A new “pragmatic” secondary market reform plan released by four housing experts closely resembles the bipartisan legislation being drafted by key members of the Senate, including an ambitious implementation timeline that says the overhaul could be accomplished in about three years. Sponsored by the Milken Institute, the Urban Institute and Moody’s Analytics, the “Pragmatic Plan for Housing Finance Reform” features a new government MBS guaranty that would cover catastrophic losses after private credit enhancement is exhausted. Like the legislation being drafted by Senators Bob Corker, R-TN, and Mark Warner, D-VA, it would create a new Federal Mortgage Insurance Corp. to manage the new government MBS guaranty. Under the proposal, MBS insurers would be...

When rates spiked this week, margin calls to MBS investors increased. Lenders are nervous but next will will be the real test, mortgage executives told Inside Mortgage Finance.

Fannie Mae and Freddie Mac would cease to exist while the Federal Housing Finance Agency would be repurposed into a new incarnation as a “capable and empowered” regulator of a “pragmatic” housing finance system as envisioned in a new blueprint released this week by four industry experts. Spearheaded by Moody’s Analytics Chief Economist Mark Zandi – most recently on the White House’s short list to head the FHFA – the group’s white paper calls for the federal government to play an “explicit and transparent” role in the new housing finance system and to act as an insurer that covers catastrophic losses. The blueprint calls for an emphasis on mortgage funding diversity.

Freddie Mac is telling trade groups that it will kill a $7,500 “low-activity fee” after hearing numerous complaints from banks, thrifts and credit unions. According to sources who have been briefed on the about-face, the fee – set to go into effect next year – will be mostly eliminated, but it will still apply to originators that have not sold a loan to the GSE in 36 months and do not service any Freddie loans. A Freddie spokesman declined comment but noted, “We always listen to the concerns of our customers.”

Fannie Mae and Freddie Mac were improperly prevented from increasing their guaranty fees for years during the GSEs’ conservatorship after the federal government unconstitutionally seized control of the two companies during the 2008 financial crisis and the lower fees cost investors billions of dollars, according to a federal lawsuit filed by GSE shareholders last week. The plaintiffs – including the City of Austin (Texas) Police Retirement System and Washington Federal, a Seattle-based bank – filed a class-action suit in the U.S. Court of Federal Claims in Washington, DC. The GSE shareholders seek some $41 billion in damages for what they claim was the government’s violation of their 5th Amendment rights that prohibit taking of private property for public use “without just compensation.”

It’s no secret that speculators wide and far are betting the common and preferred shares of Fannie Mae and Freddie Mac could rise significantly as their profits continue to stay robust. But according to James Lockhart, who once headed the Federal Housing Finance Agency, these speculators are likely throwing their money away. Speaking at a recent housing forum sponsored by the Bipartisan Policy Center, he noted that the Treasury Department owns the senior preferred of the GSEs and the senior stock “sits above” the junior shares. Lockhart said the government preferred will never be paid back, which means the junior holders are out of luck. Lockhart, who now serves as vice chairman of WL Ross & Co., said he does not own any stock in the two nor does he plan on buying any.

With just a week to go, the petition drive by Fannie Mae and Freddie Mac common shareholders asking the White House to “restore fairness” to the value of their lost investment looks like it will fall woefully short of the required number of signatures. Created on June 1, the petition posted on the White House website calls for Congress, the Treasury Department and the Federal Housing Finance Agency to enact a method “to provide fairness and protection” to common shareholders of the two GSEs “and enable shareholders to have participation in the recovery value of their stock.”

The Federal Housing Finance Agency has no interest in revisiting a program that Fannie Mae spent a year developing to directly purchase force-placed insurance even as it solicited input last week from “stakeholders” during a two-day, closed-door working group. The invitation-only meeting, closed to the public and press, drew some 80 attendees representing big banks, insurers, insurance brokers, other regulators and representatives of industry and consumer groups who weighed in as the Finance Agency decides its policy direction on force-placed or lender-placed insurance. According to those in attendance at the meeting, the FHFA officials were cordial but the agenda was strictly focused on concerns that force-placed premiums might be too high and that the industry lacks serious competition.

Aligning Fannie Mae’s and Freddie Mac’s underwriting standards and creating clear standards for representations and warranties is essential for a smooth transition to a sustainable secondary market operating with an explicit, limited government guaranty, according to the Mortgage Bankers Association. The MBA’s new concept paper – the fourth of a five-part plan – suggests the Federal Housing Finance Agency set parameters for acceptable underwriting criteria by both GSEs, then allow them to offer credit terms within a “clear outer boundary.” “If we are to have a fully functioning secondary market that provides sustainable access to credit for qualified borrowers, then the development of transparent and consistent credit underwriting standards are of the utmost importance,” said the MBA.

Banks and thrifts continued to push a high volume of home mortgages into the secondary market during the first three months of 2013, but the pace was slowing, according to a new Inside Mortgage Trends analysis of call report data. The industry reported $395.8 billion in single-family mortgage sales during the first quarter, down 5.1 percent from the previous period. It was a stronger sales volume than during the first quarter of 2012, however, and ranked as the fourth largest ... [Includes one data chart]