"There were no real issues left," says someone familiar with the Fannie plan.
Fannie officials expected bank insurance industry advocates to push back against price cuts and market changes. But they figured that regulatory probes and bad press had severely hurt the industry's credibility and leverage.
Details of the specific moves to foil Fannie are hazy. What is clear is that by early this year, the industry had shifted its sights from swaying Fannie toward convincing the FHFA to stall the process.
"We are very concerned about the lack of transparency and the absence of public input regarding this significant initiative," the American Bankers Association wrote the agency on January 2. "We strongly encourage FHFA to request public comment."
Other trade groups followed suit. "The Consumer Mortgage Coalition (CMC), the Financial Services Roundtable (FSR), Housing Policy Council (HPC), and Mortgage Bankers Association (MBA) are concerned with the course of action currently being pursued by Fannie Mae," a broadly circulated letter from the groups reads.
In response to the second letter, Fannie Mae staffers provided the FHFA with suggestions for a point-by-point rebuttal. The regulator instead drafted its own reply, sending it to the industry groups on February 4.
Signed by Meg Burns, Senior Associate Director for Housing and Regulatory Policy, the letter thanked the trade groups for their interest and comments. But it did not appear to offer them a seat at the table.
"A formal 'notice and comment' would be inappropriate to GSE business decisions," the letter states, adding that the FHFA expected to make a decision regarding the plan before the end of March. "For the moment, the RFP process is confidential," the letter stated.
The FHFA opted to keep its cards close to its vest with Fannie as well. People familiar with the GSE's plan were told informally that it had been brought to FHFA director DeMarco but had no such confirmation. The regulator declined to comment on its decision-making process.
On Friday February 8, the FHFA informed Fannie it was vetoing the plan. GSE staffers were baffled. They became even more so when the FHFA convened a call the following Monday with the Mortgage Bankers Association, the Consumer Mortgage Coalition and other trade groups.
"Why weren't consumer and fair lending groups on the call?" asks Birny Birnbaum, executive director of the Center for Economic Justice. "It should not be surprising that the judge favors the only side able to present its case."
The FHFA announced during the call that Fannie's RFP process was definitively dead, people with knowledge of the talk say. (In a subsequent statement to American Banker, the FHFA described it as "paused.") The FHFA asked the industry to work with the GSEs and provide data.
"We were pleased that they are asking the entire industry to submit all the data," says Anne Canfield, executive director of the Consumer Mortgage Coalition, a mortgage industry trade association. "We're not opposed to wringing more cost savings out of this thing… my suggestion is, let's get the data together."
Where Fannie goes from here, if anywhere, is unknown. Shortly after the FHFA explained its decision to mortgage servicers, Burns said the agency had no timeframe or expected approach for a follow-up program.
"They're not in a big rush," says a backer of the Fannie plan. "They're going to form a committee and have a lot of conversations."
Critics of the existing force-placed market regard the FHFA's decision as a major defeat. The enormous reservoir of distressed and defaulted mortgages in Fannie's portfolio — 600,000 homes — means that the value of force-placed reforms is frontloaded. As foreclosures clear out the backlog, Fannie's potential savings diminish.