Fannie Mae Key Strategies

Key Strategies of Fannie Mae

High standards of business conduct and compliance remain a priority for Fannie Mae. Every year, the board of directors evaluates, approves, and monitors our strategic plan and management’s implementation of the company’s strategic goals. The mission of Fannie Mae is to be America’s most trusted housing partner by consistently delivering affordability, accessibility to credit, and liquidity in all U.S. housing markets while successfully managing risk.

The Federal Housing Finance Agency (FHFA) assumed conservatorship over Fannie Mae on September 6, 2008. It reorganized its board of directors, who now only have fiduciary duties to FHFA. The FHFA set the board’s size at nine directors minimum and thirteen maximum. The board’s duties and power were also under the direction of FHFA.

Corporate performance is governed by the board of directors. The annual operating budget is approved by it. Market, credit, and operational risks are all under its watchful eye. The board occasionally adopts rules and procedures to help with its oversight duties and to advance the stability and safety of Fannie Mae.

The integrity of our financial accounting and financial reporting systems and processes is under the direction of the board of directors. Additionally, it offers management guidance on critical problems Fannie Mae is currently confronting.

We can continue to provide housing alternatives for homebuyers and renters in all towns around the nation thanks to this governing system. As we work with our business partners to develop a stronger, safer, and more effective housing system, it offers safety and soundness.

In addition to other governance issues, the company’s Corporate Governance Guidelines specify the size, makeup, and eligibility requirements for the board of directors, as well as the duties and responsibilities of the management team and board of directors. The corporation’s bylaws contain more details regarding its governing structure. Additionally, the committees on the Fannie Mae board support the board of directors’ monitoring of the company’s operations supporting the housing sector.

Key strategies of Fannie Mae

A strengthened and independent FHFA will make sure the Enterprises have the capital reserves, risk management skills, corporate governance, and regulatory oversight necessary for their size, risk, and systemic importance outside of conservatorship while the Enterprises resume operating as fully-private businesses within a competitive, liquid, efficient, and resilient housing finance system.

The revised Strategic Plan and Scorecard are therefore driven by a responsibility to end the

conservatorships responsibly and to make sure the Enterprises run effectively for the duration of the conservatorship, or until the requisite departure milestones are reached. This end-state vision must be fully realized in order for the market, FHFA as the regulator, and the Enterprises to transform.

1. Market Changes: Competition + Equal Treatment Under the Law

Government regulations have made it possible for Fannie Mae and Freddie Mac to function as a duopoly and control the secondary mortgage housing finance sector in our country. Having a charter from The Enterprises entitles them to benefits and advantages that are not available to other financial institutions. Moreover, the Enterprises are free from a number of regulatory requirements that are applicable to non-chartered institutions participating in the secondary mortgage market.

On the other hand, this Strategic Plan and Scorecard aim to introduce two components into the country’s mortgage financing system: competition and equality under the law. Competition more successfully brings about market-affordable prices with satisfied customers and ongoing product quality improvements. Additionally, competition fosters market discipline by ensuring that no institution is “too big to fail” and long-term efficiency by insuring that poorly managed and inefficient enterprises do not survive.

Only when the controlling laws, rules, and standards apply equally to everyone do the advantages of competition manifest. Therefore, FHFA will work to level the playing field so that all market players follow by the same standards while also attempting to make it simpler for other financial institutions to enter and compete in the country’s secondary mortgage market. Business success should depend more on great ideas and execution than on special benefits and exemptions in a competitive and fair secondary mortgage market.

• Alterations to the regulator

HERA strengthened and increased the independence of FHFA as a regulatory body. The Enterprise conservatorships have been successfully managed by FHFA, but the Agency has to be strengthened with more regulatory and oversight powers in preparation for a future without conservatorships. The FHFA’s supervisory power must be comparable to that of other independent federal financial regulators in order to guarantee that the Enterprises continue to be well-regulated and well-capitalized outside the confines of conservatorship. As a result, the FHFA recently requested from Congress the ability to grant enterprise charters to new market participants, the authority to investigate third parties who conduct business with its regulated entities, and the freedom to appropriately tailor risk-based capital requirements and leverage limits for the Enterprises and any additional future mortgage-backed securities guarantors.

• Transformation of the Businesses

After more than 11 years of functioning under government oversight, the Enterprises will need to undergo reforms on a number of fronts in order to successfully exit conservatorship. For the Enterprises, maintaining proper operations while still being subject to conservatorship while also restoring the commercial outlook and skills that are essential to their success after conservatorship.

The businesses must show that they are committed to using capital effectively and economically in order to generate returns that will entice investors in the private capital markets. The Enterprises will need to stay away from the reckless actions of the past and concentrate on establishing a competitive, liquid, efficient, and resilient secondary mortgage market that encourages sustainable homeownership and affordably priced rental housing. The Enterprises’ exit from conservatorship will be facilitated by a mission-focused, safer, and simpler business model where the risk levels are reasonable and backed properly by their capital levels.

Importantly, going forward, the Enterprises should play a more countercyclical role in the market, consistent with their statutory mandate to “provide stability to the secondary market for residential mortgages” and to “respond appropriately to the private capital market” without dislodging itix. The Enterprises should do this on the basis of a sound capital base, prudent credit standards, and effective risk management. Contrast this with the Enterprises’ role in the previous crisis, which led to a historically large house price bubble and a severe liquidity contraction when losses piled and the Enterprises’ and the larger home finance system’s undercapitalization became apparent.

Conclusion

This Strategic Plan represents a fresh approach to the Enterprises and the housing financing sector as a whole. In some ways, it builds on the groundwork laid by FHFA over the previous ten years, such as the expansion of the use of credit risk transfers and the development of the UMBS issued through the CSP to draw in bigger and more varied quantities of private capital. This strategy changes direction in other areas and follows the reforms suggested by the administration’s reform plan. The purpose of this new strategy is to carry out HERA’s requirements and put the Enterprises back in their rightful place as fully private, well-capitalized, and well-regulated financial institutions.

It will take time and a lot of effort to make this vision a reality. The development of a robust mortgage finance system like the one envisioned in this Strategic Plan and the training of FHFA and the Enterprises to operate effectively within it are significant but doable endeavours. FHFA will, to the greatest extent possible, simultaneously work on administrative, legislative, and conservatorship reform. Based on Treasury and HUD’s recommendations, FHFA, an independent regulator, will collaborate with the Administration to develop and implement a plan to end the conservatorships of the Enterprises. FHFA and Treasury have already begun discussing the possibility of modifying the Senior Preferred Stock Purchase Agreements’ terms, including the so-called “net worth sweep.” The Enterprises will be able to raise the capital they need to significantly reduce the likelihood that they will require taxpayer support to withstand an economic downturn thanks to this effort.