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Volume 14 - Number 25

December 12, 2014

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Slowdown in Purchase Market Cooled GSE MBS in November

Seasonal trends hit the GSE single-family mortgage-backed securities business in November, with new issuance of single-family MBS tumbling 15.1 percent from October. A new Inside the GSEs analysis of loan-level MBS disclosures reveals that a sharp 22.0 percent drop in securitization of purchase-money mortgages was the major factor in the November decline. Refinance loans delivered to Fannie Mae and Freddie Mac MBS pools were off a milder 6.8 percent from the previous month. In fact, more than half of Fannie’s MBS flow in November came from refinance loans, the first time since March that purchase mortgages accounted for less than half of the GSE’s business. One sign of the increased refinance share of GSE business ... [with two exclusive charts]

Analysts See Better Deal In GSE 97s Than in FHA

The 3 percent downpayment mortgages announced this week by Fannie Mae and Freddie Mac should be a better deal than similar FHA financing for stronger-credit borrowers, according to analysts. Final details of the conventional 97 loan-to-value ratio products were released this week to mixed but mostly favorable reviews. Although aimed at first-time homebuyers in Fannie’s MyCommunityMortgage and Freddie’s Home Possible programs, the products are also available for refinances of existing GSE loans. Only 30-year, fixed-rate loans are eligible and the home must be the borrower’s primary residence. In Fannie’s case, borrowers who go through MCM would pay lower upfront loan-level price adjustments. Freddie requires that the loans go through Home Possible. Analysts with FBR Capital Markets said the government-sponsored enterprises’ ...

FHFA Orders GSEs to Start Contributing to Trust Funds

Fannie Mae and Freddie Mac will send about $290 million to two federal trust funds next year following a controversial decision by the Federal Housing Finance Agency to reverse a 2008 decision by its former top official. It’s no surprise that FHFA Director Mel Watt, a former Democratic member of the House, decided to end the “temporary” ban on GSE contributions to the Housing Trust Fund and Capital Magnet Fund. The reaction to this week’s announcement was predictable as well: a leading House Republican railed against it, while community advocates praised it. The contribution formula calls for Fannie and Freddie to send amounts equal to 4.2 basis points of the principal balance of their new business to the funds. Based ...

Fannie Adds New Twist to Risk-Transfer Transactions

Fannie Mae purchased reinsurance from three un-named U.S. providers for a new “credit insurance risk transfer” transaction. CIRT 2014-1 represents a new twist on the GSE’s risk-transfer program, which has focused until now on Connecticut Avenue Securities. Fannie will retain 50 basis points of first-loss risk on a pool of $6.42 billion of loans sold to the GSE during the first quarter of 2014. If that exposure is exhausted, the reinsurance firms will absorb the next 300 bps of loss on the pool, up to a maximum of about $193 million. The term of the deal is 10 years, although the aggregate coverage amount may be lowered at several points depending on delinquencies and paydown. ...

GSEs Won’t Say How Much Servicing Is Being Transferred

Transfer of mortgage servicing rights, especially from banks to nonbanks, has been widely discussed over the past few years, but Fannie Mae and Freddie Mac aren’t saying how much is changing hands. One investment banking official who sells MSR for a living said he believes that through the first nine months of 2014, about $350 billion in agency receivables changed hands, but has no solid evidence to back it up. In fact, several servicing advisors contacted by Inside The GSEs declined to take a stab at making an estimate. According to Inside Mortgage Trends, an affiliated newsletter, commercial banks and thrifts have reduced the unpaid principal balance of home loans they service for other investors by $357.6 billion in the ...

FHFA Pushes Back on OIG Counterparty Recommendation

The Federal Housing Finance Agency issued an advisory bulletin last week detailing the GSEs’ responsibilities for managing counterparty risks. FHFA Advisory Bulletin 2014-07 states that each enterprise should “assess financial, operational, legal, compliance, and reputation risks associated with its single-family seller/servicer counterparties and take appropriate action to mitigate those risks or reduce the enterprise’s exposure. Toward this end, each enterprise should implement a board-approved risk management framework that specifically includes risk-based oversight of single-family seller/servicers.” Anne Canfield, executive director of the Consumer Mortgage Coalition, said the bulletin could relate to an audit report released in September by the FHFA’s Office of Inspector General. The OIG report directed Fannie Mae and Freddie Mac to assess the cost/benefit of a risk-based approach ...

