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Volume 14 - Number 7

April 4, 2014

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Senate GSE Reform Faces House Competition, Growing Opposition

Mounting opposition from both the left and the right, a month-long wait to mark-up and newly filed competing legislation in the House could doom the already tenuous effort by two senior senators to move a GSE reform bill this year, say industry observers.Given the need for speed and a closing legislative window, last week’s announcement by Sens. Tim Johnson, D-SD, and Mike Crapo, R-ID, that the Senate Banking, Housing and Urban Affairs Committee would mark up their housing finance reform package on April 29 – well over a month after the bill’s initial March 16 rollout – is not seen as a good sign.

FHFA’s 2014 Conservatorship Scorecard Under Review by GSEs

The Federal Housing Finance Agency has sent a draft 2014 Conservatorship Scorecard to Fannie Mae and Freddie Mac for review, but it remains unclear how different it will be from the GSE goals the FHFA set for last year. According to industry officials who have been briefed on the matter, the scorecard will likely be released by month’s end. The scorecard was the brainchild of former FHFA Acting Director Edward DeMarco, who led the agency for more than four years before former Rep. Mel Watt, D-NC, assumed a five-year term as the agency’s director in early January.

GSE MBS Business Activity Drops In First Quarter, Year-Over-Year

Fannie Mae and Freddie Mac generated $129.2 billion in single-family mortgage-backed securities during the first three months of 2014, the lowest quarterly volume in 14 years, according to a new Inside The GSEs analysis. That was down 29.1 percent from the already weak production of the fourth quarter and off 63.7 percent from the same period of 2013. GSE production – and mortgage originations – have been tumbling since the beginning of 2013 as the last great refinance wave washed away.

BofA MBS Lawsuit Settlement Shrinks List of FHFA Defendants

It’s only a matter of time before the remaining big bank defendants settle lawsuits filed by the Federal Housing Finance Agency over billions in non-agency mortgage-backed securities sold to Fannie Mae and Freddie Mac in the years leading up to the housing crisis, predicts a legal expert. Last week, Bank of America agreed to a $9.3 billion settlement that covers its own dealings as well as those of Countrywide Financial and Merrill Lynch, which it acquired in 2008. The agreement covers some $57 billion of MBS issued or underwritten by these firms.

House Dems Seek GSE Jobless Moratorium via Bill, Regulation

Whether by legislation or by regulation, a group of House Democrats want Fannie Mae and Freddie Mac to give unemployed homeowners a break by issuing a foreclosure moratorium. Last month, Rep. Matt Cartwright, D-PA, filed H.R. 4255, the Stop Foreclosures Due to Congressional Dysfunction Act, which would require the Federal Housing Finance Agency to establish a six-month moratorium on GSE-guaranteed mortgages held by homeowners who have lost their emergency unemployment compensation “due to congressional inaction.” The bill requires that borrowers must have been in good standing prior to losing their unemployment benefits in order to be eligible for the temporary forbearance.

Former FHFA Acting Director DeMarco Resigns from Agency

The former acting director of the Federal Housing Finance Agency tendered his resignation from the FHFA last week in order to “seek other opportunities.” Edward DeMarco, who served as the agency’s “temporary” head from September 2009 until January 2014, submitted his resignation – effective April 30 – to his successor, FHFA Director Mel Watt. Far from unexpected, DeMarco’s exit from the agency was seen within many industry circles as inevitable once the Senate confirmed Watt to a five-year term as director.

FHLB Bank, Thrift Advances Rise in Fourth Quarter, 2013

The use of Federal Home Loan Bank advances by bank and thrift members at the end of 2013 rose on both quarterly and yearly bases, according to the Inside Mortgage Finance Bank Mortgage Database. The nation’s banks and thrifts used a combined $406.1 billion in advances as of Dec. 31, 2013, up 26.7 percent from the third quarter and a 21.6 percent increase from the same period a year earlier. Two of the top three members posted virtually no change on a percentage basis between the third and fourth quarters but all three posted significant increases on a year-over-year basis.

OIG Slams FHFA’s Oversight of GSEs’ Pre-Foreclosure Reports

The Federal Housing Finance Agency’s oversight of Fannie Mae’s and Freddie Mac’s pre-foreclosure inspection process can and should be enhanced by strengthening quality assurance and controls, according to a new audit by the agency’s Office of the Inspector General. The FHFA-OIG audit found potential fraud in property inspection reports ordered by the two GSEs. Among the findings: the property inspection reports – which are used for foreclosures – contained inaccurate information that conflicted with corresponding photographs.

Experts: GSE Shareholders Face Uphill Legal Battle vs. Government

Fannie Mae and Freddie Mac junior shareholders face an uphill battle in their lawsuits challenging the Treasury’s August 2012 “net worth sweep” that effectively allows Uncle Sam to confiscate all of the companies’ profits, warns a legal expert. Investors are challenging the amended agreements regarding the seniority of Fannie and Freddie preferred stock owned by the federal government over investors’ GSE preferred stocks. More than a dozen lawsuits filed against the government – led by hedge funds Perry Capital and Fairholme Capital Management – are pending in federal district court in Washington, DC, and in the Court of Federal Claims.

Advocates to Treasury: Deem GSEs ‘Systemically Important’

With housing finance reform unlikely to clear Congress in the near term even as Fannie Mae and Freddie Mac remain “highly leveraged” on a global scale, a pair of policy advocates are urging Treasury Secretary Jack Lew to trigger existing protective regulations under his discretion that would classify the two GSEs as systemic risks to the economy. American Enterprise Institute Fellow Alex Pollock and Thomas Stanton, author and former Financial Crisis Inquiry Commission staffer, petitioned Lew in a letter this week to act in his capacity as chairman of the Financial Stability Oversight Council and designate Fannie and Freddie as Systemically Important Financial Institutions.

Enterprise Endnotes

Seniors Group Targets Johnson-Crapo Bill Supporters With Paid Media. A right-leaning seniors advocacy group has taken out television and radio ads in seven states to call out supporters of the Senate’s bipartisan proposal to overhaul Freddie Mac and Fannie Mae, labeling it “Obamacare for the mortgage industry.” The 60 Plus Association campaign targets seven senators for supporting a measure by Sens. Tim Johnson, D-SD, and Mike Crapo, R-ID, arguing that the bill would wipe out GSE shareholders. Three Democrat and four Republican senators were named in the campaign.


What do you think is the biggest hurdle to meeting the new QM standards in the CFPB’s ability-to-repay rule?

A debt-to-income (DTI) cap of 43%.


A 3% cap on points and fees.


An interest rate cap of the average prime offered rate (APOR) plus 1.5%.


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