The Federal Housing Finance Agency must improve its risk assessments of Fannie Mae and Freddie Mac’s real estate-owned properties to provide more comprehensive coverage of GSE risk areas, according to an audit by the agency’s official watchdog. In risk assessments of Fannie and Freddie conducted between 2008 and 2011, the FHFA noted that the GSEs’ large REO inventories were a “critical concern” – the agency’s most severe rating. However, the OIG noted that the agency didn’t perform any targeted examinations of Fannie and Freddie’s management and marketing of REO until 2011. Earlier this year, the FHFA completed four targeted examinations focused on GSE REO risks. The first two examinations focused on risks arising from Fannie and Freddie’s use of vendors to manage REO and the other two examinations looked at their efforts to mitigate losses from “problematic properties,” noted the OIG.

The Federal Housing Finance Agency is exploring the possibilities of a streamlined lender-placed or “force-placed” insurance policy between Fannie Mae and Freddie Mac. “FHFA is keenly interested in costs associated with force-placed insurance and related impacts to borrowers, Fannie Mae, Freddie Mac and the taxpayer,” a Finance Agency spokesman told Inside The GSEs. “We are looking at policy related to force-placed insurance to see where there might be opportunities to reduce costs.” Some existing force-placed policies are controversial because they are sold by insurance companies owned by lenders or by insurers with which the lenders have a financial relationship.

Mortgage banking profits remained at very high levels during the second quarter of 2012, although about half the top lenders that have reported results so far said their income was down from the first three months of the year. In many cases, robust production income was offset by persistently high repurchase expenses. A new Inside Mortgage Trends analysis of earnings reports from 21 banks with significant mortgage banking operations revealed...[Includes one data chart]

Compliance management, consumer complaints, fair lending and unfair, deceptive business practices will receive the most scrutiny during supervisory exams of large banks and nonbank financial institutions, according to the Consumer Financial Protection Bureau. Lenders should reevaluate their current policies and procedures for consumer protection even before they are selected for a comprehensive audit by the CFPB, suggested Allison Brown, program manager for mortgage supervision within the bureau’s Office of Nonbank Supervision. Penalties for noncompliance are unclear but noncompliant institutions will be required...

Subsidiaries of Nationstar Mortgage Holdings announced last week that they intended to sell $100 million in senior notes to help fund future acquisitions and transfers of servicing portfolios, including the potential acquisition of certain servicing assets from Residential Capital. The notes were sold this week in a private placement. The notes are a “follow-on” issue to $275 million in senior notes the company issued in April, due in 2019. Nationstar said the additional notes were issued at an offering price of 105.500 percent, they have an effective yield of 8.396 percent and carry a coupon of 9.625 percent per annum, payable semi-annually in arrears, beginning in November 2012. In May, Nationstar announced that it would pay...

A “bad bank” entity for pooling and standardized restructuring and resecuritization of underwater mortgages may be the best bet for the housing market to pull itself out of the negative equity quagmire of the last several years, according to a proposal by a Georgetown University law professor. In his white paper – Clearing the Mortgage Market Through Principal Reduction: A Bad Bank for Housing RTC 2.0 – Adam Levitin makes the case that the best option for “clearing the market” lies via “negotiated, quasi-voluntary principal reduction” using a privately funded Resolution Trust Corporation-style entity. “Such an RTC 2.0 would provide a framework for implementing ‘quasi-voluntary’ principal reductions in the context of litigation or regulatory settlement or the federal government’s exercise of its secondary market power to exclude...

Fannie Mae and Freddie Mac have adopted a “common language” to improve and help ease lenders’ delivery of loans and appraisals to the government-sponsored enterprises. The GSEs’ full adoption of the Uniform Loan Delivery Dataset (ULDD) on July 23 establishes a common usage and standardizes most of the data required at the time of loan delivery, minimizing differences wherever possible. Freddie Mac hailed the new system as a “critical milestone” of the Uniform Mortgage Data Program, a joint GSE initiative to provide...

Narrower spreads on new investments and rising prepayments could dampen earnings in the second quarter of 2012 for most residential mortgage real estate investment conduits (REITs) that invest in mortgage-backed securities, according to a new report from Keefe, Bruyette & Woods research. During the quarter, the Fannie Mae 30-year current coupon fell nearly 50 basis points from the prior quarter as a result of a 57 bps drop in the yield on a 10-year Treasury note. Dividends, a generally good indicator of profitability, either have been flat or down modestly, the KBW report noted. On a brighter note, while the government-sponsored enterprises’ monthly data showed...

California, Arizona, Nevada and Florida – the so-called Sand States that have seen the most severe declines in house prices – were at the head of the line as Fannie Mae and Freddie Mac removed loan-to-value limits under the Home Affordable Refinance Program earlier this year. Refinance mortgages with loan-to-value ratios exceeding 125 percent accounted for just 2.5 percent of HARP business in the first quarter, as the government-sponsored enterprises just got started buying such loans for cash. A securitization option for these loans only became available in June. But 13.1 percent of HARP loans in Nevada were...[Includes one data chart]

New home loan originations in the second quarter of 2012 were up 5.2 percent from the first three months of the year, according to a new Inside Mortgage Finance ranking and analysis. Production trends varied significantly among the top lenders, however, and early estimates suggest that lenders further down the food chain may be picking up market share. Wells Fargo is still effectively lapping the field with more than double the origination volume of its nearest rival, but the industry leader managed a relatively modest 0.8 percent increase in production while its three closest competitors all reported double-digit gains. Although Wells may be mothballing some firepower by shutting down its wholesale broker business, the company was...[Includes two data charts]