Freddie Mac 2011 Annual Report Download - page 44

the Administration regarding the resolution of the conservatorships and the degree of government involvement in
supporting the secondary mortgage market in the future.
FHFA’s plan provides lawmakers and the public with an outline of how FHFA as Conservator intends to guide
Freddie Mac and Fannie Mae over the next few years, and identifies three strategic goals:
•Build. Build a new infrastructure for the secondary mortgage market;
•Contract. Gradually contract Freddie Mac and Fannie Mae’s dominant presence in the marketplace while
simplifying and shrinking their operations; and
•Maintain. Maintain foreclosure prevention activities and credit availability for new and refinanced mortgages.
The first of these goals establishes the steps FHFA, Freddie Mac, and Fannie Mae will take to create the necessary
infrastructure, including a securitization platform and national standards for mortgage securitization, that Congress and
market participants may use to develop the secondary mortgage market of the future. As part of this process, FHFA would
determine how Freddie Mac and Fannie Mae can work together to build a single securitization platform that would
replace their current separate proprietary systems.
The second goal describes steps that FHFA plans to take to gradually shift mortgage credit risk from Freddie Mac
and Fannie Mae to private investors and eliminate the direct funding of mortgages by the enterprises. The plan states that
the goal of gradually shifting mortgage credit risk from Freddie Mac and Fannie Mae to private investors could be
accomplished, in the case of single-family credit guarantees, in several ways, including increasing guarantee fees,
establishing loss-sharing arrangements and expanding reliance on mortgage insurance. To evaluate how to accomplish the
goal of contracting enterprise operations in the multifamily business, the plan states that Freddie Mac and Fannie Mae will
each undertake a market analysis of the viability of its respective multifamily operations without government guarantees.
For the third goal, the plan states that programs and strategies to ensure ongoing mortgage credit availability, assist
troubled homeowners, and minimize taxpayer losses while restoring stability to housing markets continue to require
energy, focus, and resources. The plan states that activities that must be continued and enhanced include: (a) successful
implementation of HARP, including the significant program changes announced in October 2011; (b) continued
implementation of the Servicing Alignment Initiative; (c) renewed focus on short sales, deeds-in-lieu, and deeds-for-lease
options that enable households and Freddie Mac and Fannie Mae to avoid foreclosure; and (d) further development and
implementation of the REO disposition initiative announced by FHFA in 2011.
Legislated Increase to Guarantee Fees
On December 23, 2011, President Obama signed into law the Temporary Payroll Tax Cut Continuation Act of 2011.
Among its provisions, this new law directs FHFA to require Freddie Mac and Fannie Mae to increase guarantee fees by
no less than 10 basis points above the average guarantee fees charged in 2011 on single-family mortgage-backed
securities. Under the law, the proceeds from this increase will be remitted to Treasury to fund the payroll tax cut, rather
than retained by the companies.
FHFA has announced that, effective April 1, 2012, the guarantee fee on all single-family residential mortgages sold
to Freddie Mac and Fannie Mae will increase by 10 basis points. In early 2012, FHFA will further analyze whether
additional guarantee fee increases are necessary to ensure the new requirements are being met. If so, FHFA will announce
plans for further guarantee fee increases or other fee adjustments that may then be implemented gradually over a two-year
implementation window, taking into consideration risk levels and conditions in financial markets. FHFA will monitor
closely the increased guarantee fees imposed as a result of the new law throughout its effective period.
Our business and financial condition will not benefit from the increases in guarantee fees under this law, as we must
remit the proceeds from such increases to Treasury. It is currently unclear what effect this increase or any further
guarantee fee increases or other fee adjustments associated with this law will have on the future profitability and
operations of our single-family guarantee business, or on our ability to raise guarantee fees that may be retained by us.
While we continue to assess the impact of this law, we currently believe that implementation of this law will present
operational and accounting challenges for us.
Legislation Related to Reforming Freddie Mac and Fannie Mae
Our future structure and role will be determined by the Administration and Congress, and there are likely to be
significant changes beyond the near-term. Congress continues to hold hearings and consider legislation on the future state
of Freddie Mac and Fannie Mae. On February 2, 2012, the Administration announced that it expects to provide more
39 Freddie Mac