspector General, Enterprise Counterparties: Reinsurers, September 27, 2021, https://www.fhfaoig.gov/sites/default/files/WPR-2021-007.pdf.
40 See Edward Golding et al., “How to Think About Fannie Mae and Freddie Mac’s Pricing,” Urban Institute, August 2023, https://www.urban.org/research/publication/how-think-about-fannie-mae-and-freddie-macs-pricing.
41 See CRS Report R46980, Single-Family Mortgage Pricing and Primary Market Policy Issues, by Darryl E. Getter. 42 FHFA, “FHFA Announces Updates to the Enterprises’ Single-Family Pricing Framework,” press release, January 19, 2023, https://www.fhfa.gov/news/news-release/fhfa-announces-updates-to-the-enterprises-single-family-pricing-framework.
43 A category of prospective high-risk borrowers will pay slightly lower LLPAs compared to the previous LLPA fee structure. Although slightly lower premiums for this group may potentially may increase affordability and promote more stable payment behavior, the anticipated revenues generated may not be large given that fewer high-risk borrowers can qualify for as many mortgages or for those as large as those obtained by low-risk borrowers.
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their ongoing g-fees for all loans by 10 basis points (or 0.1% given that a single basis point is equal to 1/100 of a percent—100 basis points is 1%), which took effect on December 1, 2012, for equal to 1/100 of a percent—100 basis points is 1%), which took effect on December 1, 2012, for
loans exchanged for MBSs.loans exchanged for MBSs.
4447 In November 2021, Congress extended the 10-basis-point ongoing In November 2021, Congress extended the 10-basis-point ongoing
g-fee until 2032.g-fee until 2032.
45 These48 Borrower risk characteristics and other requirements risk characteristics and other requirements
, therefore, are factors taken into account are factors taken into account
when charging g-fees.46 when establishing g-fees.49
Credit Risk Transfer Programs
In July 2013, the Enterprises initiated new credit risk transfer (CRT) programs to share a portion In July 2013, the Enterprises initiated new credit risk transfer (CRT) programs to share a portion
of the credit risk linked to their guaranteed single-family mortgages with the private sector.of the credit risk linked to their guaranteed single-family mortgages with the private sector.
4750 Both Both
Enterprises now offer CRT financial instruments that are linked only to the Enterprises now offer CRT financial instruments that are linked only to the
credit risk of the of the
single-family mortgages held in the MBS trusts.single-family mortgages held in the MBS trusts.
4851 Investors preferring exposure only to mortgage Investors preferring exposure only to mortgage
prepayment risk may continue to purchase MBSs, but the private sector may now purchase CRT may continue to purchase MBSs, but the private sector may now purchase CRT
issuances to earn revenue in exchange for assuming issuances to earn revenue in exchange for assuming
exposure to the credit risk.
credit risk exposure.
The Enterprises transfer to investors the credit risk linked to mortgages with The Enterprises transfer to investors the credit risk linked to mortgages with
LTVsLTV ratios greater than than
60% (or borrowers with 40% or less in accumulated home equity, making them more vulnerable 60% (or borrowers with 40% or less in accumulated home equity, making them more vulnerable
to the possibility of owing more than the initial value of their homes if housing market prices to the possibility of owing more than the initial value of their homes if housing market prices
were to fall).were to fall).
4952 After defaults occur, the Enterprises After defaults occur, the Enterprises
write down the couponsdecrease the coupon amounts paid to CRT investors paid to CRT investors
(similar to adjusting the MBS coupons downward after prepayments occur).(similar to adjusting the MBS coupons downward after prepayments occur).
5053 The Enterprises The Enterprises
retain the credit risk for mortgages with retain the credit risk for mortgages with
lower LTVsLTV ratios (or borrowers with 41% or more in (or borrowers with 41% or more in
accumulated home equity such that their outstanding balances are significantly below the value of accumulated home equity such that their outstanding balances are significantly below the value of
their residential properties), which are less likely to default.51
44 Temporary Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78). 45 The Infrastructure Investment and Jobs Act (P.L. 117-58). 46 Section 1601 of HERA requires FHFA to conduct an ongoing study of the guarantee fees charged by the Enterprises. For more information and recent reports, see FHFA, “Fannie Mae and Freddie Mac Guarantee Fees,” https://www.fhfa.gov/policy/guarantee-fees.
47 Prior to conservatorship, the Enterprises had existing programs that transferred the credit risk linked to their multifamily programs. For more information, see the section of this report entitled “The Enterprises’ Multifamily
Business Models.”
48 See FHFA, Overview of Fannie Mae and Freddie Mac Credit Risk Transfer Transactions, August 2015, https://www.fhfa.gov/sites/default/files/2023-03/CRT-Overview-8-21-2015.pdf.
49 See FHFA, Performance and Accountability Report: FY2018, https://www.fhfa.gov/sites/default/files/documents/FHFA-2018-PAR.pdf.
50 Transferring credit risk via CRT instruments reduces counterparty risk—that is, the risk that the insurer fails to reimburse the Enterprise after a default.
51 The Enterprises may also transfer the credit risk of mortgages retained in their portfolios (typically because they lack the standardized features that would make them eligible for placement into an MBS trust for securitization).
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CAS and STACR Risk-Tiering Structures
The Fannie Mae’s CRTtheir residential properties), which are less likely to default.54
Connecticut Avenue Securities and Structural Agency Credit Risk Issuances
Fannie Mae's credit risk transfer (CRT) instruments are known as Connecticut Avenue Securities (CAS); Freddie Mac instruments are known as Connecticut Avenue Securities (CAS); Freddie Mac
’'s CRT s CRT
instruments are known as Structural Agency Credit Risk (STACR). The CAS and STACR issuances are structured instruments are known as Structural Agency Credit Risk (STACR). The CAS and STACR issuances are structured
in a tiered systemin a tiered system
consisting of tranches: a first-loss tranche, two mezzanine tranches, and a senior tranche. of tranches: a first-loss tranche, two mezzanine tranches, and a senior tranche.
•
The first-loss tranche is used to transfer The first-loss tranche is used to transfer
expected credit loss risk. credit loss risk.
FHFAThe Federal Housing Finance Agency (FHFA) defines defines
expected credit losses as credit losses as
those likely to occur during periods of stable housing market conditions when some borrowers fail to repay those likely to occur during periods of stable housing market conditions when some borrowers fail to repay
their mortgages, perhaps their mortgages, perhaps
due tobecause of unforeseen life circumstances (e.g., job loss, disability, divorce). The first-loss unforeseen life circumstances (e.g., job loss, disability, divorce). The first-loss
tranche absorbs the initial 5% of credit losses linked to mortgages held in tranche absorbs the initial 5% of credit losses linked to mortgages held in
MBSmortgage-backed security (MBS) trusts. The Enterprises retain trusts. The Enterprises retain
5% of the first-loss tranche and 5% of the first-loss tranche and
issuesissue the remaining 95% of CRTs to first-loss the remaining 95% of CRTs to first-loss
-tranche investors. The tranche investors. The
Enterprises retain 5% of the issuances associated with the first-loss (and mezzanine tranches), signaling to Enterprises retain 5% of the issuances associated with the first-loss (and mezzanine tranches), signaling to
investors their investors their
wil ingnesswillingness to hold the same risks that they are to hold the same risks that they are
wil ingwilling to issue (as they do when holding their to issue (as they do when holding their
own MBSs), which is also consistent with risk-retention requirements for securitizations.own MBSs), which is also consistent with risk-retention requirements for securitizations.
52
•
55
The mezzanine tranches are used to transfer The mezzanine tranches are used to transfer
unexpected credit loss risk. FHFA defines credit loss risk. FHFA defines
unexpected credit credit
losses as those likely to result from macroeconomic events, such as a recession. The mezzanine tranches losses as those likely to result from macroeconomic events, such as a recession. The mezzanine tranches
col ectivelycollectively absorb mortgage credit risk after 5% and up to 45% of total credit losses linked to mortgages held absorb mortgage credit risk after 5% and up to 45% of total credit losses linked to mortgages held
in MBS trusts. For the mezzanine tranches, the credit risk is distributed as in MBS trusts. For the mezzanine tranches, the credit risk is distributed as
fol ows:53follows:56 The Enterprises retain The Enterprises retain
5% of all mezzanine tranche risk. The private sector retains 60% of mezzanine risk via purchases of the 5% of all mezzanine tranche risk. The private sector retains 60% of mezzanine risk via purchases of the
Enterprises’Enterprises' CRT issuances. For the remaining 35% of mezzanine risk, the Enterprises rely CRT issuances. For the remaining 35% of mezzanine risk, the Enterprises rely
uponon another set another set
of CRT risk-sharing programs in which they directly obtain insurance or reinsurance.of CRT risk-sharing programs in which they directly obtain insurance or reinsurance.
5457 Just as the Enterprises Just as the Enterprises
charge g-fees, they pay charge g-fees, they pay
credit insurance premiums to insurance premiums to
insurance and reinsurance firms to assume a firms to assume a
predetermined predetermined
dol ardollar amount of the credit risk.58 amount of the credit risk.55 Fannie Mae’s program is known as Credit Insurance Risk Transfer; Freddie Mac’s corresponding program is known as Agency Credit Insurance Structure. Participating Participating
institutions, primarily insurers and reinsurers, may use proceeds from these programs to diversify their institutions, primarily insurers and reinsurers, may use proceeds from these programs to diversify their
portfolios portfolios
if they haveholding assets that are not highly correlated to U.S. residential mortgage credit risk. assets that are not highly correlated to U.S. residential mortgage credit risk.
•
The Enterprises retain all The Enterprises retain all
of the senior-tranche risk, which contains the senior-tranche risk, which contains
catastrophic credit loss risk. Catastrophic credit loss risk. Catastrophic
credit losses are those linked to catastrophic events with historically low probabilities of occurrence. The credit losses are those linked to catastrophic events with historically low probabilities of occurrence. The
senior tranche absorbs credit losses after the mezzanine and first-loss tranches have absorbed the initial 45% senior tranche absorbs credit losses after the mezzanine and first-loss tranches have absorbed the initial 45%
of the mortgage credit losses linked to mortgages held in MBS trusts.of the mortgage credit losses linked to mortgages held in MBS trusts.
5659 For this reason, the catastrophic For this reason, the catastrophic
credit loss risk is more economical for the Enterprises to retain rather than attempt to issue CRTs with credit loss risk is more economical for the Enterprises to retain rather than attempt to issue CRTs with
sufficiently attractive compensation to encourage retention by private investors.sufficiently attractive compensation to encourage retention by private investors.
57
60
Although the CRTs may reduce the EnterprisesAlthough the CRTs may reduce the Enterprises
’' default risk exposure, the Congressional Budget default risk exposure, the Congressional Budget
Office reported that these transactions may not necessarily reduce taxpayersOffice reported that these transactions may not necessarily reduce taxpayers
’' costs. costs.
5861 When When
transferring default risk to the private sector, the Enterprises simultaneously transfer a portion of transferring default risk to the private sector, the Enterprises simultaneously transfer a portion of
the g-fee income to g-fee income to
the CRT holders. In other words, CRT holders. In other words,
thea trade-off between risk and reward trade-off between risk and reward
applies in this context such that creditexists. Credit risk reduction for the Enterprises risk reduction for the Enterprises
also translates into a translates into a
portion of portion of
forgone g-fee revenue.
Standardization Initiatives to Foster MBS Liquidity
FHFA introduced initiatives to standardize many aspects of the Enterprises'g-fee revenue forgone.
52 For more information, see Board of Governors of the Federal Reserve System, “Six Federal Agencies Jointly Approve Final Risk Retention Rule,” press release, October 22, 2014, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20141022a.htm.
53 See FHFA, Performance and Accountability Report: FY2018. 54 See David Finkelstein, Andreas Strzodka, and James Vickery, Credit Risk Transfer and De Facto GSE Reform, Federal Reserve Bank of New York, February 2018, https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr838.pdf; and FHFA, Performance and Accountability Report: FY2018.
55 The term reinsurance may be used because the credit risk is insured twice: once by the Enterprises and a second time by another insurance company.
56 FHFA acknowledges that a bright line distinction between unexpected and catastrophic loss risk has yet to be defined. The distinction between risk types, however, may not be pertinent, because credit risk is measured in basis points, and the total amounts transferred to the private sector occur after certain basis point thresholds.
57 See Joshua D. Coval, Jakub W. Jurek, and Erik Stafford, “Economic Catastrophic Bonds,” American Economic
Review, vol. 99, no. 3 (June 2009), pp. 628-666.
58 See Congressional Budget Office, Transitioning to Alternative Structures for Housing Finance: An Update, August 2018, p. 9, https://www.cbo.gov/system/files/2018-08/54218-GSEupdate.pdf.
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Standardization Initiatives to Foster MBS Liquidity
FHFA introduced initiatives to standardize many aspects of the Enterprises’ operations, which operations, which
include their mortgage data collection processes, securitization processes, mortgage servicing include their mortgage data collection processes, securitization processes, mortgage servicing
guidelines (e.g., resolving delinquencies)guidelines, and MBS issuances. Greater uniformity is expected to , and MBS issuances. Greater uniformity is expected to
provide greater data integrity for appraisers, servicers, and secondary-market investors. Such provide greater data integrity for appraisers, servicers, and secondary-market investors. Such
standardization may increase transparency, reduce the length of the single-family mortgage standardization may increase transparency, reduce the length of the single-family mortgage
origination and securitization processes, and ultimately increase the uniform pricing and liquidity origination and securitization processes, and ultimately increase the uniform pricing and liquidity
of the Enterprisesof the Enterprises
’' MBS and CRT issuances. MBS and CRT issuances.
5962 These initiatives are discussed in this section. These initiatives are discussed in this section.
Uniform Mortgage Data Program
FHFA’
FHFA's uniform mortgage data program initiative requires the Enterprises to support s uniform mortgage data program initiative requires the Enterprises to support
the standardization of standardization of
the single-family primary mortgage market single-family primary mortgage market
data information used by the industry.60industry data.63 Data on loan applications, property appraisals, loan closings, and disclosures are the Data on loan applications, property appraisals, loan closings, and disclosures are the
focus of the standardization efforts. Mortgage originators must prepare more standardized and focus of the standardization efforts. Mortgage originators must prepare more standardized and
streamlined mortgage loan packages that streamlined mortgage loan packages that
couldcan be sent be sent
to and used by either Enterprise. Greater and used by either Enterprise. Greater
standardizing of mortgage loan packages will expedite the identification of irregularitiesstandardizing of mortgage loan packages will expedite the identification of irregularities
, which is likely to and likely increase efficiencies in the following areas: increase efficiencies in the following areas:
• Standardization may enhance the EnterprisesStandardization may enhance the Enterprises
’' automated delegated underwriting automated delegated underwriting
processes, which rely on the sellers (loan originators) of conventional single-processes, which rely on the sellers (loan originators) of conventional single-
family mortgages to provide information about the mortgage and underwriting family mortgages to provide information about the mortgage and underwriting
standards.standards.
6164 Standardization may quickly underscore abnormal credit risks and Standardization may quickly underscore abnormal credit risks and
fraudulent information about the borrower, underlying property, or other involved fraudulent information about the borrower, underlying property, or other involved
stakeholders (e.g., property seller, title agent, servicer) that could trigger financial stakeholders (e.g., property seller, title agent, servicer) that could trigger financial
losses. Rather than independently verify the information, the Enterprises review losses. Rather than independently verify the information, the Enterprises review
samples of their loans to see what percentage meetssamples of their loans to see what percentage meets
the contractual standards. contractual standards.
