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Market Watch

FHFA unveils 2024 Scorecard for Fannie Mae, Freddie Mac

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Market Watch
Friday, February 16, 2024

The Federal Housing Finance Agency (FHFA) recently released its 2024 Scorecard, outlining strategic objectives for Fannie Mae, Freddie Mac and their joint venture, Common Securitization Solutions, LLC (CSS).

FHFA Director Sandra Thompson emphasized the critical role of the annual Scorecard in guiding government-sponsored enterprises (GSEs).

“The annual Scorecard requires that the Enterprises fulfill their mission in a safe and sound manner,” Thompson said in a statement. “The 2024 Scorecard focuses the Enterprises on effective risk management to ensure safety and soundness while meaningfully advancing equitable and sustainable access to homeownership and rental housing.”

Among the objectives detailed in the scorecard are those aimed at addressing multifamily rental housing needs, exploring risk mitigation strategies in the evolving single-family property insurance market and promoting efficiency in the mortgage market.

The scorecard indicates that better mortgage market efficiency can be achieved by:

  • Continuing to modernize single-family property valuation processes and practices, including traditional appraisals and valuation alternatives.
  • Leveraging data, technology and other innovations designed to promote efficiency and cost savings in mortgage processes.
  • Planning for the implementation of the approved credit score models, informed by stakeholder outreach.

 

The scorecard underscores the importance of transferring credit risk to private investors to ensure the safety and soundness of the GSEs. Additionally, the FHFA said it is seeking opportunities to harmonize processes supporting the FHFA’s Single-Family Selling Representations and Warranties Framework, including defect identification, remedies and repurchase alternatives.

To ensure financial stability, the FHFA advises the GSEs to uphold robust risk management systems during the capital rebuilding process, which involves taking strategic actions to mitigate risk exposure and reinforcing counterparty risk controls within the enterprise. It also notes it is crucial to ensure the GSEs have adequate liquidity, as mandated by the FHFA, to respond to operational events without disrupting the primary or secondary mortgage markets.

The scorecard directs the GSEs to also consider the geographical impact of their objectives, extending the focus to all areas, including rural regions. It also includes the assessment criteria for the CSS, which will be tasked with ensuring many of the objectives outlined in the scorecard are being met.

In response to the scorecard, Independent Community Bankers of America (ICBA) Executive Vice President Ron Haynie called for an end to the GSEs’ 15-year conservatorship, mandated by the 2007 Housing and Economic Recovery Act.

“First, ending the conservatorship will ensure Fannie and Freddie focus on their founding purpose of expanding the secondary mortgage market,” Haynie wrote in a blog post. “The GSEs currently serve as cash machines subject to political influence, sending revenue to the Treasury to pay for things unrelated to housing — such as the 2021 infrastructure bill. And because the FHFA director effectively runs both companies and answers to the president, the GSEs serve as a de facto arm of the administration to further its policy agenda.

“As conservator and regulator, the FHFA can also dictate credit, pricing, and operational policy, in addition to its customary safety and soundness responsibilities. The agency can direct the GSEs to create programs and initiatives that further a political agenda regardless of long-term viability or costs — an agenda that is subject to dramatic shifts as administrations change. This type of control can have unintended consequences, destabilize the mortgage market, and put taxpayers at risk.”

 

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