The overriding objective is tornensure that there is broad liquidity in the market, provided in a way that isrnsafe and sound. While MAINTAIN is not a new goal, Watt said it has been movedrnto the forefront of the plan and the Scorecard weight given to it has beenrndoubled from 20 to 40 percent.   rn</p

Hernsaid he knows that representation and warranty standards and the risk ofrnrepurchase remain a top concern for the mortgage industry and that lenders feelrnthere the uncertainty in this area means they cannot ease their credit overlays.  This undermines the goal of improving creditrnaccess for creditworthy borrowers.  Therernhave been extensive discussions with the GSEs and with lenders which have ledrnto refinements to address these concerns. rnFirst the GSEs are going to relax the payment history requirement byrnallowing two delinquent payments in the first 36 months after a loan isrnacquired.  Lenders will also get loanrnlevel confirmations when mortgages meet this performance benchmark and whenrnthey pass a quality control review.  The GSEs will also eliminaternautomatic repurchases when a loan’s primary mortgage insurance is rescinded. </p

FHFA is also working toward clarityrnabout life loan exemptions and how they apply to loans that have passed qualityrncontrol reviews or have met the 36 month benchmark.  The agency is also planning to explore thernfollowing over the next year</p<ul class="unIndentedList"<liEstablishing an independent disputernresolution program when lenders believe a repurchase is unwarranted; </li<liDeveloping cure mechanisms for loanrndefects rather than relying solely on repurchases; and</li<liProviding additional clarity onrnFannie Mae and Freddie Mac underwriting rules. </li</ul

Watt said that loan limits and debt-to-incomern(DTI) ratios are two factors that relate to the overall scope of mortgagesrnguaranteed by the GSEs.  In addition tornits loan limit decision, FHFA will continue to permit lenders to userncompensating factors in underwriting loans where DTIs exceed 43 percent. </p

Another part of the MAINTAIN goalrninvolves continued refinement and improvement of servicing and foreclosure preventionrnstandards where experiences in recent years have revealed seriousrnweaknesses.  Improvements have been made,rnWatt said, but there is room for more and part of the FHFA focus is to work tornstabilize communities hardest hit by foreclosures.  To this end FHFA, working with the GSEs andrnthe National Community Stabilization Trust, is launching a NeighborhoodrnStabilization Initiative with a pilot program in Detroit, Michigan.  ThernPilot will pursue pre-foreclosure and post-foreclosure strategies that includerndeeper loan modifications and partnering with nonprofits earlier in the REOrnsales process.</p

FHFA has decided not to furtherrnchange the eligibility requirements for the Home Affordable Refinance Programrn(HARP) because it would not greatly impact the number of borrowers that couldrnbe served.  Instead, FHFA will work tornretarget outreach efforts to the approximately 750,000 borrowers who alreadyrnquality and would financially benefit from refinancing.</p

FHFA’s MAINTAIN goal also extends tornFannie Mae and Freddie Mac’s multifamily loan purchases, Watt said, especially inrnlight of the growing number of rental households and that housing affordabilityrncontinues to be a significant concern for many households.  While market competition is expected to resultrnin lower multifamily lending for the GSEs, the Strategic Plan does not require thatrnthey prematurely shrink that footprint. It also provides additional capacityrnfor affordable projects and that focus will include lending for smaller propertiesrnand for manufactured housing rental communities.  </p

The secondrnStrategic Goal is to REDUCE taxpayer risk by increasing the role of privaterncapital in the mortgage market.  ThernDirector said this goal has been reformulated so itrnno longer involves specific steps to contract the GSEs’ market presence, whichrncould adversely impact liquidity but rather focuses on ways to scale back thernGSEs’ overall risk exposure.  Meeting this goal includes having Fannie Maernand Freddie Mac conduct additional credit risk transfers for theirrnsingle-family credit guarantee business and opening up private capital to sharernin credit losses, protecting taxpayers from bearing all of the potentialrnlosses. </p

