Fannie Mae and Freddie Mac set aside a combined $1.9 billion to cover potential losses to MBS collateral from the powerful hurricanes that slammed the U.S. and its territories this fall. Ginnie Mae, meanwhile, hasn’t issued an update on affected loans in several weeks, but the government guarantor is trying to stay optimistic.
Freddie Mac had one of its best months of the year in terms of new single-family business during October, notching a significant gain in its share of the GSE mortgage-backed securities market.In October, Freddie issued $34.61 billion of single-family MBS, a hefty 23.9 percent increase from the previous month. Meanwhile, Fannie Mae saw a sharp 11.5 percent drop in MBS production from September to October. Freddie’s share of new GSE MBS issuance surged to 45.7 percent last month, its highest level since November of last year, when it spiked to 45.9 percent – and then abruptly fell to just 36.1 percent the following month.
After being absent for about 10 years, Fannie Mae and Freddie Mac will re-enter the low-income housing tax credit market to support affordable rental housing, the Federal Housing Finance Agency announced late this week. But the GSEs’ market share will be capped so they’re not in direct competition with the private market, and their investments must meet certain requirements. Fannie and Freddie will have an annual investment limit of $500 million, which translates to less than a 5 percent market share for each, according to the FHFA. Moreover, any investments more than $300 million during any year must be in areas that have been identified by the FHFA as markets that have difficulty attracting investors.
With the Senate and the House having both recently released their tax proposals, it’s the House plan to cut corporate taxes in 2018 that would impact the GSEs by threatening their deferred tax assets. A corporate tax cut would likely force Fannie Mae and Freddie Mac to take draws from the U.S. Treasury. This is especially true in light of the fact that by Jan. 1, 2018, neither GSE will be allowed to hold a capital buffer to absorb any losses. A cut to corporate taxes means a write down of some Fannie/Freddie DTAs, including mortgage-related assets, allowances for bad loans, derivatives-related basis differences and deferred fees, which are all currently held at a higher tax rate.
With several recent hearings on sustainable housing finance under its belt, the House Financial Services Committee appears to be exploring GSE reform in depth, but no word yet on when and what that may look like. The HFSC’s Subcommittee on Insurance and Housing held three hearings over a three-week period with the latest taking place last week. A financial services committee staffer wouldn’t confirm whether a piece of legislation is being worked on, but she said that committee Chair Jeb Hensarling, R-TX, believes housing finance reform is a priority for the committee this Congress.
Fannie Mae is looking to give homebuyers access to easier and more affordable construction loans through a potential new pilot program. As the housing supply shortage continues and affordability remains a critical barrier for first-time homebuyers, Fannie envisions the program as a path for homebuyers to get affordable housing. Not many details have been released and there’s no set timeframe because the program is just in the beginning stages of consideration. But if the GSE gets the green light from the Federal Housing Finance Agency, Fannie will be able to buy the loans as soon as construction begins instead of before the house is finished.
Fannie Mae and Freddie Mac released a report this week on efforts to improve the origination of eMortgage transactions including more education and policy alignment on the topic. Those efforts have resulted in the growth of the number of warehouse banks that fund eNotes.The report was a follow-up to a joint industry outreach survey the GSEs conducted last year on perceived barriers to the industry adopting eMortgages. Stakeholder readiness and process complexity were found to be the most common barriers among the lenders, IT companies, warehouse banks, servicers and title/settlement providers surveyed. Survey participants said there was a lack of support for funding eNotes by warehouse banks, a source many mortgage lenders rely on.
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