DS News - U.S. Bank

22 THE FHFA'S "PERFORMANCE CHALLENGES" Laura S. Wertheimer, Inspector General at the Federal Housing Finance Agency (FHFA), has released a memo that identifies "four serious management and performance challenges" that the agency faces in its role as a regulator and supervisor of the government- sponsored enterprises (GSEs). e memo was addressed to Melvin L. Watt, Director of the FHFA. e first challenge Wertheimer draws focus to is the agency's inability to improve oversight of both GSEs while strengthening internal review processes for nondelegated matters. Wertheimer's memo expresses concern about the FHFA's "limited" oversight, which she states is largely limited to attending internal management and board meetings with the GSEs. She believes the FHFA has not considered "the reasonableness of Enterprise actions pursuant to delegated authority, including actions taken by the Enterprises to implement conservatorship directives." Part of the issue, she claims, is that FHFA has not "clearly defined" its expectations, nor established any standard to which Fannie Mae or Freddie Mac must be held accountable. e second concern enumerated by Wertheimer follows logically on her first: upgrading supervision of the GSEs and Federal Home Loan (FHL) banks. e FHFA splits the responsibility of supervising the GSEs and FHL banks between the Division of Enterprise Regulation (DER) and the Division of Federal Home Loan Bank Regulation (DBR), respectively. She places particular emphasis on DER's lack of resources in ensuring the GSEs are not engaging in risky behavior, as well as the FHFA's lack of consistency in enforcing supervisory practices. e third challenge Wertheimer lays out involves oversight in cybersecurity, ensuring an effective information-security system will protect the highly sensitive data gathered by the GSEs on borrowers. Wertheimer calls for greater cybersecurity oversight so as to reduce operational risk and ensure the GSEs update their systems. Lastly, Wertheimer states that oversight must be enhanced not only over the GSEs, but also over the GSE's "Relationships with Counterparties and ird Parties." She discusses how both Fannie Mae and Freddie Mac are in no small part reliant on third parties for "a wide array of professional services, including mortgage origination and servicing." Stating that the FHFA has mostly delegated the management of these third parties to the GSEs themselves, she believes this exposes them to additional risks such as fraudulent conduct or a failure to meet contractual obligations. Wertheimer believes they can be addressed via "the development and implementation of, and compliance with, effective internal controls within the agency." ECONOMY CAN'T SHORE UP HOME SALES e growth of existing-home sales fell to its lowest level in September, declining 4.1 percent from a year ago, according to the National Association of Realtors' (NAR) Existing-Home Sales Report. On a month-over-month basis, sales declined 3.4 percent from August to a seasonally adjusted rate of 5.15 million homes, NAR reported. While sales fell, the report indicated that median home prices during the month rose 4.2 percent to $258,100 compared with $247,600 in September 2017. Attributing the decline in sales to rising interest rates, Lawrence Yun, Chief Economist at NAR, said that this was the lowest level of existing-home sales since November 2015. "A decade's high mortgage rates are preventing consumers from making quick decisions on home purchases. All the while, affordable home listings remain low, continuing to spur underperforming sales activity across the country," he said. Joseph Kirchner, Senior Economist for Realtor.com, said that, apart from weak pending home sales, some of the effects of the damage from the recent Hurricane Florence were felt among existing-home sales, too. "e majority of the decline was in the South with some declines in the North and West, while the Midwest remained steady," Kirchner said. "While we've seen a 49-year low in unemployment and robust job growth over the last 12 months, existing home sales have struggled." e NAR report also indicated a rise in housing inventory from a year ago, but a decline month-over-month. In September, housing inventory stood at 1.88 million, decreasing from 1.91 million in August but increasing from 1.86 million during the same period a year ago. "ere is a clear shift in the market with another month of rising inventory on a year- over-year basis, though seasonal factors are leading to a third straight month of declining inventory," Yun said. "Homes will take a bit longer to sell compared to the super-heated fast pace seen earlier this year." Looking ahead at the housing market, Kirchner said that one potential tailwind could help shift the balance in favor of the housing market. "For the last few years, shoppers have struggled with low inventory and fast-rising prices," he said. "ere are signs that the tide could be changing in favor of buyers with more new listings coming up for sale, causing overall inventory to pick up in some markets and listing price cuts to become more common. While it's not yet a buyer's market in most areas of the country, these changing conditions mean that sellers may need to be mindful of their competition, as buyers have been for years."

• Cover