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Volume 15 - Number 5

February 27, 2015

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New GSE Earnings Raise the Specter of a Possible Loss

Fannie Mae and Freddie Mac reported somewhat underwhelming results for the fourth quarter, thanks to huge hits they took from hedging losses tied to their holdings of derivatives. The reduced earnings highlighted the fact that although the two have been cash cows for the U.S. Treasury over the past two years, they aren’t bullet proof. During separate press briefings with the media, the CEOs of both firms spent a bit of time going over the hits they took on their derivatives, stressing that the interest rate swaps they use to hedge rate swings are essential and cut both ways. The message was clear: if mortgage rates had not fallen dramatically in December, their earnings would have been ... [with one exclusive chart] ...

FHLBank Earnings Fade in 2014, But Advance Business Growing

The 12 Federal Home Loan Banks saw modest gains in net interest income in 2014, but other factors led to declines in total income, according to preliminary data released by the Office of Finance. The FHLBanks earned a combined $2.246 billion in net income last year, down 11.0 percent from 2013. Their fourth-quarter income, $550 million, was down 12.3 percent from the previous quarter. Results varied significantly among the FHLBanks, however. Chicago was the most profitable, reporting $392 million in net income for the year, up 14.3 percent from 2013. New York had $315 million in net income in 2014, up 3.3 percent from the previous year. The two steepest declines were at Indianapolis and Dallas, both of which saw [with one exclusive chart] ...

GSEs’ Staffing Levels Steady, Expenses Increasing

Fannie Mae and Freddie Mac employment numbers were relatively steady in the past year while expenses increased, according to a new analysis by Inside The GSEs. While staffing at Freddie has remained relatively level since the end of 2008, Fannie Mae has significantly boosted its employee count. As of the end of January, Fannie had approximately 7,600 personnel, including full-time and part-time employees, term employees and employees on leave, according to the latest annual report from the GSE. The employee count increased by 2.7 percent compared with January 2014. Fannie spent $1.32 billion on salaries and employee benefits in 2014, up 8.5 percent compared with 2013. Freddie had 4,957 full-time employees and 50 part-time employees as of Feb. 5, down ...

Regulatory Changes Suggested To Keep Fannie and Freddie Intact

With it looking more likely that the GSEs could survive in some form, a critic of Fannie Mae and Freddie Mac has proposed changes he suggests would address most of the flaws he sees in the companies. Mark Calabria, director of financial regulation studies at the Cato Institute, a libertarian think tank, said he offered the suggestions “in the spirit of lively debate.” He suggested that the federal government should open GSE charters to competition, allowing any firm that can meet the requirements to receive a GSE charter. Calabria said GSEs should have a capital requirement of at least 8.0 percent. Capital of 4.0 percent to 5.0 percent would have covered the losses Fannie and Freddie experienced in 2007, according ...

More Non-Performing Loan Sales Ahead For Freddie and Fannie

Remarks from the leadership of the GSEs and earnings-related disclosures suggest more sales of non-performing loans are in the cards this year. Freddie Mac is putting together its first NPL auction of 2015, CEO Don Layton said in a recent interview with IMFnews, an affiliated daily news service. Layton declined to provide any details, noting that the GSE has yet to make an official announcement on the coming sale. This past summer, Freddie sold $659 million of “deeply” delinquent loans from its investment portfolio. At the time, it marked a first for a GSE. Isaac Boltansky, an analyst at Compass Point Research & Trading, said, “GSE management’s commentary reinforces our view that the GSEs are moving slowly but surely towards ...

Courts Affirm Government Supremacy over Shareholders

A series of court decisions have affirmed the supremacy of the executive branch of government in its regulation of Fannie Mae and Freddie Mac to the chagrin of private-equity investors seeking compensation in the wake of the financial crisis, according to a recent analysis by Kroll Bond Rating Agency. Those recent court decisions confirm the fact that the two GSEs are “instrumentalities of the federal government and not private corporations,” Kroll analysts said. “While this reality may bother some equity investors – and rightly so – this is good news for bond investors,” they noted. For equity investors, the court decisions underscore the fact that the GSEs are “creatures of Congress,” the analysts pointed out. In contrast, private corporations are governed by ...

HARP Volume Continued To Taper Off in 2014

The flow of refinance mortgages to Fannie Mae and Freddie Mac increased during the fourth quarter, but the two GSEs continued to see declining volume in the Home Affordable Refinance Program. According to figures from the Federal Housing Finance Agency, Fannie and Freddie securitized 432,376 refinance mortgages in the fourth quarter, up 11.1 percent from the previous period. Fannie had the bigger gain, 16.2 percent. But total HARP activity fell 15.3 percent from the third quarter, and for the year it was down 75.9 percent from 2013 levels. The biggest slowdown in HARP were mortgages with loan-to-value ratios exceeding 105 percent. Both GSEs are doing more non-HARP streamlined refi business than in the program set up in 2009 for underwater ... [with two exclusive charts] ...

FHFA Issues New Guidance on Fraud Reporting by FHLBanks

The Federal Housing Finance Agency recently updated its regulatory guidance for the Federal Home Loan Banks on the reporting of fraudulent financial instruments. The new guidance instructs the FHLBanks to implement policies and procedures for complying with the reporting requirements regarding anti-money laundering and suspicious activity that the Financial Crimes Enforcement Network published Feb. 25, 2014. The FinCEN regulation takes some of the provisions of the Bank Secrecy Act and applies them to the FHLBanks, and delegates examination responsibility to the FHFA to determine compliance. “Generally, the FinCEN regulation requires that each regulated entity develop an anti-money laundering program and file suspicious activity reports (SARs), among other requirements,” the FHFA said. The FinCEN reg took effect April 28, 2014. The ...

GSE Roundup

Bulletin 2015-2. Feb. 17. Freddie Mac announced updates to the following: Guide Forms 16SF, Annual Eligibility Certification Report, and 1107SF, Seller/Servicer Change Notification Form, to implement a new requirement that seller/servicers review the Federal Housing Finance Agency’s Suspended Counterparty program list; and Form 1035, Document Custodial Agreement: Single-Family Mortgages. On the servicing side, Freddie revised notification requirements for bankruptcy cramdowns, including Form 1155, Bankruptcy Cramdown Pre-Confirmation Proposal Settlement Terms. It updated reporting and remittance requirements for properties purchased by third parties at foreclosure sale, including new Form 1160, Third-Party Sale Transmittal Worksheet. Freddie also updated rollback reporting requirements and insurance loss settlement requirements, and made clarifications related to bankruptcy filings after a foreclosure sale...

Poll

With the recent dip in interest rates, how do you feel about loan volumes this year?

We see loan production ending 2015 flat compared to 2014.
We’re optimistic that our originations will rise by 10 to 20 percent year over year.
We’re really optimistic: We expect production to increase by 20 percent or better from last year.
We’re not so bullish. Originations for us may actually fall.

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