Furthermore, because the Enterprises purchase most loans using Furthermore, because the Enterprises purchase most loans using
representations
and warranties——
that is, contracts that require loan originators to repurchase contracts that require loan originators to repurchase
mortgages that fail to meet contractual standards—standardization may reduce put-back risk, the risk that originators must repurchase unacceptable mortgages.62
59 For more information on the mortgage servicing and loss mitigation initiatives, see FHFA, “Mortgage Servicing,” https://www.fhfa.gov/PolicyProgramsResearch/Policy/Pages/Mortgage-Servicing.aspx; and Karan Kaul et al., The
Case for Uniform Mortgage Servicing Data Standards, Urban Institute, November 2018, https://www.urban.org/sites/default/files/publication/99317/uniform_mortgage_servicing_data_standards_0.pdf. The standardization of servicing may enhance the attractiveness of CRT investments by clarifying the procedures for handling nonperforming mortgages, thus clarifying how losses will be distributed among the various tranche classes. For more information, see Basel Committee on Banking Supervision: The Joint Forum, Report on Asset Securitisation Incentives, July 2011, https://www.bis.org/publ/joint26.pdf; and Patricia A. McCoy, “Barriers to Federal Home Mortgage Modification Efforts During the Financial Crisis,” Harvard University Joint Center for Housing Studies, August 2010, https://www.jchs.harvard.edu/sites/default/files/mf10-6.pdf.
60 FHFA, “Uniform Mortgage Data Program,” https://singlefamily.fanniemae.com/delivering/uniform-mortgage-data-program.
61 See Freddie Mac, Form 10-K for the fiscal year ended December 31, 2018, p. 186, https://www.fhfa.gov/sites/default/files/documents/FHFA-2018-PAR.pdf; and Fannie Mae, Form 10-K for the fiscal year ended December 31, 2018, p. 33, https://www.fanniemae.com/sites/g/files/koqyhd191/files/migrated-files/resources/file/ir/pdf/quarterly-annual-results/2018/q42018.pdf.
62 See FHFA, “FHFA, Fannie Mae and Freddie Mac Launch New Representation and Warranty Framework,” press release, September 11, 2012, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Fannie-Mae-and-Freddie-Mac-Launch-New-Representation-and-Warranty-Framework.aspx; and Laurie Goodman, Ellen Seidman, and Jun Zhu, (continued...)
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• mortgages that fail to meet contractual standards—standardization may reduce put-back risk, the risk that originators must repurchase unacceptable mortgages.65
Standardization may facilitate oversight related to fair lending, fair housing, and Standardization may facilitate oversight related to fair lending, fair housing, and
unfair or deceptive unfair or deceptive
actacts or practices. For example, on August 10, 2022, FHFA or practices. For example, on August 10, 2022, FHFA
announced that the Enterprises would require mortgage servicers to obtain and announced that the Enterprises would require mortgage servicers to obtain and
maintain fairmaintain fair
lending mortgage data beginning on March 1, 2023. mortgage data beginning on March 1, 2023.
6366 The fair lending data The fair lending data
would include information such as the accept ratewould include information such as the accept rate
, , representing the proportion of the proportion of
applicants approved by the Enterprisesapplicants approved by the Enterprises
’' underwriting systems. underwriting systems.
6467 Although the Although the
data alone cannot prove or disprove unlawful discrimination, they can facilitate data alone cannot prove or disprove unlawful discrimination, they can facilitate
monitoring trends and irregularities that may be useful monitoring trends and irregularities that may be useful
in terms offor identifying fair identifying fair
lending lending
riskrisks and monitoring compliance. and monitoring compliance.
•
The Enterprises have adopted standardized credit scores, which may The Enterprises have adopted standardized credit scores, which may
assist with
further minimizing price differentials between the Enterprises’ MBS issuances (a topic discussed in the section below entitled “Uniform MBS Single Security
Initiative”). Specifically, Section 310 of help minimize pricing differentials between their MBS issuances. Specifically, Section 310 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (P.L. 115-174)P.L. 115-174, enacted in 2018, required , enacted in 2018, required
FHFA to establish standards and criteria for the EnterprisesFHFA to establish standards and criteria for the Enterprises
’' credit score model credit score model
validation and approval processes, validation and approval processes,
which lead toresulting in the approval and the approval and
implementation of newer credit score models.implementation of newer credit score models.
65
The focus68By focusing on standardization and automation, the Enterprises and the broader mortgage industry—including private guarantors—are likely to achieve greater operational efficiencies.69
Common Securitization Platform
In 2012, FHFA determined that the technology platforms used by the Enterprises for securitization—the on standardization and automation, therefore, can increase various efficiencies not only for the Enterprises but also for any private sector guarantors or other stakeholders entering the mortgage or broader financial industry.66
Common Securitization Platform
In 2012, FHFA determined that both technology platforms the Enterprises used to securitize (the process of transferring the underlying mortgage payments into MBSsprocess of transferring the underlying mortgage payments into MBSs
) were “antiquated and inflexible.”67—were outdated.70 Rather than update Rather than update
two separateboth systems, FHFA required the Enterprises to jointly systems, FHFA required the Enterprises to jointly
develop a platformdevelop a platform
, the Common Securitization Platform (CSP), to facilitate various tasks associated with their securitization processes.71 The CSP provides the following services:72 The Enterprises purchase mortgages from originators, establish policies to facilitate various tasks associated with their securitization processes.68 The Enterprises entered into a joint venture, Common Securitization Solutions, which acts as a technology service provider for the Enterprises and provides the following services:69
“Sunset Provisions on Reps and Warrants: Can They Be More Flexible While Still Protecting the GSEs?,” Urban Institute, November 27, 2013, https://www.urban.org/research/publication/sunset-provisions-reps-and-warrants-can-they-be-more-flexible-while-still-protecting-gses.
63 See FHFA, “FHFA Announces Update for Servicers to Maintain Fair Lending Data,” press release, August 10, 2022, https://www.fhfa.gov/news/news-release/fhfa-announces-update-for-servicers-to-maintain-fair-lending-data.
64 For more information, See FHFA, “Fair Lending Data,” https://www.fhfa.gov/data/fair-lending-data. 65 For more information, see FHFA, “FHFA Announces Validation of FICO 10T and VantageScore 4.0 for Use by Fannie Mae and Freddie Mac,” October 24, 2022, https://www.fhfa.gov/news/news-release/fhfa-announces-validation-of-fico-10t-and-vantagescore-4.0-for-use-by-fannie-mae-and-freddie-mac; and CRS In Focus IF12588, Fannie Mae
and Freddie Mac Adopt Alternative Credit Scores, by Darryl E. Getter.
66 See written testimony of Edward J. DeMarco, president, Housing Policy Council, in U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Chairman’s Housing Reform Outline, 116th Cong., 1st sess., March 26, 2019.
67 FHFA, “Building a New Infrastructure for the Secondary Mortgage Market,” October 4, 2012, p. 4, https://www.fhfa.gov/research/papers/building-new-infrastructure-secondary-mortgage-market.
68 See FHFA, 2015 Scorecard Progress Report, March 2016, p. 24, https://www.fhfa.gov/sites/default/files/2023-03/progress-report-2015-scorecard.pdf.
69 The CSP arguably reduces the fixed start-up costs for private guarantors (should they be approved) because they will not have to invest in the technology to perform CSP functions. See written testimony of Mark Zandi, chief economist, Moody’s Analytics, U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Chairman’s Housing
Reform Outline, 116th Cong., 1st sess., March 26, 2019.
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• The Enterprises purchase mortgages from originators, establish separate loss
mitigation practices for delinquent and defaulted mortgages for their mortgage for their mortgage
servicers to follow, choose the servicers to follow, choose the
underlying mortgages for placement in each MBS mortgages for placement in each MBS
trust, and guarantee the credit risk linked to the trust, and guarantee the credit risk linked to the
MBS trusts they individually create.
• individually created MBS trusts.
The CSP facilitates the initial issuance of MBSs to investors. After receiving a The CSP facilitates the initial issuance of MBSs to investors. After receiving a
securitization request from an Enterprise, the CSP validates the details related to securitization request from an Enterprise, the CSP validates the details related to
the MBS the MBS
trusttrusts and linked MBSs that will be issued to investors (e.g., confirming and linked MBSs that will be issued to investors (e.g., confirming
the mortgages held in an MBS trust, confirming the average principal and interest the mortgages held in an MBS trust, confirming the average principal and interest
payment amounts as well as the maturity on the linked MBSs, and confirming the payment amounts as well as the maturity on the linked MBSs, and confirming the
identification code on the security used to facilitate clearing and settlement of identification code on the security used to facilitate clearing and settlement of
trades). Common Securitization Solutions notifies the Enterprisestrades). The Enterprises also receive notifications of any data of any data
inconsistencies.inconsistencies.
•
The CSP releases required disclosures for MBS investors. Data about MBSs The CSP releases required disclosures for MBS investors. Data about MBSs
is
are sent to the Federal Reserve Bank of New York or the Depository Trust and sent to the Federal Reserve Bank of New York or the Depository Trust and
Clearing Corporation—typically two days before issuance, allowing information Clearing Corporation—typically two days before issuance, allowing information
about MBSs to be disclosed to market participants—which facilitate the transfer about MBSs to be disclosed to market participants—which facilitate the transfer
of MBSs to investors in exchange for cash. The CSP confirms issuance and of MBSs to investors in exchange for cash. The CSP confirms issuance and
payment information back to the issuing Enterprise.payment information back to the issuing Enterprise.
•
The CSP provides ongoing administration of MBSs for investors. For example, The CSP provides ongoing administration of MBSs for investors. For example,
the CSP calculates repayments of principal and interest to MBS holders for tax the CSP calculates repayments of principal and interest to MBS holders for tax
reporting purposes. The CSP provides monthly updates about the prepayment reporting purposes. The CSP provides monthly updates about the prepayment
status of the underlying collateral to ensure that investors have current status of the underlying collateral to ensure that investors have current
disclosures about information relevant to the linked MBSdisclosures about information relevant to the linked MBS
’'s performance.s performance.
Uniform MBS Single Security Initiative
In the TBA market
As previously discussed, a loan originator selling mortgages to the Enterprises , a loan originator selling mortgages to the Enterprises
in the TBA market contracts to deliver contracts to deliver
mortgages in exchange for an MBS at a specified future date. Specifically, the MBS buyer (loan mortgages in exchange for an MBS at a specified future date. Specifically, the MBS buyer (loan
originator) and MBS seller (one of the Enterprises) originator) and MBS seller (one of the Enterprises)
negotiatesnegotiate in advance for future delivery and in advance for future delivery and
settlement date for the trade. The buyer and seller agree on six general settlement date for the trade. The buyer and seller agree on six general
features that the MBS that the MBS
should have: the issuer, maturity, coupon rate, sale price, approximate face value, and settlement should have: the issuer, maturity, coupon rate, sale price, approximate face value, and settlement
date.date.
7073 The exact features of the securities to be delivered are disclosed to the participants two The exact features of the securities to be delivered are disclosed to the participants two
days prior to delivery and settlement.days prior to delivery and settlement.
MBSs that meet the required criteria can be delivered so long as the underlying MBS pools are MBSs that meet the required criteria can be delivered so long as the underlying MBS pools are
fungible—that is, sufficiently interchangeable with other MBSs. Because the MBS issuer is one —that is, sufficiently interchangeable with other MBSs. Because the MBS issuer is one
of the trading features, MBSs have generally been fungible only with other MBSs issued by the of the trading features, MBSs have generally been fungible only with other MBSs issued by the
same Enterprise. Fannie Mae–issued MBSs and Freddie Mac–issued MBSs have not previously same Enterprise. Fannie Mae–issued MBSs and Freddie Mac–issued MBSs have not previously
been interchangeable, and their MBSs do not trade at identical prices been interchangeable, and their MBSs do not trade at identical prices
despite the fact thateven though the the
Enterprises have essentially the same federal charters and business (securitization) models.Enterprises have essentially the same federal charters and business (securitization) models.
71
74
Prior to the single security initiative, Freddie MacPrior to the single security initiative, Freddie Mac
’'s MBSs frequently traded at lower prices s MBSs frequently traded at lower prices
compared to those issued by Fannie Mae.compared to those issued by Fannie Mae.
7275 Following declines in mortgage rates that prompt borrowers to refinance, the mortgage pools underlying Freddie Mac' Following declines in mortgage rates that prompt
70 See Vickery and Wright, TBA Trading and Liquidity in the Agency MBS Market. 71 An economic theory known as the law of one price states that identical securities should sell for identical prices. See Owen A. Lamont and Richard H. Thaler, “The Law of One Price in Financial Markets,” Journal of Economic
Perspectives, vol. 17, no. 4 (Fall 2003), pp. 191-202.
72 Laurie Goodman, “The $400 Million Case for a Single GSE Security,” Urban Institute, September 5, 2014, http://www.urban.org/urban-wire/400-million-case-single-gse-security.
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Fannie Mae and Freddie Mac: Recent Administrative Developments
borrowers to refinance, the mortgage pools underlying Freddie Mac’s MBSs historically had s MBSs historically had
faster prepayment rates (relative to Fannie Maefaster prepayment rates (relative to Fannie Mae
’'s MBSs). Faster prepayment translates into higher s MBSs). Faster prepayment translates into higher
prepayment risk for Freddie Mac MBS investors, which would explain prepayment risk for Freddie Mac MBS investors, which would explain
tradingmarket trades at lower prices. at lower prices.
Furthermore, a large mortgage originator could subsequently enter into a swap agreement with Furthermore, a large mortgage originator could subsequently enter into a swap agreement with
Fannie Mae to acquire a higher-priced MBS (compared to Freddie Mac) Fannie Mae to acquire a higher-priced MBS (compared to Freddie Mac)
and immediately resell it for immediate resell in the OTC market. Freddie Mac could respond by lowering its g-fees, thereby slightly increasing in the OTC market. Freddie Mac could respond by lowering its g-fees, thereby slightly increasing
its MBS coupons relative to Fannie Maeits MBS coupons relative to Fannie Mae
’'s MBS coupons to remain somewhat competitive.s MBS coupons to remain somewhat competitive.
Nevertheless, Freddie Mac’s MBS issuances were approximately 70% of Fannie Mae’s MBS issuances, and Freddie Mac’s MBSs accounted for 9% of total trading activity in 2014.73 Hence, the76 The pricing differential between the Enterprises pricing differential between the Enterprises
’ MBSs' MBSs, therefore, provided Fannie Mae provided Fannie Mae
with a competitive a competitive
advantage in the secondary market over Freddie Mac advantage in the secondary market over Freddie Mac
as well as(and other prospective private sector other prospective private sector
securitizers.74
securitizers).77
Under the single security initiative, FHFA Under the single security initiative, FHFA
has directed the Enterprises to align their key directed the Enterprises to align their key
contractual and business practices by acquiring mortgages with similar prepayment speeds along contractual and business practices by acquiring mortgages with similar prepayment speeds along
with other features.75 The Enterprises may continue to separately purchase conforming mortgages and guarantee the credit risks linked to the MBS trusts they create. Nevertheless, harmonizing the financial characteristics of their mortgage purchases would allow the Enterprises’ MBS trusts to generate similar cash flow predictability and prepayment speeds, thus facilitating the creation of uniform and fungible securities when issued through the CSP.with other features.78 The Enterprises The Enterprises
would bewere required required
to align their prepayment speeds such that they do not constitute a material misalignment or a to align their prepayment speeds such that they do not constitute a material misalignment or a
divergence by more than 2% over a three-month interval.76
Rather than separate MBS issuances (i.e., Fannie Mae’s MBS and Freddie Mac’s participation certificates), FHFA has directed the Enterprises (via the CSP) to issue one common security, the uniform mortgage-backed security (UMBSs). (Private sector guarantors would also be able to use the CSP to issue fungible UMBSs.) FHFA argues that a combined market for the Enterprises’ UMBSs would enhance market liquidity and mitigate the rise of market liquidity premiums. The pricing differential would also be eliminated.77 FHFA monitors both Enterprises to avoid material misalignment that compromises UMBS fungibility.78 UMBS issuances began on June 3, 2019.79
73 Goodman, “The $400 Million Case.” 74 Laurie Goodman and Jim Parrott, “A Progress Report on Fannie Mae and Freddie Mac’s Move to a Single Security,” Urban Institute, August 2018, https://www.urban.org/sites/default/files/publication/98872/single_security_0.pdf.
