Volume 14 - Number 23
November 14, 2014
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Effective and lasting GSE reform cannot be accomplished without Congress taking decisive action and the housing finance market’s status quo is unsustainable in the long term, according to the former head of the Federal Housing Finance Agency. Speaking at an American Enterprise Institute forum late this week, former FHFA Acting Director Edward DeMarco warned attendees to expect comprehensive and lasting housing finance reform to remain stalled unless lawmakers pass a bill that the president will sign.
Expect GSE reform to remain a key focus of Congress following the mid-term election Republican takeover of the Senate and vast expansion in its House majority. However, industry observers warn that it remains to be seen whether focus will translate into legislative action during the 114th Congress as the new leadership structure remains in flux.
Fannie Mae and Freddie Mac reported a combined $6.0 billion in net income for the third quarter of 2014, up from $5.1 billion in the previous quarter. The two GSEs will send to the Treasury $6.8 billion as return on the government’s senior preferred stock. That will bring cumulative payments under the GSE conservatorships to $225.5 billion. Fannie and Freddie were given a total of $187.4 billion in government funds in order to stay in business.
Federal Housing Finance Agency Director Mel Watt will be on the hot seat next week when he is slated to testify before the Senate Banking, Housing, and Urban Affairs Committee. The oversight hearing – titled “The Federal Housing Finance Agency: Balancing Stability, Growth, and Affordability in the Mortgage Market” has Watt listed as the only witness when the committee convenes on Wed., Nov. 19, at 10 a.m.
The GSE risk-sharing market is building momentum and investors indicate there is a growing demand for this product going forward, industry insiders told attendees of an Urban Institute/CoreLogic housing forum last week. In its most recent strategic plan for the GSEs, the Federal Housing Finance Agency is calling on Fannie Mae and Freddie Mac to reduce their exposure to risk by tripling the amount of credit-risk transfers they conduct on their single-family business from $30 billion last year to $90 billion in 2014.
Loan Banks jumped 22.0 percent to $627 million in the third quarter of 2014, up from $514 million in the second quarter, according to the Federal Home Loan Bank Office of Finance. The increase resulted primarily from increases in non-interest income and net interest income, partially offset by an increase in non-interest expense, explained the Office of Finance. However, net income declined 8.2 percent compared to the first nine months of last year.
After a year of looking, the Federal Housing Finance Agency announced last week it has finally picked a chief executive to run the fledgling Common Securitization Solutions: industry veteran David Applegate, who has a long resume in mortgage banking. Applegate led both GMAC Mortgage and GMAC Bank during a 17-year career at General Motors Acceptance Corp He also worked at mortgage insurer Radian Guaranty. Applegate’s last job title was president and chief executive officer of Homeward Residential, Dallas, a mortgage-banking firm.
The Mortgage Bankers Association is calling on the Federal Housing Finance Agency to direct Fannie Mae and Freddie Mac to review “and if appropriate” adopt new validated credit score models and allow for the use of alternative methods of scoring. In a letter last week to FHFA Director Mel Watt, the MBA said that, through this action, the Finance Agency could directly increase the number of borrowers eligible for conventional mortgages.
Look for the Federal Housing Finance Agency’s new guidelines for loans with loan-to-values between 95 percent and 97 percent to take into account “compensating factors” to offset reduced borrower equity. In a speech last week at the National Association of Realtors conference in New Orleans, FHFA Director Mel Watt elaborated only a little further on the agency’s recently announced mortgage guidelines, noting they will include safety and soundness standards to best manage the GSEs’ risk.
Ohio Court Sides With Freddie in Pre-Crisis Shareholder Lawsuit. An Ohio federal court late last week tossed out a shareholder class action lawsuit that accused Freddie Mac of lying about its exposure to subprime loans prior to the 2008 financial crisis. The suit, filed in 2008 by the Ohio Public Employees Retirement System, claimed that Freddie artificially inflated the value of its common stock by making false public financial statements that obscured its subprime exposure.OPERS claimed it lost as much as $27.2 million as a result of Freddie’s alleged cover-up of its subprime exposure.
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