On the assumption that borrowings are used to fund the program, the MPP appears to be chiefly an arbitrage operation. In the documents prepared for external use, Fannie Mae downplays the contribution of the MPP to its bottom line. There may be collateral social benefits to the MPP if Fannie Mae can produce a cheaper product than is currently available to homebuyers. It would appear, however, to be another example of a GSE pushing the envelope instead of sticking to its knitting. Experience has shown that there is usually a natural step beyond the first one taken, in this case in the insurance arena.
Questions naturally arise.
As indicated earlier in this letter, this analysis is based on a review of Fannie Mae internal documents available to the Committee as of this date. If this is the case, and the proposal described in internal Fannie Mae documents has been substantially modified, perhaps not all of the above analysis applies to the final outline of Fannie Mae's proposed MPP program. But it remains difficult to foresee how the MPP can be redesigned to be anything except an unauthorized insurance product offering. Similarly, I would request that HUD review the size and composition of the investment portfolio of the Federal Home Loan Banks. In addition, I would like your views on two pilot programs recently authorized by the Federal Housing Finance Board that may represent an unwarranted self-aggrandizement of the Federal Home Loan Bank mission.