75 See FHFA, “Uniform Mortgage-Backed Security,” 84 Federal Register 7793-7801, March 5, 2019. 76 See FHFA, “Uniform Mortgage-Backed Security.” 77 FHFA, An Update on the Structure of the Single Security, May 15, 2015, p. 4, https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/Single%20Security%20Update%20final.pdf. For a discussion on the effects of standardization in the mortgage and MBS markets, see Adam J. Levitin and Susan M. Wachter, “Explaining the Housing Bubble,” Georgetown Law Journal, vol. 100, no. 4 (April 12, 2012), pp. 1177-1258. 78 The Securities Industry and Financial Markets Association (SIFMA)—a trade association for broker-dealers, investment banks, and asset managers operating in the United States and global capital markets—advocates for legislative, regulatory, and business policies on behalf of their members. SIFMA sets the TBA trading conventions, which includes the TBA settlement guidelines known as the Uniform Practices for the Clearance and Settlement of Mortgage-Backed Securities and Other Related Securities. SIFMA recommends that FHFA, while regulating the mortgage purchasing and trust structuring activities, ensure that the Enterprises do not deviate from the requirements to securitize mortgage originations with standardized borrower characteristics.
79 See FHFA, “Statement of FHFA Deputy Director Robert Fishman on the Launch of the New Uniform Mortgage-Backed Security (UMBS),” press release, June 3, 2019, https://www.fhfa.gov/Media/PublicAffairs/Pages/Statement-of-FHFA-Deputy-Director-Robert-Fishman-on-the-launch-of-the-new-Uniform-Mortgage-Backed-Security.aspx.
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Fannie Mae and Freddie Mac: Recent Administrative Developments
Post-Conservatorship Operations
FHFA has implemented policies relevant for the operation of the Enterprises that will remain effective post-conservatorship. For example, rather than limiting risk exposure with lending portfolio caps, which are likely to be removed upon termination of the PSPAs with Treasury, the Enterprises will have higher capital requirements. In addition, FHFA has made modifications to the framework and other requirements for the Enterprises’ multifamily lending activities. The Enterprises must also demonstrate progress with respect to servingdivergence by more than 2% over a three-month interval.79 (Standardizing the Enterprises' credit score model validation and approval processes, previously discussed, also fosters fungibility.) By harmonizing the financial characteristics of the Enterprises' separate mortgage purchases, the CSP can produce uniform and fungible MBSs because the underlying MBS trusts are structured to generate similar cash flow predictability and prepayment speeds.
Along with the development of fungible MBSs, FHFA directed the Enterprises to issue one common security, the uniform mortgage-backed security (UMBS), rather than issue separate MBSs. (Private sector guarantors would also be allowed to use the CSP to issue fungible UMBSs.) FHFA argued that a single market for UMBSs would enhance secondary market liquidity by eliminating price differentials as well as mitigate the rise of market liquidity premiums.80 UMBS issuances began on June 3, 2019.81 FHFA monitors both Enterprises to avoid material misalignment that compromises UMBS fungibility.82
FHFA's Longer-Term Policy Modifications
FHFA has implemented policies likely to be in effect (with periodic modifications) after conservatorship. For example, rather than having their risk exposure limited by lending portfolio caps (likely to be removed on termination of the PSPAs), the Enterprises will face higher capital requirements. FHFA also revised the Enterprises' framework for single- and multifamily lending goals and updated its mandate that the Enterprises serve various underserved markets. various underserved markets.
This section discusses these This section discusses these
post-conservatorship policies. policies.
Restoration of Housing Trust Fund and Capital Magnet Fund Cash Contributions
HERA
The Housing Economic and Recovery Act of 2008 (HERA, P.L. 110-289) requires the Enterprises to make requires the Enterprises to make
cash contributions to the Housing Trust Fund (HTF) and the Capital to the Housing Trust Fund (HTF) and the Capital
Magnet Fund (CMF). The HTF funds states and state-designated entities for eligible activities that primarily support Magnet Fund (CMF). The HTF funds states and state-designated entities for eligible activities that primarily support
affordable rental housing for low-income families, including homeless families.affordable rental housing for low-income families, including homeless families.
8083 The CMF awards competitive The CMF awards competitive
grants to financial institutions designated as Community Development Financial Institutions and qualified nonprofit grants to financial institutions designated as Community Development Financial Institutions and qualified nonprofit
housing organizations for which the development or management of affordable housing is one of their principal housing organizations for which the development or management of affordable housing is one of their principal
purposes.purposes.
8184 The Enterprises must set aside 4.2 basis points (0.042%) of the unpaid principal balance of mortgages The Enterprises must set aside 4.2 basis points (0.042%) of the unpaid principal balance of mortgages
purchased in a year for these funds. purchased in a year for these funds.
FHFA suspended the requirement that the Enterprises make contributions to
the HTF and the CMF between 2008 and 2014 when they first entered into conservatorshipThe Federal Housing Finance Agency suspended the Enterprises' HTF and CMF contribution requirements between 2008 and 2014. These requirements . These requirements
were reinstated in 2015.were reinstated in 2015.
Heightened Capital Buffer Requirements
Although the precise definitions of capital for financial firms is typically determined by laws and regulations, it
Regulatory rules set capital definitions for financial firms; however, capital generally refers to common generally refers to common
orand preferred equity shareholders ( preferred equity shareholders (
both as a percentage of as a percentage of
assets) and retained earnings,assets) as well as retained earnings—all of which can absorb which can absorb
unexpected financial losses. For the Enterprises, the statutory financial losses. For the Enterprises, the statutory
minimum leverage (unweighted) capital requirement, specified in the Federal Housing minimum leverage (unweighted) capital requirement, specified in the Federal Housing
EnterprisesEnterprises
Financial Safety and Soundness Act of 1992 (P.L. 102-550 Safety and Soundness Act of 1992 (P.L. 102-550
, Title XIII), is equal to 2.5% of on-balance-), is equal to 2.5% of on-balance-
sheet (portfolio) assets and 0.45% of off-balance-sheet (MBS trust) obligations. HERA gave sheet (portfolio) assets and 0.45% of off-balance-sheet (MBS trust) obligations. HERA gave
FHFA the authority to increase capital standards above the statutory minimum as necessary.FHFA the authority to increase capital standards above the statutory minimum as necessary.
During conservatorship, FHFA suspended the EnterprisesFHFA suspended the Enterprises
’' capital requirements capital requirements
during conservatorship, as initially required by the PSPAs with Treasury. The. Instead, the initial PSPAs required the Enterprises to pay Treasury a initial PSPAs required the Enterprises to pay Treasury a
10% cash dividend on the amount of the outstanding preferred shares, and dividend payments 10% cash dividend on the amount of the outstanding preferred shares, and dividend payments
were suspended for all private Enterprise stockholders. The Enterprises were suspended for all private Enterprise stockholders. The Enterprises
did not have the optionwere not allowed to to
issue additional stock shares or obtain funds elsewhere if they lacked the cash to make full issue additional stock shares or obtain funds elsewhere if they lacked the cash to make full
dividend payments to Treasury.dividend payments to Treasury.
8285 On August 17, 2012, On August 17, 2012,
therefore, the 10% dividend was replaced the 10% dividend was replaced
with a with a
profit sweep dividend requirement dividend requirement
, such that to allow for a cash buffer—all net worth proceeds (all net worth proceeds (
that exceededexceeding an an
initial $3 billion cash buffer that would be reduced annually by $600 million until reaching zero)
80 After estimating the median family income for designated counties and metropolitan areas, HUD provides annual definitions for extremely low-income family and very low-income family, which are used to determine eligibility for various programs. See HUD, “Housing Trust Fund,” https://www.hudexchange.info/programs/htf/.
81 See U.S. Department of the Treasury, Community Development Financial Institutions Fund, “Capital Magnet Fund,” https://www.cdfifund.gov/programs-training/Programs/cmf/Pages/default.aspx; and Department of the Treasury, Community Development Financial Institutions Fund, “Funding Opportunities: Capital Magnet Fund; 2018 Funding Round,” 83 Federal Register 34685-34698, July 20, 2018. 82 See Don Layton, “Temporarily Ending the GSEs Net Worth Sweep: A Limited but Important Step Towards GSE Reform,” Harvard University Joint Center for Housing Studies, October 2, 2019, https://www.jchs.harvard.edu/blog/temporarily-ending-the-gse-net-worth-sweep-a-limited-but-important-step-towards-gse-reform.
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would be paid to Treasury.83 The August 2012 PSPAs also required the Enterprises to reduce the size of their lending (retained) portfolios to $250 billion. In 2017, Treasury and FHFA reinstated the capital reserves to $3 billion each to avoid further draws from Treasury by the Enterprises.84 On September 30, 2019, Treasury further modified the PSPAs to allow Fannie Mae and Freddie Mac to retain earnings and accumulate capital reserves of $25 billion and $20 billion, respectively. On October 28, 2019, FHFA announced a strategic plan to prepare the Enterprises for their eventual exit from conservatorship.
In December 2020, FHFA finalized a rule establishing risk-based and leverage capital requirements for Fannie Mae and Freddie Mac effective on February 16, 2021.85 The capitalization requirements, which would be in place following the Enterprises’ exits from conservatorship, are designed to increase their resiliency to a severe financial downturn.86 For this reason, the PSPAs were again modified on January 14, 2021, to allow the Enterprises to accumulate the necessary amount of reserves to satisfy the prudential requirements of the 2020 capital rule.87 In February 2022, FHFA announced amendments to the December 2020 rule specifically to revise the Enterprises’ leverage buffer requirements and the risk-based treatment of the CRT exposures, discussed in the textbox below.88 Compliance with the heightened capital buffer requirements avoids limits on capital distributions and discretionary bonus payments.
83 For all the PSPA agreements, see FHFA, “Senior Preferred Stock Purchase Agreements,” https://www.fhfa.gov/conservatorship/senior-preferred-stock-purchase-agreements.
84 A tax revision (P.L. 115-97) would have resulted in anticipated reductions in the Enterprises’ deferred tax asset values, discussed in their 2013 Form 10-K reports. See Fannie Mae, Form 10-K for the fiscal year ended December 31, 2013, pp. 3, 80, 143, https://www.fanniemae.com/sites/g/files/koqyhd191/files/migrated-files/resources/file/ir/pdf/quarterly-annual-results/2013/10k_2013.pdf; and Freddie Mac, Form 10-K for the fiscal year ended December 31, 2013, pp. 135, 138, 231, 10-K for the fiscal year ended December 31, 2013, https://www.freddiemac.com/investors/financials/pdf/10k_022714.pdf.
85 See FHFA, “Enterprise Regulatory Capital Framework,” 85 Federal Register 243, December 17, 2020. 86 If, for example, a sudden and significantly sharp decline in house prices generated widespread underwater mortgages (held in MBS trusts and in their portfolios), the Enterprises’ capital buffers could be insufficient to allow them to continue safe and sound operations. A mortgage is underwater when the home value declines far below the amount of the outstanding loan balance, providing the borrower with the financial incentive to default. See Neil Bhutta, Jane Dokko, and Hui Shan, The Depth of Negative Equity and Mortgage Default Decisions, Board of Governors of the Federal Reserve System, May 2010, http://www.federalreserve.gov/pubs/feds/2010/201035/201035pap.pdf.
87 See FHFA, “FHFA and Treasury Allow Fannie Mae and Freddie Mac to Continue to Retain Earnings,” press release, January 14, 2021, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-and-Treasury-Allow-Fannie-Mae-and-Freddie-Mac-to-Continue-to-Retain-Earnings.aspx. The 2020 capital rule will be discussed in the section of this report titled “Heightened Capital Buffer Requirements.” 88 See FHFA, “FHFA Announces Final Rule Amending the Enterprise Regulatory Capital Framework,” press release, February 25, 2022, https://www.fhfa.gov/news/news-release/fhfa-announces-final-rule-amending-the-enterprise-regulatory-capital-framework; and FHFA, “Enterprise Regulatory Capital Framework—Prescribed Leverage Buffer Amount and Credit Risk Transfer,” 87 Federal Register 14764-14772, March 16, 2022.
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Highlights of the Enterprise Regulatory Capital Framework
The supplemental capital requirements pertain to both an increase in the quantity of capital (from the statutory P.L. 102-550 requirements) and the composition of the capital.89 The statutory and supplemental capital definitions constitute the capital regulatory framework with the fol owing broad requirements: •
An unweighted total leverage requirement (UNWLR) of 4% can be computed as the sum of a 2.5% statutory
leverage ratio requirement and a 1.5% prescribed leverage buffer amount (PLBA) under the initial 2020 final rule. Fol owing the 2022 amendment, the PLBA was revised and is currently set to 50% of the stability capital buffer, which is one of the components of the prescribed capital conservation buffer amount (PCCBA) discussed in the next bul et.
•
A risk-weighted adjusted total capital ratio (RWCR) of not less than 8% can be computed in what can be described as a three-step process. First, the asset (the loan) is multiplied by a risk weight that is designed to capture the riskiness of the borrower. FHFA provides the risk weights for the single-family and multifamily mortgage exposures depending upon various financial factors (e.g., current LTV, loan purpose, property type, fixed or floating interest rate).90 Second, the risk-weighted asset (i.e., the product of the original asset multiplied by the risk weight) is multiplied by 8%. Typically, the entire asset side of the balance sheet is risk weighted, and then the risk-weighted assets are summed prior to applying the 8% capital charge. Third, the
PCCBA requirements, which adds modifications to the total capital ratio’s composition, are applied to achieve the adjusted total capital ratio. As previously stated, the stability capital buffer is one of the adjustments included in the overall PCCBA adjustment.
Thus, the Enterprises now have both unweighted and weighted capital requirements, which has similarities to the capital framework applied to banks. The UNWLR is based upon the balance sheet size and represents the maximum loss that can be absorbed by its equity.91 The RWCR is designed to align proportionately with the gradations of credit risk exposure, presuming accuracy of the risk-weighting system.92 The RWCR incorporates a minimum common equity ratio requirement to ensure that it consists predominantly of common equity and retained earnings, which have greater loss-absorbing capacity. The size of the UNWLR relative to the RWCR has implications for a financial firm’s risk-taking behavior. For example, when the UNWLR is lower relative to the RWCR, a financial firm has a greater incentive to vary the level (i.e., scales of operation) of its risk exposure in proportion to its available capital.93 In other words, the Enterprises could choose to increase or decrease their mortgage purchases under changing macroeconomic circumstances to the extent their RWCRs fluctuate with house prices and business cycles. Furthermore, if recession fears prompt some common equity holders to liquidate their shares (in anticipation of greater mortgage delinquencies and defaults), the Enterprises may react in accord by reducing loan purchases. Hence, the Enterprises’ ability to function as a countercyclical macroeconomic buffer would be compromised if they were to provide less liquidity to the mortgage market during recessionary periods.94 Alternatively, when the UNWLR equals or exceeds the RWCR, a financial firm has an incentive to alter the composition of its risk exposure (via changing business strategies) particularly when its capital is comprised of shareholders primarily focusing on return on equity (ROE). The ROE measures the financial return for shareholders, computed with net income as its numerator and the total amount of common shareholder equity as its denominator. If a firm’s net income fails to keep pace with common equity requirements, the ROE may decrease and become less financially attractive for shareholders. A financial firm is likely to respond by increasing its risk exposure, customer fees, or both to boost the numerator and ultimately sustain more attractive ROE levels. In other words, the Enterprises could choose to retain more credit risk (e.g., reducing junior and mezzanine CRT issuances), increasing g-fees on mortgage borrowers, or both when UNWLR exceeds RWCR. The ability to simultaneously transfer some g-fee income to the private sector as compensation for assuming credit risks (via CRT) and maintain acceptable ROEs for shareholders may prove challenging without raising g-fees, resulting in higher mortgage rates for borrowers. The 2022 amendments to the initial 2020 capital framework addressed the above-mentioned incentive concerns.95 The initially risk-insensitive PLBA, for example, is now more dynamic and can grow and shrink with an Enterprise’s balance sheet, thus lessening the need for an Enterprise to alter its scale of operations when macroeconomic conditions change. Reducing the size of the risk weight initially assigned to CRT exposures from 10% to 5% may be less likely to deter an Enterprise to transfer risk. Nevertheless, predicting the Enterprises’ responses fol owing conservatorship under the new capital framework without prior observations of UNWLR and RWCR movements under different interest rate, housing market, and business cycle environments is challenging.
89 The final capital regulatory rule adopts terminology and definitions used in the banking capital regulatory framework (continued...)
