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Volume 17 - Number 3

February 10, 2017

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Are GSE Sellers Finally Easing Up On Credit Standards?

One month does not a trend make, but early indicators hint that mortgage lenders may be stretching the credit box to boost volume. Fannie Mae and Freddie Mac issued $91.71 billion of single-family mortgage-backed securities in January, a stiff 18.3 percent drop from the previous month. Some of the decline was the result of Fannie’s heavy volume in December, when its business flow was catching up from an unusually slow November. But mortgage interest rates have edged up, and there is widespread expectation in the industry that refinance volume in 2017 will drop sharply from last year. Higher rates could also tarnish a housing market that’s bumping up against affordability and supply issues.

Reform Still a Treasury Priority, Weighing Administrative Options

Treasury secretary nominee Steve Mnuchin still has GSE reform high on his list, according to one of President Trump’s top economic advisors. Meanwhile, speculation abounds as to whether there’s an administrative solution to GSE reform absent any legislative action. After some back and forth on the topic since the announcement of Mnuchin’s nomination his subsequent comments on the GSEs, economic advisor Gary Cohen said in national media outlets late last week that GSE reform is definitely a priority for Mnuchin. In fact, he said that it’s something Mnuchin’s spent a lot of time working on. “Once he gets approved and confirmed, Steve will be taking that on as one of this early priorities. So we definitely have some plans...

Fairholme Defends ‘Recap and Release’ Concept for GSEs

Fairholme Capital Management, in a new letter to clients, once again lays out its argument for investing in Fannie Mae and Freddie Mac stock, but also takes a subtle, but polite, swipe at those opposed to a “recap-and-release” plan for the GSEs. “Only the disingenuous would assert that recapitalization of these companies would take decades and come at taxpayers’ expense, as if retaining earnings precluded the ability of each company to raise equity from private investors,” the mutual fund manager writes. Fairholme also notes that it owns GSE junior preferred shares – as opposed to common – because “…the provisions of the preferred stock contracts that...

MBA Proposal Raises Competition, Government Guarantee Questions

Uneconomic price competition coupled with Congressional discord are some of the concerns analysts have expressed about the Mortgage Bankers Association’s newly released plan for GSE reform. The MBA’s proposal recommends multiple privately owned guarantors, preferably more than two, to increase competition in the market. Fannie Mae and Freddie Mac would be the first two and the MBA suggests that new guarantors receive a charter to enhance competition. “The more market participants that compete, the better for consumers, the economy and the system,” said Rodrigo Lopez, MBA chairman. GSE Reform Principles and Guardrails also suggests that Congress sanction an “explicit government guarantee for eligible securities in order to entice domestic and foreign investors to keep buying...

Judge Rejects Government Efforts To Keep Docs Privileged

After the government stalled on a September ruling to turn over close to 60 documents regarding the GSEs’ net worth sweep, a judge rejected its appeal. The court ordered the government to disclose the bulk of the documents to the plaintiff’s attorneys in Fairholme Funds Inc. v. United States. The U.S. Court of Appeals ruled in favor of Fannie Mae and Freddie Mac investors, upholding Judge Margaret Sweeney’s earlier decision. The government is to release all…

Fannie Mae Updates Requirements For Appraisal Review and Comps

Fannie Mae recently made changes to its appraisal process and financial eligibility requirements for seller/servicers. In order to be able to use its discretion to enforce breaches of financial eligibility requirements that apply to seller/servicers, the GSE said it had to change certain polices. This allows Fannie, when warranted, to determine whether a breach of the lender contract should be called. “The changes include how lenders can comply with our requirements for maintaining minimum acceptable levels on capital,” said Jude Landis, Fannie’s vice president of credit policy. Prior to the change, explicit criteria in its selling guide limited Fannie’s ability to apply enforcement discretion.

FICO Says All 700 Credit Scores Are Not Equal in Lending Decisions

Competition is brewing between FICO and VantageScore Solutions as lawmakers continue to push the Credit Score Competition Act. The bill enables Fannie Mae and Freddie Mac to consider alternative credit scoring models when making mortgage-purchase decisions, something the GSEs are currently exploring. VantageScore recently updated its score range to match FICO. Nevertheless, FICO argues that a VantageScore of 700 is not comparable to a 700 FICO score. The VantageScore model previously ranged from 501 to 990, but now with VantageScore 3.0, released late last year, the score is in the more commonly used 300 to 850 range. “The fact that these scores are now on the same range, however, does not mean that these scores are...

Senator Criticizes Fannie’s Dallas Regional Headquarters Cost

Fannie Mae’s new regional headquarters under construction in the Dallas metro area is the target of criticism from Sen. Chuck Grassley, R-IA.He questions the Federal Housing Finance Agency’s management of the project in which the GSE is combining three locations into the one leased building. This comes on the heels of the FHFA Office of the Inspector General issuing a management alert late last year raising concerns about the cost of the consolidation and relocation of Fannie’s high-rise offices in Plano, TX. Grassley wants answers as to how the agency plans to address the issues identified in the IG management alert.

MH RFI Extended, Industry Said DTS Shouldn’t be Optional

The Federal Housing Finance Agency this week extended the deadline for public input on a potential chattel-loan pilot to support manufactured housing. The reactions so far to the manufactured home portion of the final duty-to-serve rule, which included a request for input on chattel lending, have been mixed. In December, the FHFA gave the green light for Fannie Mae and Freddie Mac to begin pilot programs for the loans. Since then, the agency issued the RFI and extended the original deadline of Feb. 17 to March 21, 2017. The FHFA also hosted several listening sessions on the topic to get input. During the first session in Chicago, one organization called the FHFA’s DTS rule on manufactured home lending “intolerable.”

Fannie SFR Pilot Stirs Reaction From Trade, Consumer Groups

Fannie Mae’s recent dip into testing the single-family rental market in an agreement to fund up to $1 billion of collateral owned by Invitation Homes has caught the industry’s attention, and not necessarily in a good way. This is the first time the GSE has financed a large institutional single-family rental home investor. The Dallas-based company is a subsidiary of The Blackstone Group and has about 50,000 homes in its portfolio that it acquired from foreclosure auctions. However, some are now accusing Fannie of mission creep. The National Community Stabilization Trust President Robert Grossinger said, “I am perplexed to see Fannie Mae place a taxpayer guarantee behind the same private interests whose risky practices led to...

GSE Roundup

FHFA PLS Actions Update. The Federal Housing Finance Agency published an update on litigation it initiated against 18 financial institutions for securities law violations and fraud regarding private-label securities sales. Seventeen cases were settled in 2013 and 2014. JP Morgan Chase settled for $4 billion, Deutsche Bank settled for $1.9 billion and Goldman Sachs for $1.2 billion. A case against the Royal Bank of Scotland remains. The settlement money ultimately goes to the Treasury through the dividend sweeps. Fannie Exec Tapped for CFPB? Brian Books, Fannie Mae’s general counsel, is being considered by the White House to head the Consumer Financial Protection Bureau, according to a...


With rates higher this year, there has been talk of lenders liberalizing their underwriting standards in an effort to increase volume and make up for lower refis.

Do you think your shop will loosen standards over the coming three months?

Yes, but not by much.
Yes, by a lot.
Yes and, heck, we may even do non-QM lending.
No, not at all.
No and we may even tighten credit.

vote to see results