The architects of the ambitious bipartisan housing-finance reform bill in the Senate have put considerable emphasis on preserving access to the new secondary-mortgage market for smaller lenders. They may not have it right yet. According to Fannie Mae and Freddie Mac, the so-called small lender mutual envisioned by Sens. Tim Johnson, D-SD, and Mike Crapo, R-ID, would face significant challenges in a new mortgage-finance world where large institutions could vertically integrate ...

KBW: Fannie, Freddie Emerging From Conservatorship ‘Increasingly Plausible.’ The battle over the future of Fannie Mae and Freddie Mac likely will rage on for the rest of the decade, but it’s “increasingly plausible” that the two government-controlled mortgage giants will emerge from conservatorship, according to a new report from Keefe, Bruyette & Woods. However, KBW Analyst Brian Gardner readily admits that the firm is unsure “how or when” the Treasury Department or Federal Housing Finance Agency can legally take the two out of conservatorship.

Freddie Mac Multifamily now will purchase from its Targeted Affordable Housing lender network multifamily tax-exempt loans, and aggregate and securitize them into a new series called M-Deals, the GSE announced last week. The move is in concert with the firm’s launch of a new initiative – the Direct Purchase of Tax-Exempt Loans – to help keep rental housing affordable for lower income families and increase cost-effective financing for tax-exempt multifamily properties. Freddie explained these are tax-exempt loans issued by a city, county or state housing finance entity for apartments that have affordable rents for lower income individuals.

The Federal Housing Finance Agency should immediately suspend assessments of compensatory fees for servicers that miss GSE foreclosure timeframes, according to a new letter from the Mortgage Bankers Association. Instead, MBA is offering to create a plan with a “more holistic method of identifying and penalizing servicer under-performance.” In correspondence dispatched to FHFA Director Mel Watt this week, MBA President and CEO David Stevens says the imposition of compensatory fees has morphed into a risk-sharing mechanism that shifts the costs of the prolonged foreclosure process from the GSEs onto mortgage servicers.

Building on the success of its previously issued Structured Agency Credit Risk debt notes, expect Freddie Mac to continue to crank out additional risk-sharing deals, while the GSE pursues reinsurance opportunities to further mitigate risk, say company officials and industry observers. Last week, Freddie announced it has reduced taxpayer exposure by obtaining insurance policies for a combined maximum of $269.5 million of losses to a portion of the credit risk associated with a pool of single-family loans funded in the first quarter of 2013. The GSE said the policies were underwritten by a group of well-capitalized and well-established insurers and reinsurers and were obtained under Freddie’s Agency Credit Insurance Structure, which has attracted private capital from non-mortgage guaranty insurers and reinsurers.

Although recently installed Federal Housing Finance Agency Director Mel Watt delayed an increase in guaranty fees earlier this year, executives at Fannie Mae and Freddie Mac have told some mortgage executives in private conversations that raising g-fees may not be a bad idea, according to industry officials briefed on the matter. “They’re actively saying they want an increase in g-fees,” said one source, speaking about the GSEs. However, others suggest that the situation needs to be placed into context. The FHFA and the GSEs may be working on a deal to reduce charges tied to loan-level price adjustments.

While the housing finance reform legislation authored by Sens. Tim Johnson, D-SD, and Mike Crapo, R-ID, recognizes the “distinct nature and role of the Federal Home Loan Banks,” concern remains that the bill’s treatment of FHLBank regulation within the proposed regulator could lead to a conflict of interest that impedes the 12 Banks and their members, according to the American Bankers Association. An ABA memo to the members of the Senate Banking, Housing and Urban Affairs Committee suggested that lawmakers leave regulation of the FHLBanks with either an independent agency or strengthen the bill’s proposed regulatory firewalls.

The Senate’s GSE reform proposal in its current form would create an extremely high risk for Freddie Mac’s core policy functions during the bill’s proposed five-year wind down of the company, Freddie’s chief executive warned. In a confidential memo to Federal Housing Finance Agency Director Mel Watt that was leaked to the media, Freddie CEO Donald Layton said that the housing finance reform legislation by Sens. Tim Johnson, D-SD, and Mike Crapo, R-ID, fails to state clearly that the GSEs’ core policy function must be maintained and such an omission would create potentially crippling uncertainty among staffers during the transition.

New GSE stress test results released by the Federal Housing Finance Agency this week reveal what many in the industry have been talking about for the past year: Because Fannie Mae and Freddie Mac are not allowed to build capital, they would be forced to tap Uncle Sam once again for cash assistance should a financial calamity strike the nation. If a severe recession hits, Fannie and Freddie would need Treasury draws ranging from $84.4 billion to $190 billion, depending on the treatment of deferred tax assets, according to new calculations made by the GSEs and the FHFA. Adjustments to DTAs have allowed the two to book huge earnings the past year, but those accounting adjustments are now running out.

Did someone in the mortgage industry actually ask one of the GSEs recently to increase the 25 basis point servicing fee that it pays to residential servicers?