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Volume 14 - Number 21

October 17, 2014

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Judge Denies Former Fannie CFO Discovery Access in GSE Lawsuit

GSE shareholder advocates remain undeterred following a federal judge’s decision late this week to deny a former Fannie Mae executive access to confidential evidence unearthed as part of the discovery process in an investors’ lawsuit against the government. Earlier this year, Fairholme Funds hired former Fannie Chief Financial Officer Timothy Howard as a consultant to assist its law firm Coopers and Kirk. Lawyers for the government want to deny Howard access to some 800,000 pieces of discovery in investors’ litigation challenging Uncle Sam’s “net-worth sweep” of GSE profits.

Is Pershing Square Still Buying More Stock in Fannie, Freddie?

In October of last year Pershing Square, the hedge fund controlled by uber investor Bill Ackman, began gobbling up huge blocks of common stock in Fannie Mae and Freddie Mac at prices ranging from $1.54 to $2.27 a share. Today, a small portion of those positions is underwater, but thanks to a recent rebound in the stocks, whatever “paper” losses Pershing Square incurred have just about been wiped out. In trading Thursday, Fannie common was selling for $2.14, Freddie a few pennies below that.

Lenders Want Speed, Street Urges Caution on GSE Single Security

The Federal Housing Finance Agency’s proposed single security for the GSEs met with conflicting views as the comment period ended this week. In August, the FHFA proposed a single-security structure to allow Fannie Mae and Freddie Mac to issue a common MBS to serve the single-family market. The proposal is aimed at eliminating Freddie’s pricing disadvantage and improving liquidity in the to-be-announced market.

GSE’s Common Securitization Solutions Still Has No CEO

After a year of searching for a chief executive to lead Common Securitization Solutions, the Federal Housing Finance Agency is still looking, but it continues to hire staff. “The search continues,” said a government official close to the matter. “We even have a search firm.”Although the FHFA is keeping a tight lid on information regarding CSS, it’s now common knowledge that the search firm in question is the Washington-based Spencer Stuart, which bills itself as “one of the world’s leading global executive search and leadership consulting firms.”

FHFA Proposed Rule Would Define FHLBank ‘Former Member’

A proposed Federal Housing Finance Agency rule would define a Federal Home Loan Bank “former member” as an institution whose membership has been terminated but which must still maintain FHLBank stock. Published in the Oct. 8 Federal Register, the proposal’s definition would apply to institutions whose membership has ended but which continue to hold stock in the FHLBank as required by the Bank’s capital plan. …

Bank, Thrift FHLBank Advances Increase in Second Quarter 2014

The use of Federal Home Loan Bank advances among bank and thrift members rose overall during the second quarter of 2014, according to the Inside Mortgage Finance Bank Mortgage Database. All of the nation’s banks and thrifts used a combined $437.7 billion in advances as of June 30, 2014, up 11.6 percent from the first quarter of 2014 and an 18.8 percent increase from the same period a year earlier.

Moody’s: FHFA Shouldn’t Increase Fannie, Freddie Guaranty Fees

The Federal Housing Finance Agency “should not appreciably change” guaranty fees charged by Fannie Mae and Freddie Mac, according to a new paper by Moody’s Analytics. The paper, “A General Theory of G-Fees,” by Mark Zandi, chief economist at Moody’s Analytics, and Cristian deRitis, a senior director of consumer credit analytics, noted that the two GSEs are currently charging an average g-fee of approximately 60 basis points across all new loans they insure.

GAO: Difficult to Evaluate FHFA on G-Fees Due to Lack of Goal Clarity

The Government Accountability Office took the Federal Housing Finance Agency to task last week for its less-than-transparent policy direction regarding guaranty fees. The wide-ranging report on housing finance reform efforts noted that the FHFA’s opaque position makes it difficult to hold the regulator accountable. “The lack of clearly stated goals for FHFA that recognize the potential trade-off between bringing private capital back into the market and making mortgage credit available has led to inconsistency in [the FHFA’s] policy on the level of guaranty fees on mortgage-backed securities issued by the enterprises,” the GAO said.

Appeals Court Upholds Fannie’s ‘Sue-and-Be-Sued’ Charter Clause

In a 2-to-1 decision earlier this month, a three-judge panel of the Ninth Circuit Court of Appeals upheld a lower court ruling that tossed out state-law claims brought against Fannie Mae by homeowners fighting foreclosure proceedings. Homeowners in Lightfoot et al v. Cedant Mortgage Corp. et al sued Fannie and others in California state court after foreclosure proceedings were initiated against their homes. The homeowners filed the state court action after their prior federal claims were dismissed in federal district court.

Fitch: Fannie, Freddie Risk-Sharing On Pace to Top $400 Billion

Fannie Mae and Freddie Mac are set to sell portions of credit risk on U.S. residential mortgages “to the tune of a very sizeable increase” year-over-year, according to a report by Fitch Ratings. The two GSEs have completed 11 transactions since the risk-sharing initiative was initiated in July 2013, with Fannie and Freddie expected to issue credit-linked notes on a quarterly basis, said Fitch. …

UI Dings IG Audit of FHFA Rep-and-Warrant Framework as ‘Incomplete’

In an unusual move, a Washington, DC, think tank has publicly taken to task the official watchdog of the Federal Housing Finance Agency, finding a recent audit of the FHFA’s representation-and-warranty policy “incomplete.” The September report by the FHFA’s Inspector General concluded that the Finance Agency’s implementation of the rep-and-warrant framework was premature and resulted in “significant and unresolved operational risks” to Fannie Mae and Freddie Mac. An analysis by the Urban Institute found that the OIG’s conclusions were “incomplete and overstate the risk of the plan.”

FHFA: FHLBank Affordable Housing Contributions Up 57 Percent in ‘13

The 12 Federal Home Loan Banks contributed some $300 million to affordable housing in 2013, according to a report by the Federal Housing Finance Agency. The report, issued last week, is part of the FHFA’s mandate to monitor and report annually on the FHLBanks’ support of their low-income housing and community development activities. In 2013, the Banks contributed approximately $297 million to the Affordable Housing Program, equal to 10 percent of their net earnings for the preceding year and up approximately 57 percent from 2012, noted the FHFA.

FHFA-IG Among Growing List of Agencies Employing Armed Agents

The Inspector General of the Federal Housing Finance Agency is among a growing list of official government watchdog agencies authorized to employ armed investigators when ferreting out waste, fraud and abuse, according to a recent report. The report issued by the Congressional Research Service listed some three dozen IGs that possess law enforcement authority, which legally empowers them to make arrests, seek warrants and carry firearms.

Enterprise Endnotes

IG Recommends FHFA Upgrade Its Recordkeeping. The Federal Housing Finance Agency is in compliance with its recordkeeping procedures but the policy and infrastructure of its records management could do with an upgrade, concluded an evaluation by FHFA’s Inspector General last week. The IG said that the Finance Agency’s Division of Enterprise Regulation’s recordkeeping practices “have limitations that impede the efficient retrieval” of examination workpapers by agency staff and by IG auditors.

Poll

What is it going to take to convince lenders to loosen the credit box (i.e., remove underwriting overlays)?

The recent rep and warranty changes announced by the Federal Housing Finance Agency should go a long way in protecting lenders from future buybacks and help expand mortgage credit.
There won’t be any significant elimination of underwriting overlays until the government stops seeking huge mortgage-related penalties and settlements from lenders.
There shouldn’t be any expansion of the mortgage credit box since looser underwriting is what caused the recent mortgage crisis.

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