CHLA & CMLA Speak Out
Chrisman Newsletter 9-17-16
Even though there’s a lot of talk about Fannie and Freddie, even if a plan was formulated, it would take years to carry it out. And remember that the two agencies can’t save any money: they must pay the Treasury dividends which are basically their profits. And thus we sit with an occasional proposal sent up like a rescue flare. Last month Karen Kapen sent this note after the agencies report their profits for the 2nd quarter. “…The Community Home Lenders Association (CHLA) renewed its call for the Federal Housing Finance Agency (FHFA) to suspend dividends of Freddie Mac and Fannie Mae, in order to allow them to build up a capital buffer and avoid a future Treasury advance. CHLA believes that such actions are needed to preserve mortgage access to credit and GSE investor confidence. (A modest capital buffer) is needed to avoid a potential future Treasury advance under the Sweep Agreement, along with its harmful consequences for mortgage access to credit and GSE investor confidence.
“Twice in the last four quarters Freddie Mac has incurred a small quarterly net loss – because of hedging mark to market accounting. And twice in the last four months, CHLA has joined in letters to FHFA Director Watt, urging FHFA to use its legal authority to suspend payments otherwise due under the so-called Sweep Agreement (the PSPA) – in order to allow the GSEs to build up a capital buffer. Under the one-way Sweep Agreement, net profits are swept quarterly, but net losses deplete the GSEs’ net worth. This is exacerbated by provisions in the Sweep Agreement that will artificially reduce Fannie Mae and Freddie Mac’s net worth each down to $600 million at the end of this year and zero at the end of the following year. These contrived terms dramatically increase the risk of a Treasury advance, with negative consequences for consumers and lenders.
“‘The recent earnings report shows how contrived the Sweep Agreement is. A loss next quarter just slightly higher than this quarter’s gain would result in a Treasury advance – even though they balance each other out. The simple answer is that the GSEs should be able to keep these modest profits in good quarters to balance potential small losses in future quarters,’ the CHLA commented.”
More recently Scott Olson with the CHLA sent this along regarding the CFPB and its Advisory Board. “The Community Home Lenders Association (CHLA) sent a letter to CFPB Director Cordray, jointly with the Community Mortgage Lenders of America (CMLA), asking for the naming of community mortgage bankers to the Advisory Boards and Councils that CFPB added members to last week.
“CHLA is the only national association exclusively representing non-bank mortgage lenders, and therefore its members are the very types of lenders that are not included on CFPB’s Advisory Boards.
“‘We are writing to register our concern over the failure to name any representatives from mortgage banking companies to any of the CFPB’s existing Advisory Boards or Councils enumerated in your August 19th announcement,’ the joint CHLA/CMLA letter said.
“The letter went on to say that ‘We therefore request the formation of a Community Mortgage Banking Advisory Council, which should include strong representation from community mortgage bankers. We also request the addition of at least one community mortgage banking representative on the Consumer Advisory Board.’
“The letter noted that non-bank mortgage bankers account for more than 50% of new mortgage loans, and contrasted that with failure to include any non-bank mortgage lenders on any of the four Advisory Boards and Councils created by the CFPB. Noting that the CFPB press release emphasized that CPPB is ‘taking into account the wide variety of perspectives and views’ the letter argued that inclusion of mortgage bankers on these Advisory Boards is necessary to achieve that objective.
“The need for representation was highlighted in the letter by pointing out that: ‘Over the last several years, as a number of Dodd-Frank rules have been implemented by CFPB, mortgage bankers have expressed concerns both about the guidance and clarity of these rules and the challenges of being fully compliant. Thus, we believe it is especially critical for the CFPB to create a forum for community mortgage bankers to communicate on these issues.’”