Fannie Mae 2010 Annual Report Download - page 43

margin requirements would apply to our swap transactions, including transactions that are not subject to
clearing. Even if we are not deemed to be a major swap participant, the Dodd-Frank Act includes provisions
that may require us to submit new swap transactions for clearing to a derivatives clearing organization.
The Dodd-Frank Act requires creditors to determine that borrowers have a “reasonable ability to repay”
mortgage loans prior to making such loans. The act provides a presumption of compliance for mortgage loans
that meet certain terms and characteristics (so-called “qualified mortgages”); however, the presumption is
rebuttable by a borrower bringing a claim. If a creditor fails to comply, a borrower may be able to offset
amounts owed as part of a foreclosure or recoup monetary damages. The new Bureau of Consumer Financial
Protection, created by the Dodd-Frank Act, is responsible for prescribing the criteria that define a qualified
mortgage.
The Dodd-Frank Act requires financial regulators to jointly prescribe regulations requiring securitizers and/or
originators to maintain a portion of the credit risk in assets transferred, sold or conveyed through the issuance
of asset-backed securities, with certain exceptions. This risk retention requirement does not appear to apply to
us and, in any event, we already retain the credit risk on mortgages we own or guarantee. How this
requirement will affect our customers and counterparties on loans sold to and guaranteed by us will depend on
how the regulations are implemented.
In accordance with the Dodd-Frank Act’s requirements, the SEC recently adopted a rule requiring securitizers
to disclose certain information regarding fulfilled and unfulfilled repurchase requests, to allow investors to
identify asset originators with clear underwriting deficiencies. As adopted, the rule will require us to file
quarterly reports on our repurchase activity, with our initial report to cover a three-year period and be filed in
February 2012. We anticipate that providing the required disclosure will involve a significant operational
burden.
GSE Reform
The Dodd-Frank Act does not contain substantive GSE reform provisions, but does state that it is the sense of
Congress that efforts to regulate the terms and practices related to residential mortgage credit would be
incomplete without enactment of meaningful structural reforms of Fannie Mae and Freddie Mac. The Dodd-
Frank Act also required the Treasury Secretary to submit a report to Congress with recommendations for
ending the conservatorships of Fannie Mae and Freddie Mac.
On February 11, 2011, Treasury and HUD released their report to Congress on reforming America’s housing
finance market. The report provides that the Administration will work with FHFA to determine the best way to
responsibly reduce Fannie Mae’s and Freddie Mac’s role in the market and ultimately wind down both
institutions.
The report identifies a number of policy steps that could be used to wind down Freddie Mac and Fannie Mae,
reduce the government’s role in housing finance and help bring private capital back to the mortgage market.
These steps include (1) increasing guaranty fees, (2) gradually increasing the level of required down payment
so that any mortgages insured by Freddie Mac or Fannie Mae eventually have at least a 10% down payment,
(3) reducing conforming loan limits to those established in the 2008 Reform Act, (4) encouraging Freddie Mac
and Fannie Mae to pursue additional credit loss protection and (5) reducing Freddie Mac and Fannie Mae’s
portfolios, consistent with Treasury’s senior preferred stock purchase agreements with the companies.
In addition, the report outlines three potential options for a new long-term structure for the housing finance
system following the wind-down of Fannie Mae and Freddie Mac. The first option would privatize housing
finance almost entirely. The second option would add a government guaranty mechanism that could scale up
during times of crisis. The third option would involve the government offering catastrophic reinsurance behind
private mortgage guarantors. Each of these options assumes the continued presence of programs operated by
FHA, the Department of Agriculture and the VA to assist targeted groups of borrowers. The report does not
state whether or how the existing infrastructure or human capital of Fannie Mae may be used in the
establishment of such a reformed system. The report emphasizes the importance of proceeding with a careful
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