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The Enterprises’ Multifamily Business Models
A multifamily mortgage is a loan secured by a residential dwelling, such as an apartment building, with at least five or more separate units. Multifamily real estate frequently refers to properties used as residential dwellings, including traditional apartment buildings; subsidized housing; housing for seniors (age-restricted, independent, and assisted living); and housing for students (dormitories). In the multifamily mortgage market, Fannie Mae and Freddie Mac purchase mortgages and transfer a portion (or share) of the default risks to the private sector.96
FHFA has issued various directives for the Enterprises’ multifamily programs. In 2013, FHFA reduced the Enterprises’ new multifamily purchase volumes by 10% from the 2012 caps to shrink their multifamily operations and risks to taxpayers.97 FHFA subsequently directed the Enterprises to limit their 2014 multifamily purchase volumes at or below the 2013 caps.98 In 2014, FHFA excluded several business activities from counting toward the cap, which might make it possible for the Enterprises to provide greater support in the affordable housing and underserved market segments before reaching the cap. In 2016, FHFA also excluded loans that would finance certain energy and water efficiency (i.e., green loans) from the multifamily purchase caps. From 2016 to 2018, the Enterprises’ share of multifamily lending activities that grew were related to green loans that were excluded from the cap, while those included in the capped declined.99
that many financial stakeholders generally understand to facilitate greater transparency as well as the ability to compare the prudential capital buffers maintained across other classes of financial institutions.
90 The risk weights are determined using two approaches—a standardized approach and an advanced approach. The standardized approach uses FHFA-prescribed lookup grids and risk multipliers. The advanced approach relies on each of the Enterprises’ internal models. The approach generating the higher risk-weighting is used when determining risk-based capital requirements.
91 Leverage ratios are designed to become more binding when the economy is growing and less binding when the economy contracts. See Michael Brei and Leonardo Gambacorta, The Leverage Ratio Over the Cycle, Bank for International Settlements, November 2014, http://www.bis.org/publ/work471.pdf.
92 The reliability of risk-weighted capital ratios depends upon the accuracy of the risk-weighting system, which typically assigns lower weights to assets (e.g., cash, U.S. Treasury securities) deemed to have little or no credit risk and higher weights to assets (e.g., mortgages) and financial exposures (e.g., credit risk linked to underlying mortgage assets) deemed to have greater amounts of credit risk.
93 The lower UNWLR functions as a backstop if the assigned risk weights used to calculate the RWCR underestimate the credit risk exposure. See Paul Glasserman and Wanmo Kang, Design of Risk Weights, Office of Financial Research, August 19, 2014, https://www.financialresearch.gov/working-papers/2014/08/19/design-of-risk-weights/.
94 See Edward Golding, Laurie Goodman, and Jun Zhu, “Analysis of the Proposed 2020 FHFA Rule on Enterprise Capital,” Urban Institute, August 2020, https://www.urban.org/sites/default/files/publication/102779/analysis-of-the-proposed-2020-rule-on-enterprise-capital_2.pdf.
95 See FHFA, “Fact Sheet: Final Rule to Amend the Enterprise Regulatory Capital Framework,” https://www.fhfa.gov/sites/default/files/2024-05/Fact-Sheet-Final-Rule-CRT_2252022.pdf.
96 For more information on multifamily mortgage finance as well as the Enterprises’ underwriting and risk-sharing models, see CRS Report R46480, Multifamily Housing Finance and Selected Policy Issues, by Darryl E. Getter.
97 See FHFA, “FHFA Seeks Public Input on Reducing Fannie Mae and Freddie Mac Multifamily Businesses,” press release, August 9, 2013, https://www.fhfa.gov/news/news-release/fhfa-seeks-public-input-on-reducing-fannie-mae-and-freddie-mac-multifamily-businesses.
98 The 2013 volume that became the 2014 cap for Fannie Mae was $30 billion. The 2013 volume that became the 2014 cap for Freddie Mac was $26 billion. See Karan Kaul, “The GSEs’ Shrinking Role in the Multifamily Market,” Urban Institute, April 2015, https://www.urban.org/sites/default/files/publication/48986/2000174-The-GSEs-Shrinking-Role-in-the-Multifamily-Market.pdf.
99 See FHFA, “Fact Sheet: New Multifamily Caps for Fannie Mae and Freddie Mac,” https://www.mortgagetranslations.gov/sites/default/files/2023-03/newmultifamilycaps-9132019.pdf.
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On September 13, 2019, FHFA revised its directive regarding the multifamily purchase caps, increasing them from the 2018 caps of $35 billion each to $100 billion each for Fannie Mae and Freddie Mac.100 Moreover, 37.5% of the Enterprises’ loan purchases must be mission driven. By purchasing mission-driven multifamily mortgages that support affordable rental housing, the Enterprises are less likely to crowd out (impede) private sector lender participation by offering cheaper borrowing rates for multifamily loans.101 All multifamily mortgage purchases count toward the cap—no exemptions or exclusions.102 In short, FHFA’s revised policy is designed to prevent the Enterprises’ multifamily programs from growing without a more explicit link to affordable rental units for low- and moderate-income and other historically underserved renters—while making a reasonable economic return—rather than crowd out private sector lending activities in market segments with less apparent credit gaps.103
On December 14, 2022, FHFA finalized a rule to establish the benchmark levels for multifamily housing goals using a new percentage-based methodology.104 The three subgoals are each established as a percentage of the total number of affordable multifamily properties financed by the GSEs each year. Because new developments may occur over the period that can increase the infeasibility to meet a housing goal defined in terms of units, the percentage-based methodology lessens the need to amend the benchmarks after publication of the final rule.
The FHFA also provided an updated comprehensive definition of mission-driven multifamily
purchases.105 Examples of additional eligible mission-driven mortgage purchases for the GSEs include properties subsidized by the Low-Income Housing Credit program; loans on properties covered by Section 8 Housing Assistance Payment contracts, which limit tenant incomes to 80% or below of the Area Median Income; and loans of properties in which a Public Housing Authority or nonprofit affiliate is the developer (borrower) that reserves units for occupancy by tenants with limited income or the rents that may be charged for those units.106
100 See FHFA, “FHFA Revises Multifamily Loan Purchase Caps for Fannie Mae and Freddie Mac,” press release, September 13, 2019, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Revises-Multifamily-Loan-Purchase-Caps-for-Fannie-Mae-and-Freddie-Mac.aspx.
101 See FHFA, “Fannie Mae and Freddie Mac Multifamily Businesses,” https://www.fhfa.gov/PolicyProgramsResearch/Policy/Pages/Reducing-Fannie-Mae—Freddie-Mac-Multifamily-Businesses.aspx.
102 For example, exemptions for multifamily loans used to finance energy and water improvements still count toward the cap. See Kathleen Howley, “FHFA Moves to Curb Fannie Mae, Freddie Mac Green Loans for Multifamily: Regulator Raises Lending Caps for GSEs but Ends the Energy-Efficiency Carve-Out,” Housingwire, September 13, 2019, https://www.housingwire.com/articles/50147-fhfa-moves-to-curb-fannie-mae-freddie-mac-green-loans-for-multifamily/.
103 The Enterprises’ statutory public purpose includes an “affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families in a manner consistent with their overall public purposes, while maintaining a strong financial condition and a reasonable economic return.” See 12 U.S.C. §4501(7). Both Enterprise charters authorize them to perform “activities relating to mortgages on housing for low- and moderate-income families involving a reasonable economic return that may be less than the return earned on other activities.” See 12 U.S.C. §§1451, 1716 note.
104 FHFA, “FHFA Finalizes 2023-2024 Multifamily Housing Goals for Fannie Mae and Freddie Mac,” press release, December 14, 2022, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Finalizes-2023-2024-Multifamily-Housing-Goals-for-Fannie-Mae-and-Freddie-Mac.aspx; and CRS Report R46480, Multifamily Housing Finance and
Selected Policy Issues, by Darryl E. Getter.
105 FHFA, “FHFA Revises Multifamily Loan Purchase Caps for Fannie Mae and Freddie Mac—Appendix A: Multifamily Definitions,” press release, September 9, 2019, https://www.fhfa.gov/Conservatorship/Documents/AppendixA-Revisions-to-2019-FHFA-Conservatorship-Scorecard.pdf.
106 See CRS Report RS22389, An Introduction to the Low-Income Housing Tax Credit, by Mark P. Keightley; and CRS Report RL34591, Overview of Federal Housing Assistance Programs and Policy, by Maggie McCarty, Libby Perl, and Katie Jones.
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Prior to conservatorship, the Enterprises’ multifamily business activities were arguably diversified such that cash flows from some lending activities could offset cash-flow disruptions stemming from other lending activities. Because low- and moderate-income tenants have greater difficulty paying market-level rents, mortgages used to finance these multifamily structures may experience greater cash flow disruptions. If FHFA’s requirements pertaining to multifamily caps were to remain intact upon exit from conservatorship, the Enterprises’ multifamily portfolios may exhibit greater cash flow volatility if a larger share of their multifamily lending activities are heavily concentrated in certain mission-related activities.107 In other words, limiting the Enterprises’ involvement in certain activities may present a challenge for them to make an economic return that shareholders would also find reasonable.
Duty to Serve: Manufactured Housing Chattel Loans
HERA created a duty to serve for the Enterprises with respect to three underserved markets: manufactured housing, rural housing, and affordable housing preservation. Supporting manufactured housing—particularly in underserved communities—is considered to be an affordable option. This option, however, poses several challenges for the Enterprises.
Manufactured housing involves chattel lending, which differs from real property lending. A manufactured home is a factory-built home that is transportable in one or more sections; has been constructed after June 15, 1976; and is built on a permanent metal chassis and must meet the safety standards set by the U.S. Department of Housing and Urban Development.108 Mortgage loans can be used to finance homes that are permanently attached to real property.109 By contrast, manufactured home chattel loans are used to finance personal property (chattel) that is not permanently attached to land. Because the cost to purchase a manufactured home is typically far below the cost to purchase a site-built home, a manufactured home may be a viable affordable housing option for low-income borrowers.110 By facilitating liquidity to the chattel market, the Enterprises can make progress toward achieving all three duty-to-serve goals, because manufactured homes are disproportionately located in nonmetropolitan areas occupied by residents with lower incomes or net worth.111 The Enterprises have noted, however, that pursuit of
107 Multifamily mortgages are underwritten based on the current and anticipated cash flows—predominantly in the form of rental income—generated by the properties. If the tenants in multifamily properties are cost-burdened, meaning that their monthly housing (rent) costs exceed 30% of their income, then the rental income streams necessary to repay loans may exhibit greater volatility, thus increasing the Enterprises’ cash-flow volatilities and loss risks. For more information, see CRS Report R46480, Multifamily Housing Finance and Selected Policy Issues, by Darryl E. Getter.
108 By contrast, a manufactured home built before June 15, 1976, that does not meet HUD standards is referred to as a mobile home. Few lenders are willing to provide loans to finance mobile homes. In contrast to mobile and manufactured homes, a modular home is constructed to the same state, local, or regional building codes as site-built homes. See HUD, “Frequently Asked Questions for On-Site Completion of Construction of Manufactured Homes,” https://www.hud.gov/program_offices/housing/rmra/mhs/faqs. Moving a manufactured home from a permanent site to another one may interfere with its loan financing. Thus, modular homes may be considered better investments. See American Financing, “What Is a Chattel Mortgage?,” https://www.americanfinancing.net/mortgage-basics/chattel-mortgage.
109 See Fannie Mae, “Key Legal Distinctions Between Manufactured Home Chattel Lending and Real Property Lending,” June 29, 2018, https://www.fanniemae.com/media/28481/display.
110 See FHFA, “Fannie Mae and Freddie Mac Support for Chattel Financing of Manufactured Homes Request for Input,” January 2017, https://www.fanniemae.com/media/28481/display. 111 See Consumer Financial Protection Bureau (CFPB), “Manufactured-Housing Consumer Finance in the United States,” September 2014, https://files.consumerfinance.gov/f/201409_cfpb_report_manufactured-housing.pdf.
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their duty-to-serve obligations contains substantial risks that may adversely affect their financial results and conditions.112 Providing support for chattel loans includes the following challenges:
• Lenders generally show more willingness to provide loans for manufactured
homes titled as real property. For one reason, recovering losses if a borrower defaults on a chattel loan is more difficult. Suppose, for example, a borrower leases rather than purchases the land beneath the manufactured home titled as personal property, which may be an affordable option for a low- or extremely low-income household. If a borrower defaults on a chattel loan, then the lender can repossess the property peaceably as a repossession or through a replevin lawsuit.113 If, however, the borrower is also delinquent on the land lease, then re-marketing a repossessed manufactured home—either on its current site or if it must be moved to another site—adds more legal complications and expenses likely to further reduce the amount of losses that may be recovered.114
• Manufactured homeowners typically pay higher annual percentage rates—the
total cost of a loan (both the interest rates and transaction fees)—for their loans in comparison to site builders.115 The Enterprises have prohibited purchases of high-cost loans that are consistent with their missions to facilitate affordable housing. Certain consumer protections that exist when dwellings are attached to land, however, do not apply to chattel loans. For example, the integrated disclosures requiring lenders, mortgage brokers, or servicers of home loans to disclose loan pricing information to borrowers do not apply when the dwelling is not attached to land.116 Fewer disclosures may lead to greater uncertainty about the extent that borrowers could have received cheaper financing or were aware of less costly financing alternatives.
• Securitizing chattel loans is challenging. Chattel loans cannot be placed in the
same pools with other mortgages linked to UMBS issuances, which have strict prepayment speed requirements and homogenous credit risks. Secondary market security issuances linked to chattel loans must be structured from pools consisting only of chattel loans—more likely to have homogeneous financial risks—to enhance investors’ understanding of the likely performance of their investments, which may not be economically feasible.117 Thus, the collection of performance data to better understand the prepayment and default risks pertaining to chattel loans may help determine how to create secondary market securities that investors may find attractive.
112 See Fannie Mae, Form 10-K for the fiscal year ended December 31, 2019, p. 31, https://www.fanniemae.com/sites/g/files/koqyhd191/files/migrated-files/resources/file/ir/pdf/quarterly-annual-results/2019/q42019.pdf; and Freddie Mac Form 10-K for the fiscal year ended December 31, 2019, p. 152, https://www.freddiemac.com/investors/financials/pdf/10k_021320.pdf.
113 See Justia, “Foreclosures of Manufactured Homes,” https://www.justia.com/foreclosure/foreclosures-of-manufactured-homes/.
114 See Fannie Mae, “Key Legal Distinctions.” 115 According to the CFPB, a chattel loan may be priced between 50 and 500 basis points higher than a mortgage loan for a manufactured home secured by real property. See CFPB, “Manufactured-Housing Consumer Finance.”
116 See CFPB, “CFPB Consumer Laws and Regulations: Regulation X Real Estate Settlement Procedures Act,” https://files.consumerfinance.gov/f/201503_cfpb_regulation-x-real-estate-settlement-procedures-act.pdf.
117 Large-scale operations such as the Enterprises may not have the volume of similar chattel loans necessary to offer pools for securitizations. See Fannie Mae, Duty to Serve Underserved Markets Plan, revised January 9, 2024, https://www.freddiemac.com/sites/g/files/ynjofi111/files/about/duty-to-serve/docs/Freddie-Mac-Underserved-Markets-Plan.pdf.
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Fannie Mae and Freddie Mac: Recent Administrative Developments
Fannie Mae and Freddie Mac are developing plans to provide liquidity for manufactured housing titled as chattel through securitization channels.118 FHFA has given the Enterprises permission to implement their chattel financing initiatives as pilot programs.119 Nevertheless, FHFA also considers manufactured housing to contain higher credit and liquidity risks. In the final rule establishing the Enterprises’ heightened capital requirements, the manufactured home loan category is assigned one of the higher risk weights relative to other types of mortgages. If the Enterprises enter into the chattel lending markets, FHFA might introduce a separate risk weight that could be higher than the current risk weight for manufactured homes titled as real property.
