Morning Report: FHFA suspends the restrictions on Fannie and Fred

Vital Statistics:

 LastChange
S&P futures4,4373.2
Oil (WTI)71.671.15
10 year government bond yield 1.29%
30 year fixed rate mortgage 3.07%

Stocks are flat this morning on no real news. Bonds and MBS are flat.

The FHFA suspended the limitations on Fan and Fred instituted by the Trump Administration in the waning days of his presidency. These are the limits on cash window sales, limits on high-risk loans and the cap on investment properties and second homes.

Treasury will study the limits and decide over the next year whether to reinstate them or not. In the meantime, this doesn’t necessarily change anything until we hear from Fannie and Fred since they were the ones who actually instituted the limits. It is probably just a formality, however nothing has officially changed yet.

The MBA welcomed the changes:

“The suspensions will eliminate several market and pricing disruptions caused by these caps that were harming lenders and borrowers alike and pave the way to restore appropriate regulatory authority to the FHFA,” Broeksmit said. “MBA looks forward to working with Treasury, FHFA and all other stakeholders on these and other ways to protect consumers and strengthen the mortgage market.”

“These problematic limits had been a focus of intense MBA advocacy since their adoption in January, and their suspension is directly responsive to recommendations made by MBA,” said Pete Mills, MBA Senior Vice President of Residential Policy and Member Engagement. “The limits on loans secured by second homes and investment properties have been particularly problematic due to the frictions they have caused in the market. The suspension of these limits should enable the GSEs to better support several important segments of the housing market.”

I found the comment by Pete Mills interesting, since the limits singlehandedly reinstated the private label MBS market, which is something that hasn’t really existed since the bubble days. The private label market is important because it takes the taxpayer off the hook for guaranteeing loans – something that has historically been a bipartisan goal. It will also increase liquidity overall in the mortgage market, which is something we should all be able to get behind as well.

Author: Brent Nyitray

In the physical sciences, knowledge is cumulative. In the financial markets, it is cyclical

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