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Volume 15 - Number 24

November 20, 2015

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Some Signs of Credit Easing So Far in 2015 GSE Market

Loan-level data from single-family mortgage-backed securities issued by Fannie Mae and Freddie Mac show subtle signs of credit easing so far in 2015, according to a new Inside The GSEs analysis. Average credit scores and debt-to-income ratios, when loans are sorted by purpose, have bounced around from month to month without showing much indication that lenders are making loans to riskier borrowers. The average credit score for purchase mortgages securitized in January, for example, was 750.5. In October, it was 751.7, and the average for the first 10 months of the year was 752.0. Refi loans generally have lower credit scores; the average so far for 2015 is 745.3, but there is some evidence that the credit box has been expanding in...

Mixed Views on Upcoming GSE Loan Limit Announcement

With the Federal Housing Finance Agency preparing to announce whether or not it will change the current conforming loan limit for 2016 any day now, speculation abounds. Although industry groups largely supported an FHFA plan that correlates adjustments of the conforming loan limits to FHFA’s “expanded data” House Price Index, the extent to which conforming loan limits should be adjusted remains debatable among trade groups and housing observers. Back in May, the FHFA noted that home prices were close to recovering from the aftermath of the financial crisis, which caused some to speculate that it could prompt an increase to the conforming loan limit.

House Votes to Cap Fannie and Freddie CEO Salaries at $600K

The pay raise that CEOs Donald Layton of Freddie Mac and Timothy Mayopoulus of Fannie Mae got earlier this year likely won’t last long after the House passed legislation this week to cap their salaries at $600,000 per year, what they were making prior to the increased compensation package. The house passed this week the Equity in Government Compensation Act, introduced by Rep. Ed Royce, R-CA, in May, to suspend the multi-million dollar compensation packages approved earlier this year by the Federal Housing Finance Agency. Royce said the bill will be the first major stand-alone legislation enacted that deals with the GSEs since they were placed into conservatorship if President Obama signs it into law as expected.

FHLB Adds Servicing-Release Option to MPF Program

The Federal Home Loan Bank system introduced a new servicing-released option from Nationstar Mortgage as part of its Mortgage Partnership Finance program. The program lets member lenders sell their fixed-rate government loans into the secondary market. and the new option is expected to be ready sometime in December. The MPF government mortgage-backed security product already had a servicing-retained option, in which the lenders service their own loans, but with the new product, FHLB bank members can use the full service options without the infrastructure or expertise needed to service the loans. John Stocchetti, executive vice president of the MPF program, which operates out of the Chicago FHLBank, said the new option is another step in the FHLBank system becoming a “one-stop shop” for its members.

FHLBank Advances Fade in 3Q, More Business for Nonbanks

The Federal Home Loan Banks reported a modest decline in outstanding advances during the third quarter, but the complexion of the system’s customers continued to shift, according to a new Inside The GSEs analysis of bank call reports and Office of Finance disclosures. Total advances outstanding declined just 0.2 percent from the end of the second quarter, but commercial bank usage was down 8.2 percent. Banks were still the biggest borrowers of FHLBank advances, with a 58.9 percent share of the total $586.2 billion (par value) of advances outstanding at the end of September. Meanwhile, advances to insurance companies surged a whopping 14.6 percent during the third quarter, replacing thrifts as the second-largest class of FHLBank advance users.

GSE Recap Studies Plow Ahead Citing Affordable Housing Concerns

Two recent studies tout the case for recapitalizing Fannie Mae and Freddie Mac and cite concerns surrounding access to credit and the need for more affordable housing. While the Obama administration officials have previously rejected such proposals, that hasn’t stopped the ideas from flowing. Promoting affordable housing by recapitalizing Fannie and Freddie is the premise of a new study released by Robert Shapiro, former Brookings Institute fellow, and chairman of Sonecon, LLC, along with Elaine Kamarck, a senior fellow at Brookings. They argue that conservatorship should come to an end. The National Community Reinvestment Coalition also released a white paper and focused on protecting the GSE duty to serve and the role it plays in providing access to credit and affordable housing...

