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] ...

Nonbanks have become more competitive the past few years, but if you think that Wells Fargo doesn’t like mortgages, think again.

Fannie Mae and Freddie Mac reduced their combined mortgage investment portfolio by 13.7 percent last year by focusing on less-liquid assets. The two government-sponsored enterprises still had $821.7 billion of mortgages and MBS on their books at the end of the year. Freddie reported that it sold $16.5 billion of less-liquid assets such as unsecuritized mortgages, multifamily assets and non-agency MBS. At the end of the year, some 59 percent of its portfolio was designated as less liquid, down from 62 percent at the end of 2013. The Federal Housing Finance Agency in 2013 directed...[Includes one data chart]

The European Commission last week requested comments on a framework for simple, transparent and standardized securitization that would apply to issuance in the European Union. A number of other non-U.S. regulators are considering similar proposals, prompting MBS and ABS participants in the U.S. to call for coordination among international regulators. The EC said its priority is to create a sustainable market for high-quality securitization without repeating the mistakes made before the financial crisis. “A high-quality EU securitization framework will promote further integration of EU financial markets, help diversify funding sources and unlock capital, making it easier for banks to lend to households and businesses,” the EC said. The European regulator stressed...

Although the Federal Housing Finance Agency has yet to tip its hand on where it might be headed regarding guaranty fees, most of the industry is betting on no change at all – or possibly a slight reduction, according to interviews conducted by Inside MBS & ABS over the past two weeks. Moreover, Fannie Mae and Freddie Mac themselves are playing a key role in the decision-making process, at least that’s what Freddie CEO Donald Layton said recently. “Guaranty fees are...

The window to pass reform measures, even narrowly targeted provisions that have bipartisan support, might be closing.

Morgan Stanley has agreed in principle with the Department of Justice to pay $2.6 billion to resolve MBS claims the agency’s civil division indicated it would bring against the company, according to a new disclosure from the Wall Street firm. Morgan Stanley’s disclosure about a potential MBS lawsuit by the U.S. Attorney for the Northern District of California contained no other details. However, the firm increased its legal reserves by $2.8 billion to cover any potential settlement and other pending legacy-related MBS disputes. The adjustment increased...

With the jumbo MBS market slow to rebound, Redwood Trust has put an increased emphasis on agency mortgages, its commercial mortgage business and risk-sharing transactions with the government-sponsored enterprises. On the residential side, Redwood has continued to work on issuing jumbo MBS, but the real estate investment trust usually finds better execution in whole-loan sales. Redwood obtained approval as a seller to the GSEs at the end of 2013 and completed $4.0 billion in conforming mortgage correspondent business last year. During the fourth quarter, Redwood delivered...

Commercial banks and thrifts added $12.2 billion of agency single-family MBS to their investment portfolios during the fourth quarter of 2014, according to a new Inside MBS & ABS ranking and analysis of call-report data. Banks and thrifts held $1.539 trillion of MBS on their books at the end of last year, a slight 0.3 percent increase from the third quarter. Bank/thrift holdings were up 2.2 percent from the end of 2013. Growth in agency mortgage securities was...[Includes two data charts]

Federal Reserve Chair Janet Yellen indicated this week that the central bank ultimately plans on holding few, if any, mortgage-related securities on its balance sheet. It seems unlikely there will be much in the way of actual sales of agency MBS by the Fed, which leaves run-off as the method of choice to drain the central bank’s portfolio. Delivering her semi-annual Humphrey-Hawkins testimony this week on Capitol Hill, the Fed chief said the FOMC intends to adjust its monetary policy during its normalization process mostly by changing its target range for the federal funds rate and not by actively managing its balance sheet. “The primary means of raising the federal funds rate will be to increase the rate of interest paid on excess reserves,” Yellen said. She also noted...