The Federal Housing Finance Agency violated federal law when it rolled back the Property Assessed Clean Energy program without going through the required notice and comment period, a California federal judge ruled earlier this month. U.S. District Judge Claudia Wilken’s Aug. 9 ruling held that the FHFA was not acting as conservator of Fannie Mae and Freddie Mac but as a regulator that had improperly exercised substantive regulatory oversight in violation of the Administrative Procedure Act when the agency put a stop to GSE involvement with PACE programs.“The FHFA’s directives on PACE obligations amount to substantive rule-making, not an interpretation of rules that would be exempt from the notice and comment requirement,” wrote Judge Wilken. “The notice and comment process must be followed.”

Both Fannie Mae and Freddie Mac retained their dominant shares of mortgage-backed securities with something of a slide during the second quarter of 2012, according to an Inside The GSEs analysis. The two GSEs issued a combined $273.9 billion MBS during the second quarter, a 10.2 percent decrease from the first quarter. Compared to the second quarter of last year, however, Fannie and Freddie saw an ample 76.8 percent increase in MBS issuance.

A federal appeals court has agreed to hear a rare appeal by one of the non-agency mortgage-backed securities issuers and underwriters being sued by the Federal Housing Finance Agency for allegedly misrepresenting the deals that were sold to Fannie Mae and Freddie Mac. A three-judge panel of the Second Circuit Court of Appeals accepted UBS Americas’ appeal to re-argue and reverse a lower court’s denial of the bank’s motion to dismiss the FHFA’s suit as time-barred under the Housing and Economic Recovery Act.The FHFA sued UBS in July 2011 on behalf of Fannie and Freddie, seeking damages and civil penalties on behalf of the government-sponsored enterprises under the Securities Act of 1933.

Fannie Mae announced last week that it is amending its guidance regarding custodial bank accounts, effective immediately. Prior to the company’s Aug. 15 servicing guide announcement, tax and insurance escrow funds for Fannie mortgage loans with all remittance types could be commingled in the same custodial account, although the servicer could establish separate accounts for T&I payments for each remittance type if it chose to do so.

Fannie Mae and Freddie Mac’s newly amended preferred stock purchase agreement with the U.S. Treasury requiring the companies to accelerate the rate at which they reduce their investment portfolios will have little immediate impact but will become more challenging to the GSEs as time goes on, analysts predict. The Treasury’s amended agreement calls for the GSE portfolios to be wound down at an annual rate of 15 percent, instead of the 10 percent annual reduction originally required of the two companies. The more aggressive 15 percent reductions will go into effect in 2013. Consequently, Fannie’s and Freddie’s portfolios must be reduced to the $250 billion target by 2018, four years earlier than initially scheduled.

The Federal Housing Finance Agency this week announced that Fannie Mae and Freddie Mac will implement new short sale guidelines that expand eligibility criteria, as well as align and consolidate existing GSE short sales programs into one standard offering. The new guidelines, which go into effect Nov. 1, will permit homeowners with a Fannie or Freddie mortgage to sell their home in a short sale even if they are current on their mortgage, provided they have an eligible hardship.

The Treasury Department’s surprise announcement late last week that it will now “sweep” up any and all future profits from Fannie Mae and Freddie Mac in lieu of the dividends the GSEs had been paying in return for taxpayer support solves some problems but creates new ones, industry observers say. Rather than continue to borrow from the Treasury to make dividend payments to the Treasury – as the GSEs have since they were placed in conservatorship in September 2008 – the revised preferred stock purchase agreements will replace the 10 percent quarterly dividend with a “full income sweep” of “every dollar of profit that each firm earns going forward,” according to Michael Stegman, counselor to the Treasury for Housing Finance Policy.

Nationstar Mortgage Holdings posted strong profits for the second quarter of 2012 due to the company’s expanding servicing portfolio and refinances of loans in the portfolio. The nonbank had $36.3 million in net income for the quarter even after taking a $20.9 million decrease in the fair value of its mortgage servicing rights. “The primary driver of profitability continues to be servicing performance,” said Jay Bray, CEO of Nationstar, during a call with investors last week to announce the company’s earnings ...

Chimera Investment announced that it will restate three years of earnings and take large hits to net income and other-than-temporary impairment losses due to accounting on non-agency mortgage-backed securities. The real estate investment trust has been working for more than a year to apply proper accounting guidance to its $4.41 billion in non-agency MBS holdings. “As a result of applying the correct generally accepted accounting practices guidance to our investments in non-agency residential mortgage-backed securities ...