The Federal Home Loan Bank System and Chattel Loans
The Federal Home Loan Bank (FHLB) System, which is also a housing GSE with an affordable housing mission that is supervised by FHFA, has addressed issues pertaining to the higher levels of default risk associated with chattel loans.120 Lenders may face limitations obtaining advances (short-term loans) from some of the FHLBs using chattel loans as col ateral, as different FHLBs may have separate policies.121 FHFA, however, allows the FHLBs to purchase chattel loans under their Acquired Member Assets programs, although they have made few if any such purchases from member financial institutions.122
Author Information
Darryl E. Getter
Specialist in Financial Economics
118 See Fannie Mae, “What Is Duty to Serve?,” initial $3 billion cash buffer that would be reduced annually by $600 million until reaching zero) would be paid to Treasury.86 The August 2012 PSPAs also required the Enterprises to reduce their lending portfolios to $250 billion. In 2017, Treasury and FHFA reinstated the capital reserves to $3 billion each to avoid any further draws from Treasury by the Enterprises.87 On September 30, 2019, Treasury modified the PSPAs to allow Fannie Mae and Freddie Mac to retain earnings and accumulate capital reserves of $25 billion and $20 billion, respectively.88 On October 28, 2019, FHFA announced a strategic plan to prepare the Enterprises for their eventual exit from conservatorship.89
In December 2020, FHFA established and finalized requirements for the Enterprise Regulatory Capital Framework (ERCF), which became effective on February 16, 2021.90 The ERCF enhanced the risk-based and leverage capital requirements to increase the Enterprises' resiliency to adverse financial conditions when they are released from conservatorship.91 For this reason, the PSPAs were modified on January 14, 2021, to allow the Enterprises to build the reserves required by the 2020 capital rule.92 Noncompliance with ERCF's heightened capital buffer requirements will result in limits on shareholder dividends and discretionary bonus payments to executives until such buffer amounts are restored.93
In February 2022, FHFA amended the December 2020 ERCF rule to revisit, among other items, the leverage buffer requirements and the risk-based treatment of the CRT exposures.94 Rather than reduce the Enterprises' level of risk-taking—by scaling back their mortgage purchases—during recessionary periods, the revised leverage buffer requirement may allow the Enterprises to function as a countercyclical macroeconomic buffer.95 In addition, FHFA was concerned about the Enterprises altering alter the composition of their risk exposures to sustain attractive shareholder returns (by retaining more credit risk, increasing g-fees for borrowers, or both). For this reason, the risk weight for issuing CRTs was reduced (from 10% to 5%), which may incentivize the Enterprises to transfer more credit risk off their balance sheets to private sector investors.96 If this ERCF revision incentives the Enterprises to maintain lower borrower g-fees, the affordability gains may further advance housing mission goal requirements detailed in the next sections.
Single-Family Housing Goals
HERA gives FHFA authority to set housing goals for the GSEs. (This authority was previously established by P.L. 102-550.)97 The Enterprises are required to purchase percentages of mortgages to meet FHFA's established single-family (and multifamily) affordable housing goals.98 For single-family housing, the Enterprises must annually acquire goal-eligible mortgages for home purchases and refinances to support various categories (e.g., low income, very low income, underserved) of borrowers.99 FHFA modified some operational requirements pertaining to these mission goals, discussed in the text box below.
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Recent Directives Pertaining to Single-Family Mission Goals
In 2025, the following policy changes were implemented for the Enterprises' single-family mission goals. - On March 24, 2025, the Federal Housing Finance Agency (FHFA) rescinded Advisory Bulletin 2024-06, "Regulated Entity Unfair or Deceptive Acts or Practices (UDAP) Compliance."100 UDAP defines certain acts or practices to be unfair or deceptive.101 With respect to extensions of credit to consumers, the Consumer Financial Protection Bureau, other federal financial regulators, and state regulatory agencies enforce UDAP. UDAP enforcement may be duplicative, although state-level regulator approaches may vary.102
- In 1976, Congress established Special Purpose Credit Programs (SPCPs) to allow lenders to consider otherwise-prohibited-basis information—race, color, religion, national origin, sex—to serve economically or socially disadvantage consumers and small businesses.103 In 2022, eight federal regulators and agencies, including FHFA, issued an interagency reminder to creditors and relevant entities of their authority to establish SPCPs to meet the credit needs of specified classes of persons.104 On March 25, 2025, the FHFA director released a directive eliminating the Enterprises' participation in SPCPs.105
- Fair lending laws are designed to protect consumers from unfair and discriminatory practices. Fair housing laws are designed to prohibit discrimination in the sale or rental of housing, the financing of housing, or the provision of brokerage services.106 On July 28, 2025, FHFA announced a proposed rule that would repeal Fair Lending, Fair Housing, and Equitable Housing Finance Plans regulation; the comment period ended September 26, 2025.107
- When establishing the single-family mortgage market benchmarks, FHFA begins by estimating the size of the mortgage market. FHFA modified its initial benchmark estimates of goal-eligible purchase and refinance mortgages for the 2026-2028 rule.108 For this reason, FHFA finalized lower single-family housing purchase goals for 2026-2028 from the benchmarks established for 2025-2027.109 Specifically, the low-income home purchase goal was reduced from 25% to 21%, and the very low-income home purchase goal was reduced from 6% to 3.5%. The low-income refinance goal, which consists of refinance mortgages on single-family owner-occupied properties to borrowers with incomes no greater than 80% of area median income, remains unchanged at 26%. The census tract subgoals from 2025 to 2027—the 12% minority census tract subgoal and the 4% low-income census tract subgoal—were combined to be 16% in 2026-2028.
The collective impact of FHFA's recent actions on the mortgage market is unclear, as broader housing market and macroeconomic conditions also matter. Although FHFA's downward revisions suggest that meeting some goals may be challenging, actual market performance often deviates from forecasts. If the mortgage market outperforms expectations, the Enterprises could meet or exceed goals. Conversely, factors such as weaker macroeconomic performance may lead to stricter underwriting criteria, which may cause mortgage originations to decline. Therefore, evaluating the effectiveness of implementing SPCPs requires observing how targeted demographic groups fare across multiple housing market cycles.
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The Enterprises' Multifamily Business Models
A multifamily mortgage is a loan secured by a residential dwelling, such as an apartment building, with at least five or more separate units. Multifamily real estate frequently refers to properties used as residential dwellings, including traditional apartment buildings, subsidized housing, housing for seniors (age-restricted, independent, and assisted living), and housing for students (dormitories). In multifamily mortgage markets, the Enterprises purchase mortgages and transfer a portion (or share) of the default risks to the private sector.110 FHFA has issued various directives to limit and narrow the scope of the Enterprises' multifamily programs. The directives, summarized in the text box below, are intended to prevent the Enterprises' multifamily programs from growing without a more explicit link to affordable rental units for low- and moderate-income and other historically underserved renters—while making a reasonable economic return—rather than offer cheaper borrowing rates that crowd out (impede) private sector lending activities in market segments with less apparent credit gaps.111
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Revised Directives for the Enterprises Multifamily Programs
In 2013, the Federal Housing Finance Agency (FHFA) reduced the Enterprises' new multifamily purchase volumes by 10% from the 2012 caps to shrink their multifamily operations and risks to taxpayers.112 FHFA subsequently directed the Enterprises to limit their 2014 multifamily purchase volumes to the level of or below the 2013 caps.113 In 2014, FHFA excluded several business activities from counting toward the cap, which might make it possible for the Enterprises to provide greater support in the affordable housing and underserved market segments before reaching the cap. In 2016, FHFA also excluded loans that would finance certain energy and water efficiency projects (i.e., green loans) from the multifamily purchase caps. From 2016 to 2018, the Enterprises' share of multifamily lending activities that grew were related to green loans that were excluded from the cap, while those included in the cap declined.114 On September 13, 2019, FHFA revised its directive regarding the multifamily purchase caps, increasing them from the 2018 caps of $35 billion each to $100 billion each for Fannie Mae and Freddie Mac.115 Moreover, 37.5% of the Enterprises' loan purchases must be mission driven. All multifamily mortgage purchases count toward the cap—no exemptions or exclusions.116
FHFA also provides an updated comprehensive definition of mission-driven multifamily purchases.117 Examples of eligible mission-driven mortgage purchases include those for properties subsidized by the Low-Income Housing Credit program; properties covered by Section 8 Housing Assistance Payment contracts (that limit tenant incomes to 80% or below of the area median income); and properties developed by a public housing authority (or nonprofit affiliates) that either reserves units for limited-income tenants or restricts the rents charged for units.118
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On December 14, 2022, FHFA finalized a rule to adopt a new percentage-based methodology to set benchmark levels for multifamily housing goals.119 Each of the three subgoals are now established as a percentage of the total number of affordable multifamily properties financed by the GSEs each year. Because new developments may occur over the period that can increase the infeasibility to meet a housing goal defined in terms of units, the percentage-based methodology lessens the need to amend the benchmarks after publication of the final rule. For 2026-2028, for example, the low-income goal, the very low-income goal, and the small multifamily low-income subgoal are 61%, 14.0%, and 2%, respectively.120 The 2026 volume caps are $88 billion for each Enterprise with a 50% minimum of loans that meet mission-driven goals.121
Duty to Serve: Manufactured Housing Chattel Loans
In addition to single- and multifamily housing goals, HERA created a duty to serve for the Enterprises with respect to three underserved markets: manufactured housing, affordable housing preservation, and rural markets. Supporting manufactured housing—particularly in underserved communities—is considered an affordable option that poses challenges for the Enterprises.
Manufactured housing involves chattel lending, which differs from real property lending. A manufactured home is a factory-built home that is transportable in one or more sections; has been constructed after June 15, 1976; is built on a permanent metal chassis; and must meet the safety standards set by the U.S. Department of Housing and Urban Development.122 Mortgage loans can be used to finance homes that are permanently attached to real property.123 By contrast, manufactured home chattel loans are used to finance personal property that is not permanently attached to land (i.e., chattel). Because the cost to purchase a manufactured home is typically far below the cost to purchase a site-built home, a manufactured home may be a viable affordable housing option for low-income borrowers.124 By facilitating liquidity to the chattel market, the Enterprises can make progress toward achieving all three duty-to-serve goals, because manufactured homes are disproportionately located in nonmetropolitan areas occupied by residents with lower incomes or net worth.125 The Enterprises have noted, however, that pursuit of their duty-to-serve obligations entails substantial risks that may adversely affect their financial results and conditions.126 Providing support for chattel loans includes the following challenges:
- Lenders generally prefer to provide loans for manufactured homes titled as real property, as defaults on chattel loans pose greater recovery risks. If a borrower who is leasing (rather than buying) the land beneath a manufactured home defaults on a chattel loan, then the lender must initiate a property repossession or replevin lawsuit to recover losses.127 If the borrower is also delinquent on the land lease, then reselling a repossessed manufactured home—whether it sits on its current site or must be relocated—adds more legal challenges and expenses that further reduce the amount of recoverable losses.128
- Manufactured homeowners usually pay higher annual percentage rates (APRs)—the total cost of a loan (both the interest rates and transaction fees)—for their loans relative to buyers of site-built homes.129 The Enterprises generally avoid purchasing high-cost loans with above-normal APRs, which are inconsistent with their affordable housing mission. Furthermore, certain consumer protections that apply to dwellings attached to land do not apply to chattel loans. For example, the integrated disclosures that require lenders, mortgage brokers, or servicers of home loans to disclose loan pricing information to borrowers do not apply to dwellings that are not attached to land.130 Fewer disclosures may lead to greater uncertainty about the extent that borrowers could have received cheaper financing or were aware of less costly financing alternatives.
- Securitizing chattel loans is challenging. Chattel loans cannot be placed in the same pools with other mortgages linked to UMBS issuances, which have strict prepayment speed requirements and homogenous credit risks. Secondary market security issuances linked to chattel loans must be structured from pools consisting only of chattel loans—more likely to have homogeneous financial risks—to enhance investors' understanding of the likely performance of their investments, which may not be economically feasible.131 Thus, collecting data to better understand the prepayment and default performance of chattel loans will assist efforts to create attractive secondary market securities for investors.
Fannie Mae and Freddie Mac are developing plans to provide liquidity for manufactured housing titled as chattel through securitization channels.132 FHFA granted the Enterprises permission to implement their chattel financing initiatives as pilot programs.133 Nevertheless, FHFA also considers manufactured housing to contain higher credit and liquidity risks. In the final rule establishing the Enterprises' heightened capital requirements, the manufactured home loan category is assigned one of the higher risk weights relative to other types of mortgages. Thus, if the Enterprises enter chattel lending markets, FHFA might introduce a separate risk weight that could be higher than the current risk weight for manufactured homes titled as real property.
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The Federal Home Loan Bank System and Chattel Loans
The Federal Home Loan Bank (FHLB) System, which is also a government-sponsored enterprise (GSE) with an affordable housing mission that is supervised by the Federal Housing Finance Agency (FHFA), has addressed issues pertaining to the higher levels of default risk associated with chattel loans.134 Lenders face limitations obtaining advances (short-term loans) from some of the FHLBs using chattel loans as collateral, as different FHLBs may have separate policies.135 FHFA, however, allows the FHLBs to purchase chattel loans under their Acquired Member Assets programs, although they have made few if any such purchases from member financial institutions.136
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Ending the Conservatorships: Some Considerations
An accelerated release of the Enterprises from conservatorship raises policy issues and implications. Such concerns include whether their post-conservatorship capital levels are adequate and the need for congressional approval. Furthermore, the likely discontinuation of UMBSs and limited CRT issuance could reduce mortgage market liquidity and credit risk sharing opportunities with the private sector. These and other considerations are outlined below.
Current Capitalization Levels
If returned to shareholder control after being released from conservatorship, the Enterprises' financial health from a capital perspective may not be significantly improved from when they initially entered conservatorship. The most recent estimates are discussed in the text box below.
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Enterprises' Financial Health: Available Estimates
The following estimates were available at the date of this report's publication. According to the Congressional Budget Office, the Enterprises reported a combined total of $125 billion in capital at the end of December 2023, which equaled 1.6% of their $7.6 trillion in total assets.137 However, the 1.6% falls below the Enterprises' unweighted total leverage requirement of 4% as well as their risk-weighted adjusted total capital requirement of not less than 8%, meaning that they are still undercapitalized. By the end of the second quarter 2026, the capital levels for Fannie Mae and Freddie Mac were estimated to be 2.84% and 2.36%, respectively, which would still be below those required under the regulatory framework.138
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Releasing the Enterprises with capital buffers considerably below the minimums established by FHFA may affect the amount of funds that can be raised to reimburse Treasury and, ultimately, taxpayers. After providing financial support, Treasury usually auctions off its equity warrants to the public for profit. The company that initially issued the warrants to Treasury—following recovery of its financial health—typically wins the auction. The Enterprises, however, may not have accumulated sufficient capital buffers to repurchase their own warrants. Furthermore, if prospective investors perceive the Enterprises to be insufficiently capitalized (i.e., still vulnerable to another insolvency event that may lead to reinstatement of conservatorship and shareholder losses), then they may be unwilling to place high or any bids for Treasury warrants. The Enterprises' stock prices must stay above the $1 mark to meet the minimum price requirement to stay listed on the New York Stock Exchange, which may be difficult to achieve if market investors perceive their capital buffers to be insufficient.139
Authority to End Conservatorships
As the Enterprises' time in conservatorship has continued, the question regarding the ability to release them without congressional approval grows more ambiguous. Some conditions expected to be met prior to their release are as follows.140 FHFA would determine whether the prudential ERCF requirements have been attained. Treasury would determine whether the Enterprises' dividend repayments are sufficient or if its holdings of their senior preferred stock have been redeemed in full. Given the 10-basis-point increase in the Enterprises' ongoing g-fees through 2032, Congress may either retain this assessment—using the proceeds to reimburse losses associated with systemic events (e.g., the 2008 financial crisis, COVID-19) or for discretionary budget purposes—or eliminate it to lower costs for borrowers. Upon mutual agreement on the fulfillment of these requirements, FHFA and Treasury may choose to consult with Congress on how to proceed with ending the conservatorships.141
UMBS Issuance After Conservatorship
Upon exit of conservatorship, Fannie Mae and Freddie Mac would likely revert to competing in separate niche markets. As private, for-profit, competing firms, they would prioritize maximizing shareholder returns, especially given the requirement to hold greater amounts of capital composed primarily of common shareholders. They would adopt separate strategies for creating MBS trusts and setting g-fees. Even if greater competition between the Enterprises resulted in lower g-fees, fragmentation of the UMBS market—that is, reversion to separate MBS markets—may trigger more episodes of rising liquidity premiums that could produce greater costs for mortgagors.
