Fannie Mae and Freddie Mac Loan Purchase Limits: Request for Public Input on Implementation Issues

SUMMARY: The Federal Housing Finance Agency (FHFA) is requesting public input on implementation issues associated with a contemplated reduction in loan purchase limits by the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (together, the Enterprises). Each Enterprise must set its loan purchase limits at or below the maximum limits, which are determined by statutory formulas. The maximum limits for 2014 were published by FHFA on November 26, 2013. A decrease in the Enterprises’ loan limits below the statutory maximums is one means of reducing the Enterprises’ financial market footprint pursuant to FHFA’s Strategic Plan for Enterprise Conservatorships. Other means of reducing the Enterprises’ footprint relate to their single-family mortgage guarantee business and include increasing guarantee fees and engaging in risk-sharing transactions.

The basic premise of these measures is as follows: with an uncertain future and a desire for private capital to re-enter the market, the Enterprises’ market presence should be reduced gradually over time. In addition, at the end of 2012, the amount of taxpayer capital available to support the Enterprises’ outstanding debt and mortgage-backed securities obligations became fixed. Limiting their risk exposure is vital to maintaining the adequacy of the remaining capital support through the financial support agreements between the Enterprises and the U.S. Department of the Treasury. Finally, a taxpayer-backed conservatorship provides a significant subsidy to the mortgage market that limits private capital participation and underprices risk in the market.

The contemplated action described below is a plan and not a final decision. The requested public input will be carefully reviewed before FHFA decides whether and how to proceed with the planned reductions in Freddie Mac’s and Fannie Mae’s loan purchase limits. In short, no final decision on loan purchase limits will be made until all input is reviewed. The changes contemplated in this Request for Public Input will not affect loans originated before October 1, 2014.

The remainder of this Request for Public Input sets forth: FHFA’s legal authority for directing the Enterprises to set loan purchase limits below the maximum loan limits; the planned approach to reduce the Enterprises’ loan limits; and a request for public input regarding implementation of the plan. An appendix to this Request for Public Input includes analysis describing the potential impact of the plan.