The 2014 Scorecard requires each GSErnto triple the amount of risk it transfers in 2014 from $30 billion of unpaidrnprincipal balance transfers last year to approximately $90 billion inrn2014.  Each GSE is also expected to try new risk transfer structures tornassess sustainability in different market conditions.  </p

The GSEs will also be required torncontinue to reduce their retained portfolios as mandated by their SeniorrnPreferred Stock Purchase Agreements with the Treasury Department.  The GSE’s must reduce those portfolios to nornmore than $250 billion each by 2018 and FHFA is requiring them to develop plansrnto meet this target even under adverse market conditions.  They must also prioritizernselling their less liquid assets to reduce risk and take advantage of currentrninvestor interest.  </p

FHFA is also requiring the companiesrnto continue risk sharing with the private sector on multifamily purchases.  Freddie Mac does this through a capitalrnmarkets structure and Fannie Mae does through a risk sharing model.  </p

Finally, another risk-reductionrnpriority in 2014 involves private mortgage insurance counterparties.  The crisis revealed severe weaknesses in thisrnsystem and FHFA’s objective is to ensure that private mortgage insurerrncounterparties to the GSEs are able to provide adequate credit loss protectionrnin times of market stress. </p

The third goal, BUILD, relates to a<bnew single family securitization infrastructure for use by the GSEs and whichrncan be adapted for use by other secondary market participants.  The core of this efforts is the CommonrnSecuritization Platform. FHFA’s top objective with this platform, Watt said,rnwas to make sure that it works for the GSEs. rnFHFA has identified the risks in transitioning to the platform andrnreviewed how to manage them.  “We foundrnthat, because of the many variables involved,” Watt said, “the main danger tornthe CSP effort would be pursuing too many objectives all at the same time.”  Any stumbles could ripple through the $10rntrillion housing finance market so there is a lot at stake, thus the decisionrnhas been to “de-risk” the project.</p

All parties are working toward a seamlessrntransition from the current in-house systems at each GSE to a future jointrnventure owned by them that operates one system with updated technology.  Thisrnscope does not mean that the CSP efforts will be at odds with a future systemrnor that building it will take place in a vacuum.  “To the contrary, we are requiring that thernCSP leverage the systems, software and standards used in the private sectorrnwherever possible.  This will ensure that the CSP will be adaptable forrnuse by other secondary market actors – including private label securitiesrnissuers – when the future state is more defined.”  The second CSP objective is a single commonrnsecurity, which Watt says he believes will improve liquidity in the markets andrnwould reduce costs, particularly to Freddie Mac whose securities havernhistorically traded at a disadvantage compared to Fannie Mae’s.  </p

Watt said his agency’s intent is tornproceed with implementing the objectives of the Strategic Plan in a transparentrnway and with input from the public and stakeholders whenever possible.  One example is the upcoming Request for Inputrnon the guarantee fees charged by the GSEs.  rnWatt said he had issued a directive that the GSEs delay the guaranteernfee increase announced last December and the Request for Input will pose arnnumber of questions the agency is considering and solicit and encouragernfeedback. </p

Watt said in his few months at FHFArnhe had been struck with the dedication and expertise of the FHFA staff and therntenacity and dedication of the employees of the GSEs.  He said there had been a constant urgencyrnpresent at all three places since the financial crisis and everyone hadrncontinued to excel at every step along the way.</p

He also singled out the work of hisrnpredecessor Edward J. DeMarco who served as acting director of FHFA since itrnwas created in 2009 until Watt was confirmed. rn”In the face of the greatest economic collapse since the GreatrnDepression, FHFA helped prevent an extremely bad situation from getting muchrnworse.  It’s hard to imagine things being worse given the depth of thernhousing market collapse, but I very much believe that FHFA and Ed DeMarco’srnleadership prevented an even deeper financial collapse by stabilizing FanniernMae and Freddie Mac. </p

Throughout his time at FHFA, Ed wasrninstrumental in establishing the foundation for all that we will do goingrnforward. So, while you may notice from my comments today certain changes inrnfocus, you should know that I firmly believe we will be building on a veryrnsolid foundation,” Watt said.

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