Elimination of the UMBS market following the end of the Enterprises' conservatorships would also have implications for conducting monetary policy. The Open Market Trading Desk (the Desk), located at the Federal Reserve Bank of New York, currently buys and sells U.S. Treasury securities along with other securities issued by federal and federally related entities—including UMBS—to facilitate monetary policy implementation.142 Although the depth and liquidity of the Enterprises' separate MBSs markets previously allowed the Desk to make large-dollar trades without necessarily causing material movements in their market prices, the current UMBS market is even deeper and more liquid.143 The ability to consolidate the Enterprises' MBS (along with some MBSs issued by Ginnie Mae) under one unique identifier also simplifies the accounting of such transactions.144 If the UMBS market is not sustained after the Enterprises' exit conservatorship, the Desk would return to using the separately issued MBSs that would be somewhat less liquid, trade separately in markets with less depth, and require more extensive accounting for those transactions given the differences in prepayment speeds and characteristics.
CRT Issuance After Conservatorship
From 2013 through the end of 2023, the Enterprises' CRT programs have transferred a portion of credit risk on approximately $6.7 trillion of unpaid principal balance of single-family mortgage credit risk to private sector investors.145 As previously discussed, CRTs allow investors to acquire direct exposure to the credit risks of borrowers who meet the Enterprises' lending standards. (By contrast, the Enterprises' shareholders are exposed directly to the Enterprises' solvency risks.) The distribution of credit risk among numerous private sector investors is arguably a more efficient diversification approach compared to concentrating massive amounts of credit risks between the two firms.146 If, however, the Enterprises exit conservatorship, they may be less willing to transfer credit risks—and the associated g-fee revenues—to prospective CRT investors. Instead, the Enterprises would likely retain the profits earned from performing mortgages, which can then be distributed to their shareholders.
Multifamily Mortgage Lending After Conservatorship
Before conservatorship, the Enterprises' multifamily business activities could be used to offset cash-flow disruptions across various lending market segments. However, FHFA's current restrictions on lending activities and caps may increase cash-flow volatility, especially if they remain intact after conservatorship. For example, the requirement to focus primarily on mortgages used to finance multifamily structures for low- and moderate-income tenants (who have more difficulty paying market-level rents) results in greater concentration of mission-related lending activities, which may contribute to greater cash flow volatility for the Enterprises' multifamily portfolios.147 Additionally, the Enterprises could pivot to multifamily lending activities to sustain profitability without concern about lending caps following decreases in single-family mortgage volumes (because of factors such as higher house prices, mortgage rates, or insurance premiums) prior to conservatorship. FHFA could consider alternative policy deterrents to address concerns related to crowding out the private sector—such as setting higher capital requirements for involvement in certain lending activities—which can increase lending costs with less disruption to the Enterprises' multifamily portfolios.148 In short, the Enterprises may want more strategic control over their multifamily loan portfolios on exiting conservatorship to make economic returns that shareholders would also find reasonable.
Footnotes
| 1.
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Fannie Mae and Freddie Mac are often referred to as government-sponsored enterprises (GSEs). However, entities such as the Federal Home Loan Bank System and the Farm Credit System are also GSEs.
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| 2.
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For more historical information about the chartering of Fannie Mae and Freddie Mac, see "Why Were Fannie Mae and Freddie Mac Created?" in CRS Report R44525, Fannie Mae and Freddie Mac in Conservatorship: Frequently Asked Questions, by Darryl E. Getter.
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| 3.
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Fannie Mae calls its securities MBSs, and Freddie Mac calls its securities participation certificates. Common industry practice is to refer to both Fannie Mae's MBSs and Freddie Mac's participation certificates collectively as MBSs.
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| 4.
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In addition to Fannie Mae and Freddie Mac, Congress created Ginnie Mae, a federal corporation that guarantees the timely repayment of principal and interest to investors in MBSs (created by Ginnie Mae–approved issuers) linked to mortgages in which the default risk has already been guaranteed by federal agencies, such as the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA), and the U.S. Department of Agriculture (USDA). Hence, Ginnie Mae does not retain credit risk.
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| 5.
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For more information on the pricing of single-family mortgages, see CRS Report R46980, Single-Family Mortgage Pricing and Primary Market Policy Issues, by Darryl E. Getter.
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| 6.
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Prior to FHFA's creation, the Office of Federal Housing Enterprise Oversight (OFHEO), which was an agency under the Department of Housing and Urban Development (HUD), was the safety and soundness regulator for Fannie Mae and Freddie Mac. OFHEO ensured that the Enterprises complied with their statutory capital requirements. The Enterprises' annual housing mission goals were set by HUD but not by OFHEO.
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| 7.
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See FHFA, "Conservatorship," https://www.fhfa.gov/Conservatorship.
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| 8.
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P.L. 110-289 gave the Treasury Secretary authority to lend or invest in the Enterprises. The Treasury's response to the Enterprises after they were undercapitalized was similar to its response after the banking system became undercapitalized, in which it purchased preferred shares from the banks via the Troubled Asset Relief Program. For information, see CRS Report R43413, Costs of Government Interventions in Response to the Financial Crisis: A Retrospective, by Baird Webel and Marc Labonte.
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| 9.
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The warrants may be exercised in whole or in part at any time on or before September 7, 2028; however, Treasury has indicated that this expiration date is likely to be extended. See U.S. Department of the Treasury, "Treasury Department and Federal Housing Finance Agency Amend Preferred Stock Purchase Agreements for Fannie Mae and Freddie Mac," press release, January 2, 2025, https://home.treasury.gov/news/press-releases/jy2767.
|
| 10.
|
See U.S. Department of the Treasury, "Treasury Department and FHFA Modify Terms of Preferred Stock Purchase Agreements for Fannie Mae and Freddie Mac," press release, September 30, 2019, https://home.treasury.gov/news/press-releases/sm786.
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| 11.
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See Richard K. Green and Susan M. Wachter, "The American Mortgage in Historical and International Context," Journal of Economic Perspectives, vol. 19, no. 4 (Fall 2005), pp. 93-114. Private lenders are more reluctant to retain the liquidity risks associated with 30-year fixed rate mortgages in their lending portfolios.
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| 12.
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For more information about the primary mortgage market, see CRS Report R46980, Single-Family Mortgage Pricing and Primary Market Policy Issues, by Darryl E. Getter.
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| 13.
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These mortgages tend to have fixed interest rates with a 30-year maturity.
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| 14.
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FHFA establishes the annual conforming loan limits for one- to four-unit properties. For most areas in which the median local house value exceeds the national average house value by 115%, the conforming loan limit is set at 115% of the median home value. FHFA establishes separate conforming loan limits for Alaska, Hawaii, Guam, and the U.S. Virgin Islands.
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| 15.
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The MBS trusts are bankruptcy-remote or special-purpose entities, meaning that the parent company (e.g., one of the Enterprises) isolates and holds these assets in the trust rather than on its own balance sheets. If, for example, a parent company goes bankrupt, then the stipulated activities of a special-purpose entity are not disrupted given that the trust assets are legally not owned by the parent company. In this case, the assets (mortgages) held in the MBS trusts are funded by MBS issuances.
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| 16.
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For more information on the pricing of single-family mortgages—specifically how mortgage coupons paid by borrowers are calculated—see CRS Report R46980, Single-Family Mortgage Pricing and Primary Market Policy Issues, by Darryl E. Getter.
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| 17.
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For detailed descriptions of loan securitizations and MBS trust guarantees, see Fannie Mae, Basics of Fannie Mae Single-Family MBS, August 2025, http://www.fanniemae.com/resources/file/mbs/pdf/basics-sf-mbs.pdf.
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| 18.
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For example, if the average interest rate of the underlying pool of mortgages is 4% or 400 basis points, an Enterprise may retain an average of 56 basis points and pass the remaining 344 basis points to the MBS holders after subtracting additional basis points for mortgage servicers (typically 25 basis points) and paying for other costs to originate the loan. See FHFA, "FHFA Issues 2017 Report to Congress on Guarantee Fees," press release, December 10, 2018, https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Issues-2017-Report-to-Congress-on-Guarantee-Fees.aspx.
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| 19.
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The Enterprises, therefore, are monoline insurance companies. See FHFA et al., "Enterprise Capital Requirements," 83 Federal Register 33312, July 17, 2018. Bond insurers guarantee (for a fee) that the interest payment streams generated from a bond (or loan) will be made on time and that, if a default occurs, the initial principal investment will be returned to the bondholder. Likewise, the Enterprises facilitate the equivalent transaction on a larger scale, referring to the process as securitization.
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| 20.
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The process when borrowers prepay mortgages that underlie Ginnie Mae MBSs is similar.
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| 21.
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The Enterprises define default as 120 days late.
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| 22.
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In finance, a derivative is a financial instrument with value linked to at least one but not all of the risks contained in a reference instrument. In this case, the MBS derivative instruments have the prepayment risk but not the default risk that is contained in the underlying reference mortgage.
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| 23.
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Ginnie Mae facilitates MBSs that it issues in the TBA market. Ginnie Mae transfers prepayment risk in a similar manner as the Enterprises, but it does not retain default risk. The default risk is retained by the federal agencies—FHA, VA, and USDA—that provide mortgage insurance.
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| 24.
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Interest rate movements affect both the market value and prepayment risk of mortgages and MBSs. For example, following a decline in mortgage rates during the COVID-19 pandemic, mortgage pools scheduled for delivery experienced an increase in prepayment risk, thereby reducing their liquidity. The liquidity loss was reflected by a widening gap between the present value of the mortgage pool and the future MBS prices at settlement. See Jiakai Chen et al., Dealers and the Dealer of Last Resort: Evidence from the MBS Markets in the COVID-19 Crisis, Federal Reserve Bank of New York, July 2020, https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr933.pdf.
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| 25.
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See Financial Industry Regulatory Authority, "A Look at Over-the-Counter Equities Trading," April 24, 2024, https://www.finra.org/investors/insights/over-the-counter-equities-trading.
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| 26.
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The increase in electronic trading has increased price transparency in many OTC markets. See Randall Dodd, "Financial Markets: Exchange or Over the Counter," International Monetary Fund, https://www.imf.org/external/pubs/ft/fandd/basics/markets.htm.
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| 27.
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See Douglas J. Elliott, "Market Liquidity: A Primer," Brookings Institution, June 2015, https://www.brookings.edu/wp-content/uploads/2016/07/Market-Liquidity.pdf.
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| 28.
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See Rich Podjasek et al., "Has MBS Market Liquidity Deteriorated?," Federal Reserve Bank of New York, February 8, 2016, https://libertystreeteconomics.newyorkfed.org/2016/02/has-mbs-market-liquidity-deteriorated.html.
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| 29.
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Whether investors found MBSs attractive because of their lack of credit risk or their OTC market liquidity is subject to debate. See James Vickery and Joshua Wright, TBA Trading and Liquidity in the Agency MBS Market, Federal Reserve Bank of New York, May 2013, http://www.newyorkfed.org/research/epr/2013/1212vick.pdf.
|
| 30.
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See Scott Richardson and Diogo Palhares, "(Il)liquidity Premium in Credit Markets: A Myth?," Journal of Fixed Income, vol. 28, no. 3 (Winter 2019), pp. 3-21.
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| 31.
|
See Congressional Budget Office, Fannie Mae, Freddie Mac, and the Federal Role in the Secondary Mortgage Market, December 2010, https://www.cbo.gov/sites/default/files/111th-congress-2009-2010/reports/12-23-fanniefreddie.pdf.
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| 32.
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See Karan Kaul, "The Past, Present and Future of Agency MBS Liquidity," State Street Global Advisors and the Urban Institute's Housing Finance Policy Center, October 2016, https://www.ginniemae.gov/newsroom/publications/Documents/agency_mbs_liquidity.pdf.
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| 33.
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See Robert Van Order, "Government-Sponsored Enterprises and Resource Allocation: Some Implications for Urban Economics," in Brookings-Wharton Papers on Urban Affairs, ed. Gary Burtless and Janet Rothenberg Pack (Brookings Institution, 2007), pp. 151-203.
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| 34.
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See Karan Kaul and Laurie Goodman, "Declining Agency MBS Liquidity Is Not All About Financial Regulation," Urban Institute, November 2015, https://www.urban.org/sites/default/files/publication/72621/2000503-Declining-Agency-MBS-Liquidity-Is-Not-All-about-Financial-Regulation.pdf.
|
| 35.
|
See Board of Governors of the Federal Reserve System, "Authority to Lend to Fannie Mae and Freddie Mac," press release, July 13, 2008, http://www.federalreserve.gov/newsevents/press/other/20080713a.htm; and Dave Na, Ellie Newman, and Bernd Schlusche, The Evolution of the Federal Reserve's Agency MBS Holdings, Board of Governors of the Federal Reserve System, FEDS Notes, September 20, 2024, https://www.federalreserve.gov/econres/notes/feds-notes/the-evolution-of-the-federal-reserves-agency-mbs-holdings-20240920.html..
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| 36.
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Kaul and Goodman, "Declining Agency MBS Liquidity."
|
| 37.
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FHFA issues annual scorecards, which communicate the annual priorities and expectations that it sets for the Enterprises with respect to both of their single-family and multifamily mortgage businesses while under conservatorship. See FHFA, "Conservatorship."
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| 38.
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12 U.S.C. §1717.
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| 39.
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The property value would have been determined by an appraisal when the mortgage was originated. Property values, however, are not constant and might increase or decrease by the time a borrower officially defaults. The Enterprises' definition of default is 120 days delinquent. A loss mitigation or workout option may be able to resolve a default if the property's value exceeds the outstanding mortgage balance. If the property value falls below the outstanding mortgage balance, the likelihood that a loss mitigation option will succeed diminishes.
|
| 40.