Sen. Warren Critical of FHFA, Fannie/Freddie Policies

A hearing by a subcommittee of the Senate Committee on Banking, Housing and Urban Affairs turned into a showcase for Sen. Elizabeth Warren, D-MA, to criticize Fannie Mae, Freddie Mac and the Federal Housing Finance Agency. “To be blunt, Fannie and Freddie have put homeownership out of the reach of millions of creditworthy families,” Warren said at a hearing by the Banking Subcommittee on Housing, Transportation and Community Development. She focused on average credit scores for mortgages delivered to the GSEs. “In 2012, the average credit score associated with a mortgage purchased by Fannie or Freddie was over 760,” Warren said. “That is more than 50 points higher than the average credit score associated with the mortgages they purchased back ...

Industry Survey: Fix the GSEs, But Don’t Dissolve Them

Mortgage industry participants generally think GSE reform is necessary but they don’t support a complete wind-down of Fannie Mae and Freddie Mac, according to a new survey conducted by the Collingwood Group. Some 64.5 percent of 97 respondents said GSE reform is necessary. “Those who want reform say that the GSEs need not serve as a backup guarantor of home mortgages and believe that the government shouldn’t be guaranteeing more than 90 percent of the market,” Collingwood said. “The majority of respondents felt strongly that Fannie Mae and Freddie Mac’s current state is untenable,” Collingwood said. “Interestingly, none of the survey respondents called for a wind-down or elimination of the GSEs.” Those who said GSE reform is not necessary cited ...

FHFA Readies Liquidity Standards For Nonbank Seller Servicers

Fannie Mae and Freddie Mac are watching with some concern the growing role of nonbank servicers, and their regulator is drafting new standards for these counterparties. “The shift from depository to non-depository servicers poses additional risks to us,” Fannie said in its third-quarter 10-Q filing. “Non-depository servicers may have a greater reliance on third-party sources of liquidity and may, in the event of significant increases in delinquent loan volumes, have less financial capacity to advance funds on our behalf or satisfy repurchase requests or compensatory fee obligations.” The fast growth of many of these nonbank servicers poses “increased operational risk, which could negatively impact their ability to effectively manage their servicing portfolios,” Fannie said. Nonbank servicers – especially “specialty” companies – are ...

FHFA Updates, Clarifies FHLB Capital, Stock Requirements

The public comment period closed this week on a Federal Housing Finance Agency proposed rule that updates and clarifies the requirements for Federal Home Loan Bank capital stock and capital plans. The proposal is mostly a housekeeping change, shifting regulations from the old Federal Housing Finance Board rulebook to the FHFA. “The proposed rule would not make any substantive changes to these requirements, but would delete certain provisions that applied only to the one-time conversion of bank stock to the new capital structure,” the agency said. None of the FHLBanks commented on the proposal, which would align the rules better with long-standing practices for transactions in FHLBank stock. Most significantly, the proposed rule would add appropriate references to “former members” ...

GSE Roundup

SEL 2014-15. Dec. 8. Fannie announced expanded loan-to-value ratios for purchase and limited cash-out refinances. The GSE also updated its loan-level price adjustment matrix. The program requires use of Fannie’s Desktop Underwriter version 9.2, which will be implemented over the Dec. 13 weekend. It is available for both MyCommunityMortgage and standard business. For MCM, Fannie now allows borrower reserves to come from gifts. Bulletin 2014-22. Dec. 8. Freddie introduced the Home Possible Advantage product, which allows loan-to-value ratios up to 97 percent under the Home Possible program. The loans can be manually underwritten or processed through Freddie’s Loan Prospector. At least one borrower must get homeownership counseling. The program effective date is March 23, 2015. DU Spring 2015 Update. Dec. 5. ...

Poll

What will Fannie Mae’s and Freddie Mac’s new 97 LTV programs mean for your business?

It will give our business a big boost as there is a lot of pent up demand for the product.
It will have only a minor impact on our overall business as we already are doing high LTV business through FHA and some of our high LTV FHA business is likely to shift to Fannie and Freddie.
It won’t have any impact on our business as we plan to steer clear of all high LTV business – particularly in the GSE market.

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