Government Role in Mortgage Securitization Remains a Necessity

The nation’s mortgage system needs a stable and dependable securitization model to assure consumers access to affordable long term mortgage loans, and building a modernized system on the current Fannie Mae/Freddie Mac platform is a welcome move, CFA said in comments filed in early December with the Federal Housing Finance Agency (FHFA).

CFA joined with the Center for American Progress, National Housing Conference and National Council of La Raza to submit comments on FHFA’s proposal to build a single platform and security structure for the secondary market mortgage giants Fannie Mae and Freddie Mac.

The letter outlined five key broad recommendations to the FHFA:

• Maintain the securitization platform as a government utility (not a privately owned asset), with strong oversight from FHFA in coordination with other federal agencies;
• Require that all mortgage-backed securities offered in the public securities market be issued through the securitization platform;
• Charge users two fees, one to cover administrative costs and another to fund programs that expand market access;
• Adopt strong, loan-level disclosure requirements for the mortgage backed securities market; and
• Ensure that the new infrastructure can facilitate advanced loan monitoring and loss mitigation activities.

“FHFA’s initiative is important regardless of what shape housing finance reform takes in the next few years,” said CFA Director of Housing Policy Barry Zigas.  “Fannie and Freddie’s technology and infrastructure are aging, and using their combined resources to create a new, unified system will save money, increase efficiency, and serve taxpayers well in the long run.”

Fannie Mae and Freddie Mac were placed into conservatorship under FHFA in 2008, after their capital proved inadequate to cover losses from their mortgage guarantee businesses as delinquencies, defaults and foreclosures soared in the bursting of the housing bubble.  The design of a new system to replace them is expected to be a major topic of legislative discussion and action in the next few years.  FHFA’s decision to move forward with this major technology project now reflects the agency’s sense of urgency about the companies’ lagging investments in technology, as well as the opportunity conservatorship offers to rationalize their securities structures and offer the market a better investment opportunity.

Groups Applaud CPSC Action to Protect Children

Last week, CFA joined with other consumer and safety groups in applauding the U.S. Consumer Product Safety Commission’s (CPSC) decision to issue an administrative complaint against Baby Matters, LLC, the manufacturer of Nap Nanny and Chill Infant Recliners.  The CPSC took the unusual action of suing the company to seek an order requiring that the firm notify the public of the defect and offer consumers a full refund because they were unable to reach a corrective action plan with the company that would protect public safety.  The CPSC reached its decision in response to the five deaths and more than 70 incidents known to have occurred since the agency first took corrective action against the product in 2010.  “A sleeping environment for a baby should not pose safety hazards and tragically, this product does,” stated CFA Legislation Director Rachel Weintraub. “We applaud the CPSC for taking strong action to protect infants from the serious hazards posed by the Nap Nanny.”

New York Takes Step To Improve Claims Processing after Superstorm Sandy

Responding to recommendations provided by consumer advocates and industry representatives, New York Governor Andrew Cuomo announced last week a series of actions designed to expedite Superstorm Sandy-related insurance claims and hold insurers accountable.

The New York Department of Financial Services (DFS), which regulates insurance companies, will now require insurers to begin investigating claims six business days after a claim is filed, down from 15 days.  To expedite claims and ensure that homeowners receive payments in a timely manner, DFS is also authorized to increase the number of temporary licenses available to qualified, out-of-state insurance adjusters.  “The aftermath of severe weather events, like Superstorm Sandy, is a stressful time for families whose homes were damaged or destroyed,” stated CFA Director of Insurance J. Robert Hunter in a press statement issued last week.  “We applaud Governor Cuomo for these important actions to ensure that claims are processed quickly and that families can move on with the lives.”

The DFS also launched an online report system to evaluate how well the 24 largest insurance companies operating in New York respond to claims.  The online report will include information on the number of claims, the average time it takes for an adjuster to carry out an inspection, the number of claims closed with and without payment, and the total number of consumer complaints.  “Consumers should be empowered to make informed choices about their insurance company, including how well their insurer responds to claims and resolves complaints,” said Hunter.  “The proposed online report system will create unprecedented transparency in this process and give both consumers and regulators the tools they need to make sure legitimate claims are paid in full and on time.”

CFA has called for additional reforms to protect consumers from reduced or denied claims.  Joined by United Policyholders and the Center for Economic Justice, CFA called for state regulators to immediately identify coverage gaps that could result in consumer frustration, to adopt policies that clarify coverage and prevent unjustified denial of claims, and “to take the first steps towards developing a rational, all-risk homeowners’ insurance policy that will provide clear and consistent coverage to homeowners seeking to insure against the risk of all types of loss, including losses associated with catastrophic events.”