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Certain borrowers may also qualify to obtain federal mortgage insurance from the FHA, VA, or USDA. Because federally insured mortgages are backed by the full faith and credit of the U.S. government, the Enterprises face no counterparty credit risk when borrowers choose this option. Another option for borrowers may be to obtain a junior (second) loan for some or all of the 20% down payment requirement. After the property is liquidated in a foreclosure sale, the recovered proceeds would be distributed first to the Enterprises. The junior lender would receive any proceeds left over to cover the unpaid portion of the junior loan. Given that foreclosure costs can be substantial, the mortgage insurer or second lender faces a greater possibility of little or no recoupment of loan proceeds.
|
| 41.
|
According to FHFA, mortgage insurers represent the largest counterparty exposure for the Enterprises. See FHFA, Office of Inspector General, Enterprise Counterparties: Mortgage Insurers, February 16, 2018, https://www.fhfaoig.gov/Content/Files/WPR-2018-002.pdf.
|
| 42.
|
See FHFA, Office of Inspector General, Enterprise Counterparties: Reinsurers, September 27, 2021, https://www.fhfaoig.gov/sites/default/files/WPR-2021-007.pdf.
|
| 43.
|
See Edward Golding et al., "How to Think About Fannie Mae and Freddie Mac's Pricing," Urban Institute, August 2023, https://www.urban.org/research/publication/how-think-about-fannie-mae-and-freddie-macs-pricing.
|
| 44.
|
See CRS Report R46980, Single-Family Mortgage Pricing and Primary Market Policy Issues, by Darryl E. Getter.
|
| 45.
|
FHFA, "FHFA Announces Updates to the Enterprises' Single-Family Pricing Framework," press release, January 19, 2023, https://www.fhfa.gov/news/news-release/fhfa-announces-updates-to-the-enterprises-single-family-pricing-framework.
|
| 46.
|
A category of prospective high-risk borrowers will pay slightly lower LLPAs compared to the previous LLPA fee structure. Although slightly lower premiums for this group may increase affordability and promote more stable payment behavior, the anticipated revenues generated may not be large given that fewer high-risk borrowers can qualify for as many mortgages or for those as large as those obtained by low-risk borrowers.
|
| 47.
|
Temporary Payroll Tax Cut Continuation Act of 2011 (P.L. 112-78).
|
| 48.
|
Infrastructure Investment and Jobs Act (P.L. 117-58).
|
| 49.
|
Section 1601 of the Housing and Economic Recovery Act of 2008 (HERA, P.L. 110-289) requires FHFA to conduct an ongoing study of the guarantee fees charged by the Enterprises. For more information and recent reports, see FHFA, "Guarantee Fees History," December 22, 2025, https://www.fhfa.gov/policy/guarantee-fees.
|
| 50.
|
Prior to conservatorship, the Enterprises had existing programs that transferred the credit risk linked to their multifamily programs. For more information, see the section of this report entitled "The Enterprises' Multifamily Business Models."
|
| 51.
|
See FHFA, Overview of Fannie Mae and Freddie Mac Credit Risk Transfer Transactions, August 2015, https://www.fhfa.gov/sites/default/files/2023-03/CRT-Overview-8-21-2015.pdf.
|
| 52.
|
See FHFA, Performance & Accountability Report: FY 2018, https://www.fhfa.gov/sites/default/files/documents/FHFA-2018-PAR.pdf.
|
| 53.
|
Transferring credit risk via CRT instruments reduces counterparty risk—that is, the risk that the insurer fails to reimburse the Enterprise after a default.
|
| 54.
|
The Enterprises may also transfer the credit risk of mortgages retained in their portfolios (typically because they lack the standardized features that would make them eligible for placement into an MBS trust for securitization).
|
| 55.
|
For more information, see Board of Governors of the Federal Reserve System, "Six Federal Agencies Jointly Approve Final Risk Retention Rule," press release, October 22, 2014, https://www.federalreserve.gov/newsevents/pressreleases/bcreg20141022a.htm.
|
| 56.
|
See FHFA, Performance and Accountability Report: FY 2018.
|
| 57.
|
See David Finkelstein et al., Credit Risk Transfer and De Facto GSE Reform, Federal Reserve Bank of New York, February 2018, https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr838.pdf; and FHFA, Performance and Accountability Report: FY 2018.
|
| 58.
|
The term reinsurance may be used because the credit risk is insured twice: once by the Enterprises and a second time by another insurance company.
|
| 59.
|
FHFA acknowledges that a bright-line distinction between unexpected and catastrophic loss risk has yet to be defined. The distinction between risk types, however, may not be pertinent, because credit risk is measured in basis points, and the total amounts transferred to the private sector occur after certain basis point thresholds.
|
| 60.
|
See Joshua D. Coval et al., "Economic Catastrophic Bonds," American Economic Review, vol. 99, no. 3 (June 2009), pp. 628-666.
|
| 61.
|
See Congressional Budget Office, Transitioning to Alternative Structures for Housing Finance: An Update, August 2018, p. 9, https://www.cbo.gov/system/files/2018-08/54218-GSEupdate.pdf.
|
| 62.
|
For more information on the mortgage servicing and loss mitigation initiatives, see FHFA, "Mortgage Servicing," November 1, 2023, https://www.fhfa.gov/PolicyProgramsResearch/Policy/Pages/Mortgage-Servicing.aspx; and Karan Kaul et al., The Case for Uniform Mortgage Servicing Data Standards, Urban Institute, November 2018, https://www.urban.org/sites/default/files/publication/99317/uniform_mortgage_servicing_data_standards_0.pdf. The standardization of servicing may enhance the attractiveness of CRT investments by clarifying the procedures for handling nonperforming mortgages, thus clarifying how losses will be distributed among the various tranche classes. For more information, see Basel Committee on Banking Supervision: The Joint Forum, Report on Asset Securitisation Incentives, July 2011, https://www.bis.org/publ/joint26.pdf; and Patricia A. McCoy, "Barriers to Federal Home Mortgage Modification Efforts During the Financial Crisis," Harvard University Joint Center for Housing Studies, August 2010, https://www.jchs.harvard.edu/sites/default/files/mf10-6.pdf.
|
| 63.
|
FHFA, "Uniform Mortgage Data Program," https://singlefamily.fanniemae.com/delivering/uniform-mortgage-data-program.
|
| 64.
|
See Freddie Mac, Form 10-K for the fiscal year ended December 31, 2018, p. 186, https://www.freddiemac.com/investors/financials/pdf/10k_021419.pdf; and Fannie Mae, Form 10-K for the fiscal year ended December 31, 2018, p. 33, https://www.fanniemae.com/sites/g/files/koqyhd191/files/migrated-files/resources/file/ir/pdf/quarterly-annual-results/2018/q42018.pdf.
|
| 65.
|
See FHFA, "FHFA, Fannie Mae and Freddie Mac Launch New Representation and Warranty Framework," press release, September 11, 2012, https://www.fhfa.gov/news/news-release/fhfa-fannie-mae-and-freddie-mac-launch-new-representation-and-warranty-framework; and Laurie Goodman et al., "Sunset Provisions on Reps and Warrants: Can They Be More Flexible While Still Protecting the GSEs?," Urban Institute, November 27, 2013, https://www.urban.org/research/publication/sunset-provisions-reps-and-warrants-can-they-be-more-flexible-while-still-protecting-gses.
|
| 66.
|
See Mortgage Bankers Association, FHFA Announces Update for Services to Maintain Fair Lending Data, August 10, 2022, https://newslink.mba.org/mba-newslinks/2022/august/mba-newslink-wednesday-may-17-2021/fhfa-announces-update-for-services-to-maintain-fair-lending-data/.
|
| 67.
|
For more information, see FHFA, "Fair Lending, Fair Housing, and Equitable Housing Finance Plans," 89 Federal Register 42786, May 16, 2024, p.42786.
|
| 68.
|
For more information, see FHFA, "FHFA Announces Validation of FICO 10T and VantageScore 4.0 for Use by Fannie Mae and Freddie Mac," October 24, 2022, https://www.fhfa.gov/news/news-release/fhfa-announces-validation-of-fico-10t-and-vantagescore-4.0-for-use-by-fannie-mae-and-freddie-mac; and CRS In Focus IF12588, Fannie Mae and Freddie Mac Adopt Alternative Credit Scores, by Darryl E. Getter.
|
| 69.
|
See written testimony of Edward J. DeMarco, president, Housing Policy Council, in U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Chairman's Housing Reform Outline, hearing, 116th Cong., 1st sess., March 26, 2019.
|
| 70.
|
FHFA, "Building a New Infrastructure for the Secondary Mortgage Market," October 4, 2012, p. 4, https://www.fhfa.gov/research/papers/building-new-infrastructure-secondary-mortgage-market.
|
| 71.
|
See FHFA, 2015 Scorecard Progress Report, March 2016, p. 24, https://www.fhfa.gov/sites/default/files/2023-03/progress-report-2015-scorecard.pdf.
|
| 72.
|
The CSP arguably reduces the fixed start-up costs for private guarantors (should they be approved) because they will not have to invest in the technology to perform CSP functions. See written testimony of Mark Zandi, chief economist, Moody's Analytics, U.S. Congress, Senate Committee on Banking, Housing, and Urban Affairs, Chairman's Housing Reform Outline, hearing, 116th Cong., 1st sess., March 26, 2019.
|
| 73.
|
See Vickery and Wright, TBA Trading and Liquidity in the Agency MBS Market.
|
| 74.
|
An economic theory known as the law of one price states that identical securities should sell for identical prices. See Owen A. Lamont and Richard H. Thaler, "The Law of One Price in Financial Markets," Journal of Economic Perspectives, vol. 17, no. 4 (Fall 2003), pp. 191-202.
|
| 75.
|
Laurie Goodman, "The $400 Million Case for a Single GSE Security," Urban Institute, September 5, 2014, http://www.urban.org/urban-wire/400-million-case-single-gse-security.
|
| 76.
|
In 2014, Freddie Mac's MBS issuances were approximately 70% of Fannie Mae's MBS issuances, and Freddie Mac's MBSs accounted for 9% of total trading activity. Goodman, "The $400 Million Case."
|
| 77.
|
Laurie Goodman and Jim Parrott, "A Progress Report on Fannie Mae and Freddie Mac's Move to a Single Security," Urban Institute, August 2018, https://www.urban.org/sites/default/files/publication/98872/single_security_0.pdf.
|
| 78.
|
See FHFA, "Uniform Mortgage-Backed Security," 84 Federal Register 7793, March 5, 2019.
|
| 79.
|
See FHFA, "Uniform Mortgage-Backed Security."
|
| 80.
|
FHFA, An Update on the Structure of the Single Security, May 15, 2015, p. 4, https://www.fhfa.gov/AboutUs/Reports/ReportDocuments/Single%20Security%20Update%20final.pdf. For a discussion on the effects of standardization in the mortgage and MBS markets, see Adam J. Levitin and Susan M. Wachter, "Explaining the Housing Bubble," Georgetown Law Journal, vol. 100, no. 4 (April 12, 2012), pp. 1177-1258.
|
| 81.
|
See FHFA, "Statement of FHFA Deputy Director Robert Fishman on the Launch of the New Uniform Mortgage-Backed Security (UMBS)," press release, June 3, 2019, https://www.fhfa.gov/news/statement/statement-of-fhfa-deputy-director-robert-fishman-on-the-launch-of-the-new-uniform-mortgage-backed.
|
| 82.
|
The Securities Industry and Financial Markets Association (SIFMA)—a trade association for broker-dealers, investment banks, and asset managers operating in the United States and global capital markets—advocates for legislative, regulatory, and business policies on behalf of its members. SIFMA sets the TBA trading conventions, which include the TBA settlement guidelines known as the Uniform Practices for the Clearance and Settlement of Mortgage-Backed Securities and Other Related Securities. SIFMA recommends that FHFA, while regulating the mortgage purchasing and trust structuring activities, ensure that the Enterprises do not deviate from the requirements to securitize mortgage originations with standardized borrower characteristics.
|
83.
|
After estimating the median family income for designated counties and metropolitan areas, HUD provides annual definitions for extremely low-income family and very low-income family, which are used to determine eligibility for various programs. See HUD, "Housing Trust Fund," https://www.hudexchange.info/programs/htf/.
| 84.
|
See Department of the Treasury, Community Development Financial Institutions Fund, "Capital Magnet Fund," https://www.cdfifund.gov/programs-training/Programs/cmf/Pages/default.aspx; and Department of the Treasury, Community Development Financial Institutions Fund, "Funding Opportunities: Capital Magnet Fund; 2018 Funding Round," 83 Federal Register 34685, July 20, 2018.
|
| 85.
|
See Don Layton, "Temporarily Ending the GSE Net Worth Sweep: A Limited but Important Step Towards GSE Reform," Harvard University Joint Center for Housing Studies, October 2, 2019, https://www.jchs.harvard.edu/blog/temporarily-ending-the-gse-net-worth-sweep-a-limited-but-important-step-towards-gse-reform.
|
| 86.
|
For all the preferred stock purchase agreements, see FHFA, "Senior Preferred Stock Purchase Agreements," October 17, 2022, https://www.fhfa.gov/conservatorship/senior-preferred-stock-purchase-agreements.
|
87.
|
A tax revision (P.L. 115-97) would have resulted in anticipated reductions in the Enterprises' deferred tax asset values, discussed in their 2013 Form 10-K reports. See Fannie Mae, Form 10-K for the fiscal year ended December 31, 2013, pp. 3, 80, 143, https://www.fanniemae.com/sites/g/files/koqyhd191/files/migrated-files/resources/file/ir/pdf/quarterly-annual-results/2013/10k_2013.pdf; and Freddie Mac, Form 10-K for the fiscal year ended December 31, 2013, pp. 135, 138, 231, https://www.freddiemac.com/investors/financials/pdf/10k_022714.pdf.
| 88.
|
See Department of the Treasury, "Treasury Department and FHFA Modify Terms of Preferred Stock Purchase Agreements for Fannie Mae and Freddie Mac," press release, September 30, 2019, https://home.treasury.gov/news/press-releases/sm786.
|
| 89.
|
See FHFA, Conservatorship Strategic Plan, https://www.fhfa.gov/reports/conservatorship-strategic-plan.
|
| 90.
|
See FHFA et al., "Enterprise Regulatory Capital Framework," 85 Federal Register 82150, December 17, 2020.
|
| 91.
|
If, for example, a sudden plunge in house prices led to widespread underwater mortgages held by the Enterprises (in MBS trusts and in their portfolios), their capital buffers may be depleted and impair safe and sound operations. An underwater mortgage—in which the outstanding loan balance exceeds the home's market value—gives borrowers the financial incentive to default. See Neil Bhutta et al., The Depth of Negative Equity and Mortgage Default Decisions, Board of Governors of the Federal Reserve System, May 2010, http://www.federalreserve.gov/pubs/feds/2010/201035/201035pap.pdf.
|
| 92.
|
See FHFA, "FHFA and Treasury Allow Fannie Mae and Freddie Mac to Continue to Retain Earnings," press release, January 14, 2021, https://www.fhfa.gov/news/news-release/fhfa-and-treasury-allow-fannie-mae-and-freddie-mac-to-continue-to-retain-earnings.
|
| 93.
|
For an overview of the ERCF, see Freddie Mac, Enterprise Regulatory Capital Framework (ERCF) Public Disclosures for the Standardized Approach: For the Quarterly Period Ended June 30, 2024, https://www.freddiemac.com/investors/docs/2Q24_ercf_public_disclosure.pdf.
|
| 94.
|
See FHFA, "FHFA Announces Final Rule Amending the Enterprise Regulatory Capital Framework," press release, February 25, 2022, https://www.fhfa.gov/news/news-release/fhfa-announces-final-rule-amending-the-enterprise-regulatory-capital-framework; and FHFA, "Enterprise Regulatory Capital Framework—Prescribed Leverage Buffer Amount and Credit Risk Transfer," 87 Federal Register 14764, March 16, 2022.
|
| 95.
|
See Edward Golding et al., "Analysis of the Proposed 2020 FHFA Rule on Enterprise Capital," Urban Institute, August 2020, https://www.urban.org/sites/default/files/publication/102779/analysis-of-the-proposed-2020-rule-on-enterprise-capital_2.pdf.
|
| 96.
|
The initial 10% risk weight was meant to address counterparty risk, the risk that CRT investors fail to pay default losses or expiring CRT contracts are not renewed, thus pushing those risks back onto the Enterprises' balance sheets.
|
| 97.
|
P.L. 102-550, Title XIII; see 12 U.S.C. §§4561-4564.
|
| 98.
|
See FHFA, "Fannie Mae & Freddie Mac Affordable Housing Goals," June 10, 2026, https://www.fhfa.gov/programs/enterprise-affordable-housing-goals.
|
| 99.
|
For the various purchase and refinance category definitions, see FHFA, "Enterprise Housing Goals," June 1, 2026, https://www.fhfa.gov/data/enterprise-housing-goals.
|
| 100.
|
See FHFA, "Rescinded Advisory Bulletins," https://www.fhfa.gov/advisory-bulletin/rescinded.
|
| 101.
|
Section 5 of the Federal Trade Commission Act (15 U.S.C. §45).
|
| 102.
|
See Adam DeSanctis, "MBA Statement on FHFA Order Rescinding Regulated Entity UDAP Compliance," Mortgage Bankers Association, March 25, 2025, https://www.mba.org/news-and-research/newsroom/news/2025/03/25/mba-statement-on-fhfa-order-rescinding-regulated-entity-udap-compliance; and Christa L. Bieker, "Potential for Increased State Consumer Finance Enforcement," Mayer Brown, August 8, 2025, https://www.mayerbrown.com/en/insights/publications/2025/08/potential-for-increased-state-consumer-finance-enforcement.
|
| 103.
|
Kenneth Benton, "Overview of Special Purpose Credit Programs Under the Equal Credit Opportunity Act," Consumer Compliance Outlook (2022), https://www.consumercomplianceoutlook.org/2022/fourth-issue/overview-of-special-purpose-credit-programs/; and Tim Lambert, "Using Special Purpose Credit Programs to Serve Unmet Credit Needs," Consumer Financial Protection Bureau (CFPB), July 19, 2022, https://www.consumerfinance.gov/archive/blog/using-special-purpose-credit-programs-to-serve-unmet-credit-needs/. Under the Equal Credit Opportunity Act (P.L. 93-495, Title V), creditors may extend credit to meet the needs of specified classes of persons expressly authorized by federal or state law for the benefit of an economically disadvantaged class of persons and meet the standards prescribed in regulations by the CFPB. See CFPB, "§1002.8 Special Purpose Credit Programs," https://www.consumerfinance.gov/rules-policy/regulations/1002/8/.