FHFA Expands NSI to Prevent Foreclosures in Hard-Hit Cities

After launching pilot programs in Detroit last year and Chicago earlier this year, the Federal Housing Finance Agency recently announced that it is significantly expanding its foreclosure prevention initiative by adding 18 new markets. The Neighborhood Stabilization Initiative gives community organizations the first opportunity to buy foreclosed properties from Fannie Mae and Freddie Mac. Beginning in December, NSI will grow to the 20 markets that suffered the most from the housing crisis. Each GSE had at least 100 real-estate-owned properties valued at less than $75,000 in each of those markets. The goal of the program is to help stabilize neighborhoods by letting local community organizations get an exclusive first look...

Fannie and Freddie Shareholder Cases Remain in Legal Limbo

From plans to argue a recent motion to dismiss a case to appeals and new lawsuits on the radar, investors in Fannie Mae and Freddie Mac stock are continuing to challenge government officials in their quest to prove that the conservatorship and the Treasury sweep were illegal. Last week, the Federal Housing Finance Agency filed a motion to dismiss a case that was filed by two GSE shareholders in Delaware this summer who argued that the Treasury sweep, which takes the bulk of the government-sponsored enterprises’ profits, is illegal under state law. The complaint stated that with Fannie chartered under Delaware law and Freddie under Virginia’s jurisdiction, the preferred stock of a...

FHFA and OIG Adding Staff As Fannie, Freddie Shrink

The Federal Housing Finance Agency plans to increase its staffing levels by almost 12 percent in the new year, even though the asset base of its two charges in conservatorship – Fannie Mae and Freddie Mac – continues to shrink. Moreover, the agency’s watchdog – the Office of Inspector General – plans to increase its head count by an aggressive 23 percent in fiscal year 2016 to 155 positions. The figures were contained in the FHFA’s new “Performance and Accountability Report.” In a past audit, the OIG criticized the FHFA for lacking a “sufficient number of examiners.” In the new budget, the FHFA plans to increase its examinations head count to 275 from 248 in FY 2015.

Unexpected Rate Changes Affected GSE Hedging Losses in 3Q15

The hedging effects of Fannie Mae and Freddie Mac – including instruments bought to protect the value of agency MBS – had different results in the third quarter as interest rates unexpectedly declined and stayed low for several weeks. Overall, Fannie booked $2.6 billion of negative charges against the value of its derivatives in the third quarter, while Freddie booked a much larger charge on its hedging activities: $4.2 billion. The differential did not pass without notice, especially since earlier this month Fannie reported a companywide profit of $2.0 billion and Freddie spilled red ink of $475 million. Even Federal Housing Finance Agency Director Mel Watt chimed in on Freddie’s loss, a rarity for the regulator who usually only issues statements when he has to.

GSE Roundup

FHFA Seeking Comments on Borrower Survey. The Federal Finance Housing Agency is seeking public comments concerning the information collection known as the “National Survey of Existing Mortgage Borrowers” (NSEMB). The NSEMB will be a periodic, voluntary survey of individuals who currently have a first mortgage loan secured by single-family residential property and will consist of about 80 to 85 questions. The comment period ends Jan. 11. SIFMA Supports Nomura’s Appeal in FHFA Case. The Securities Industry and Financial Markets Association recently filed an amicus brief in support of the defendants to reverse a case in which the Federal Housing Finance Agency argued that Nomura Holdings sold shoddy mortgage-backed securities to Fannie Mae and Freddie Mac.


Should the FHA cut premiums?

Yes, the MMIF has surpassed the 2 percent minimum. It’s time to help first-time home buyers.
Yes, but not until mid-2016 at least, when we see how the fund is doing.
No. The MMIF needs to rebuild and prepare for another potential downturn – just in case.
No. We believe the minimum ratio should actually be raised to 4 percent or higher.
I am undecided.

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