|
| 104.
|
See FHFA et al., Interagency Statement on Special Purpose Credit Programs Under the Equal Credit Opportunity Act and Regulation B, February 22, 2022, https://files.consumerfinance.gov/f/documents/cfpb_spcp_interagency-statement_2022-02.pdf.
|
| 105.
|
FHFA, "Order Issuing Directive to Terminate Special Credit Purpose Programs," Decision No. 2025-145, https://infobytes.orrick.com/wp-content/uploads/Gm6TkHpW0AA8uaB.pdf. This directive does not appear on the FHFA website; for a discussion of the directive, see Matthew Emery, "FHFA's Recent Directive on Special Purpose Credit Programs," National Association of Realtors, March 28, 2025, https://www.nar.realtor/washington-report/fhfas-recent-directive-on-special-purpose-credit-programs.
|
| 106.
|
See CRS Report R48113, The Fair Housing Act (FHA): A Legal Overview, by David H. Carpenter.
|
| 107.
|
See FHFA, "Fair Lending, Fair Housing, and Equitable Housing Finance Plans," 90 Federal Register 35475, July 28, 2025.
|
| 108.
|
See FHFA, Significant Regulatory Action Determination, Major Rule Assessment and Regulatory Impact Analysis for 2026-2028 Enterprise Housing Goals Final Rule, January 13, 2026, pp. 9-10, https://www.fhfa.gov/sites/default/files/2026-01/2026-01-13_MB_2026-2028%20EHG%20Final%20Rule_RIA%20Tech%20Correct_Web.pdf.
|
| 109.
|
For the 2026-2028 final rule, see FHFA, "2026-2028 Enterprise Housing Goals," 90 Federal Register 59948, December 23, 2025. For the 2025-2027 final rule, see FHFA, "2025-2027 Enterprise Housing Goals," 89 Federal Register 106253, December 24, 2024.
|
| 110.
|
For more information on multifamily mortgage finance as well as the Enterprises' underwriting and risk-sharing models, see CRS Report R46480, Multifamily Housing Finance and Selected Policy Issues, by Darryl E. Getter.
|
| 111.
|
The Enterprises' statutory public purpose includes an "affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families in a manner consistent with their overall public purposes, while maintaining a strong financial condition and a reasonable economic return." See 12 U.S.C. §4501(7). Both Enterprise charters authorize them to perform "activities relating to mortgages on housing for low- and moderate-income families involving a reasonable economic return that may be less than the return earned on other activities." See 12 U.S.C. §§1451, 1716 note. For information about policies to address crowding out, see FHFA, "Fannie Mae and Freddie Mac Multifamily Businesses," https://www.fhfa.gov/policy/enterprise-multifamily-businesses.
|
| 112.
|
See FHFA, "FHFA Seeks Public Input on Reducing Fannie Mae and Freddie Mac Multifamily Businesses," press release, August 9, 2013, https://www.fhfa.gov/news/news-release/fhfa-seeks-public-input-on-reducing-fannie-mae-and-freddie-mac-multifamily-businesses.
|
| 113.
|
The 2013 volume that became the 2014 cap for Fannie Mae was $30 billion. The 2013 volume that became the 2014 cap for Freddie Mac was $26 billion. See Karan Kaul, "The GSEs' Shrinking Role in the Multifamily Market," Urban Institute, April 2015, https://www.urban.org/sites/default/files/publication/48986/2000174-The-GSEs-Shrinking-Role-in-the-Multifamily-Market.pdf.
|
| 114.
|
See FHFA, "2024 Multifamily Caps for Fannie Mae and Freddie Mac," https://www.fhfa.gov/news/fact-sheet/2024-multifamily-caps-for-fannie-mae-and-freddie-mac.
|
| 115.
|
See FHFA, "FHFA Revises Multifamily Loan Purchase Caps for Fannie Mae and Freddie Mac," press release, September 13, 2019, https://www.fhfa.gov/news/news-release/fhfa-revises-multifamily-loan-purchase-caps-for-fannie-mae-and-freddie-mac.
|
| 116.
|
For example, exemptions for multifamily loans used to finance energy and water improvements still count toward the cap. See Kathleen Howley, "FHFA Moves to Curb Fannie Mae, Freddie Mac Green Loans for Multifamily: Regulator Raises Lending Caps for GSEs but Ends the Energy-Efficiency Carve-Out," HousingWire, September 13, 2019, https://www.housingwire.com/articles/50147-fhfa-moves-to-curb-fannie-mae-freddie-mac-green-loans-for-multifamily/.
|
| 117.
|
FHFA, "FHFA Revises Multifamily Loan Purchase Caps for Fannie Mae and Freddie Mac—Appendix A: Multifamily Definitions," September 9, 2019, https://www.fhfa.gov/Conservatorship/Documents/AppendixA-Revisions-to-2019-FHFA-Conservatorship-Scorecard.pdf.
|
| 118.
|
See CRS Report RS22389, An Introduction to the Low-Income Housing Tax Credit, by Mark P. Keightley; and CRS Report RL34591, Overview of Federal Housing Assistance Programs and Policy, by Maggie McCarty, Libby Perl, and Katie Jones.
|
| 119.
|
FHFA, "FHFA Finalizes 2023-2024 Multifamily Housing Goals for Fannie Mae and Freddie Mac," press release, December 14, 2022, https://www.fhfa.gov/news/news-release/fhfa-finalizes-2023-2024-multifamily-housing-goals-for-fannie-mae-and-freddie-mac; and CRS Report R46480, Multifamily Housing Finance and Selected Policy Issues, by Darryl E. Getter.
|
| 120.
|
For the 2026-2028 final rule, see FHFA, "2026-2028 Enterprise Housing Goals," 90 Federal Register 59948, December 23, 2025.
|
| 121.
|
See FHFA, "2025 U.S. Federal Housing Announces 2026 Multifamily Loan Purchase Caps for Fannie Mae and Freddie Mac," November 24, 2025, https://www.fhfa.gov/news/news-release/u.s.-federal-housing-announces-2026-multifamily-loan-purchase-caps-for-fannie-mae-and-freddie-mac.
|
| 122.
|
By contrast, a manufactured home built before June 15, 1976, that does not meet HUD standards is referred to as a mobile home. Few lenders are willing to provide loans to finance mobile homes. In contrast to mobile and manufactured homes, a modular home is constructed to the same state, local, or regional building codes as site-built homes. See HUD, "On-Site Completion of Construction of Manufactured Homes: Frequently Asked Questions," https://www.hud.gov/sites/documents/onsite07062016.pdf. Moving a manufactured home from one permanent site to another may interfere with its loan financing. Thus, modular homes may be considered better investments. See American Financing, "What Is a Chattel Mortgage?," https://www.americanfinancing.net/mortgage-basics/chattel-mortgage.
|
| 123.
|
See Fannie Mae, "Key Legal Distinctions Between Manufactured Home Chattel Lending and Real Property Lending," June 29, 2018, https://www.fanniemae.com/media/28481/display.
|
| 124.
|
See FHFA, "Fannie Mae and Freddie Mac Support for Chattel Financing of Manufactured Homes Request for Input," January 2017, https://www.manufacturedhomepronews.com/wp-content/uploads/2023/09/FederalHousingFinanceAgencyFHFA-DutyToServeManufacturedHousingChattel-Pilot-RFI-January2017-ManufacturedHomeProNewsMHProNews.pdf.
|
| 125.
|
See CFPB, "Manufactured-Housing Consumer Finance in the United States," September 2014, https://files.consumerfinance.gov/f/201409_cfpb_report_manufactured-housing.pdf.
|
| 126.
|
See Fannie Mae, Form 10-K for the fiscal year ended December 31, 2019, p. 31, https://www.fanniemae.com/sites/g/files/koqyhd191/files/migrated-files/resources/file/ir/pdf/quarterly-annual-results/2019/q42019.pdf; and Freddie Mac Form 10-K for the fiscal year ended December 31, 2019, p. 152, https://www.freddiemac.com/investors/financials/pdf/10k_021320.pdf.
|
127.
|
See Justia, "Manufactured Homes Foreclosures & Relevant Legal Concerns," October 2025, https://www.justia.com/foreclosure/foreclosures-of-manufactured-homes/.
| 128.
|
See Fannie Mae, "Key Legal Distinctions."
|
| 129.
|
According to the CFPB, a chattel loan may be priced between 50 and 500 basis points higher than a mortgage loan for a manufactured home secured by real property. See CFPB, "Manufactured-Housing Consumer Finance."
|
| 130.
|
See CFPB, "CFPB Consumer Laws and Regulations: Regulation X: Real Estate Settlement Procedures Act," https://files.consumerfinance.gov/f/201503_cfpb_regulation-x-real-estate-settlement-procedures-act.pdf.
|
| 131.
|
Large-scale operations such as the Enterprises may not have the volume of similar chattel loans necessary to offer pools for securitizations. See Fannie Mae, "2025-2027 Duty to Serve Underserved Markets Plan," https://www.fhfa.gov/document/d/dtsp/fm_dutytoserveplan_2025-2027_modified_09.30.2025.pdf.
|
132.
|
See Fannie Mae, "Duty to Serve – Affordable Opportunities in Underserved Markets," https://www.fanniemae.com/media/45201/display; and Freddie Mac, https://www.fanniemae.com/media/45201/display; and Freddie Mac,
“"Duty to Serve,Duty to Serve,
” " https://sf.freddiemac.com/working-with-us/affordable-lending/duty-to-serve/overviewhttps://sf.freddiemac.com/working-with-us/affordable-lending/duty-to-serve/overview
. 119 See FHFA, “.
133.
|
See FHFA, "Enterprise Duty to Serve Underserved Markets,Enterprise Duty to Serve Underserved Markets,
”" 81 81
Federal Register 96242 96242
-96301, December 29, , December 29,
2016.2016.
120
134.
|
See CRS Report R46499, See CRS Report R46499,
The Federal Home Loan Bank (FHLB) System and Selected Policy Issues, by Darryl E. , by Darryl E.
Getter.Getter.
121
135.
|
The FHLBs may require a manufactured home to be converted from personal property to real property before any The FHLBs may require a manufactured home to be converted from personal property to real property before any
loan to secure the property can be used as collateral for a loan to its member lending institutions. For example, see loan to secure the property can be used as collateral for a loan to its member lending institutions. For example, see
FHLBank Atlanta, FHLBank Atlanta,
Loan Collateral Resource Guide, http://corp.fhlbatl.com/files/documents/loan-collateral-resource-, http://corp.fhlbatl.com/files/documents/loan-collateral-resource-
guide.pdfguide.pdf
.
122 See FHFA, “.
136.
|
See FHFA, "Federal Home Loan Bank Housing Goals Amendments Final Rule,Federal Home Loan Bank Housing Goals Amendments Final Rule,
”" June 25, 2020, June 25, 2020,
https://www.fhfa.gov/https://www.fhfa.gov/
SupervisionRegulation/Rules/Pages/Federal-Home-Loan-Bank-Housing-Goals-Amendments-Final-Rule.aspxregulation/federal-register/final-rule/federal-home-loan-bank-housing-goals-amendments-final-rule. The Mortgage Purchase Program and the Mortgage Partnership Finance Program are two types of . The Mortgage Purchase Program and the Mortgage Partnership Finance Program are two types of
Acquired Member Assets programs. For more information, see FHFA, Acquired Member Assets programs. For more information, see FHFA,
“Fact Sheet: "Final Rule on Federal Home Loan Final Rule on Federal Home Loan
Bank Housing Goals,” https://www.fhfa.gov/Media/PublicAffairs/PublicAffairsDocuments/FHLBank-Housing-Goals-Fact-Sheet-Final-rule.pdf.
Congressional Research Service
21
Fannie Mae and Freddie Mac: Recent Administrative Developments
Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role. CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However, as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the permission of the copyright holder if you wish to copy or otherwise use copyrighted material.
Congressional Research Service
R46746 · VERSION 3 · UPDATED
22 Bank Housing Goals," fact sheet, June 3, 2020, https://www.fhfa.gov/news/fact-sheet/final-rule-on-federal-home-loan-bank-housing-goals.
| 137.
|
See letter from Phillip L. Swagel, director, Congressional Budget Office, to Rep. Patrick McHenry, Chairman, U.S. Congress, House Committee on Financial Services, December 13, 2024, https://www.cbo.gov/system/files/2024-12/60810-GSEs.pdf.
|
| 138.
|
See Fannie Mae, Fannie Mae Earn $4.0 Billion in Second Quarter 2026, July 29, 2026, p. 1, https://www.fanniemae.com/media/57286/display; and Freddie Mac, "Freddie Mac Reports Net Income of $2.8 Billion for Second Quarter 2026," p. 10, https://www.freddiemac.com/investors/financials/pdf/2026er-2q26_release.pdf.
|
| 139.
|
See FHFA, "FHFA Directs Delisting of Fannie Mae and Freddie Mac Stock from the New York Stock Exchange," press release, June 16, 2010, https://www.fhfa.gov/news/news-release/fhfa-directs-delisting-of-fannie-mae-and-freddie-mac-stock-from-new-york-stock-exchange.
|
| 140.
|
This section list conditions cited by Freddie Mac and Fannie Mae. See Freddie Mac, Form 10-K for the fiscal year ended December 31, 2024, p. 4, 95-96, https://www.freddiemac.com/investors/financials/pdf/10k_021325.pdf; and Fannie Mae, Form 10-K for the fiscal year ended December 31, 2024, p. 12, https://www.fanniemae.com/media/54826/display.
|
| 141.
|
For the perspective of a former Freddie Mac CEO regarding the authority to administratively end the Enterprises' conservatorships, see Don Layton, "To Senator Toomey: The Process of Exiting GSE Conservatorship Is Not So Simple," Joint Center For Housing Studies, January 18, 2022, https://www.jchs.harvard.edu/blog/senator-toomey-process-exiting-gse-conservatorship-not-so-simple.
|
| 142.
|
See Federal Reserve Bank of New York, "Permanent Open Market Operations," https://www.newyorkfed.org/markets/pomo_landing.html.
|
| 143.
|
See Simon Potter, "The Federal Reserve's Experience Purchasing and Reinvesting Agency MBS," Federal Reserve Bank of New York, speech, March 7, 2019, https://www.newyorkfed.org/newsevents/speeches/2019/pot190307.
|
| 144.
|
See Federal Reserve Bank of New York, "FAQs: Agency MBS CUSIP Aggregation," https://www.newyorkfed.org/markets/agency_mbs_cusip_aggregation_faqs.
|
| 145.
|
See FHFA, Credit Risk Transfer Progress Report, Fourth Quarter, 2023, https://www.fhfa.gov/document/d/crtp/credit-risk-transfer-progress-report-4q2023.
|
| 146.
|
Concentration risk arises when a financial entity faces exposure to a single or predominant source of credit risk liability. For example, a lender's overall financial well-being may become intrinsically linked to the performance of a highly correlated group of borrowers when retaining a disproportionately large amount of the credit risk. See J. Anthony Curcio, Should Federal Lending Programs Mitigate Concentration Risk?, Summit Consulting, January 2017, https://cdn2.hubspot.net/hubfs/355318/Concentration%20Risk%20White%20Paper%20PDF%20Curcio.pdf.
|
| 147.
|
Multifamily mortgages are underwritten based on the current and anticipated cash flows—predominantly in the form of rental income—generated by the properties. If the tenants in multifamily properties are cost-burdened, meaning that their monthly housing (rent) costs exceed 30% of their income, then the rental income streams necessary to repay loans may exhibit greater volatility, thus increasing the Enterprises' cash-flow volatilities and loss risks. For more information, see CRS Report R46480, Multifamily Housing Finance and Selected Policy Issues, by Darryl E. Getter.
|
| 148.
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Economic theory suggests that an anticipated reduction in market transactions linked to tax incidence tends to be smaller relative to an anticipated reduction linked to a cap on the quantity supplied. See Hal R. Varian and Marc J. Melitz, Intermediate Microeconomics, 10th ed. (Norton, 2024).
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