Fannie Mae and its former auditor KPMG LLP have agreed to pay $153 million to resolve a long-simmering class action lawsuit brought by investors seeking to recover damages, according to an announcement Tuesday by Ohio Attorney General Mike DeWine. Two Ohio pension funds – the Ohio Public Employees Retirement System and the State Teachers Retirement System of Ohio – filed suit in 2004 related to a $6.3 billion overstatement of earnings against Fannie and three former GSE executives, including then-CEO Franklin Raines.
Fannie Mae hit an earnings home run in the first quarter while revealing that it has released $50.6 billion in “deferred tax assets,” an allowance that sets up a massive cash payment to the U.S. Treasury by the end of June. Fannie estimates that based on a net worth of $62.4 billion at March 31, it will have a dividend obligation to Treasury of $59.4 billion, a cash payment that appears all but certain. Following an edict from Treasury last summer, the GSEs cannot build retained earnings and can only maintain a small “buffer” of net worth. The rest of their earnings must be given to Treasury, which controls their preferred stock.
Fannie Mae and Freddie Mac are “on track” in their conservator-mandated effort to create a common mortgage-backed security securitization platform even as the GSEs also draft standard contracts and disclosures for the MBS market of the future, according to the Federal Housing Finance Agency. The “progress report” that the FHFA issued last week was more of an outline of public comments it has received so far on what the agency and the GSEs have already proposed on the scope, design and construction of a common securitization platform and the progress of a CSP prototype. “The design is deliberately flexible so that the long-term ownership structure may be adjusted to meet the goals and direction that policymakers set forth for housing finance reform,” the report said. “Importantly, FHFA plans on instituting a formal structure to allow for ongoing input from industry participants.”
The Federal Housing Finance Agency is calling for public comments to weigh in on its planned survey of borrowers as part of a joint effort with the Consumer Financial Protection Bureau to build and maintain a database of government mortgage information. The planned National Survey of Mortgage Borrowers will be a quarterly survey of recent first-time borrowers of single-family mortgages. “The survey questionnaire will be sent to approximately 7,000 new mortgage borrowers each calendar quarter and will consist of approximately 80-85 multiple choice and short-answer questions designed to obtain information about individual residential mortgage borrowers that is not available elsewhere,” explained the FHFA in its recent Federal Register notice.
GSE principal reduction could end up saving the government money but its reach to additional distressed borrowers would be limited, according to a report by the Congressional Budget Office. Expanding Fannie Mae’s and Freddie Mac’s loan modification policy to include principal forgiveness under the current Home Affordable Modification Program would probably generate fewer than 60,000 additional modifications, concluded the CBO report published last week.
Fannie Mae is set to "give back" $50.6 billion to the U.S. Treasury by June 30, thanks to stellar earnings and accounting treatment of deferred tax assets.
Fannie Mae, Freddie Mac and their government overseer are considering adding new features to the common securitization platform in addition to the major components in the initial design, according to officials speaking at the Mortgage Bankers Association Secondary Market Conference in New York this week. A potential addition to the project would include “life flow data” about the mortgage transaction, said Manoj Singh, associate director in the Federal Housing Finance Agency’s Office of Strategic Initiatives. The common securitization platform, or CSP, has been focused on the securitization function, but feedback from the industry has raised the prospect of expanding it to house all the data points that could be needed over the life of the loan, including foreclosure disposition, if it comes to that. Once the government-sponsored enterprises start...
Most mortgage industry observers expect the Federal Housing Finance Agency to raise Fannie Mae and Freddie Mac guaranty fees by about 20 basis points this year, but many are convinced that the impact on market practices may be bigger than the magnetic effect on private capital. The FHFA has said it wants to raise g-fees to the point that private capital comes into the market, according to Paul Mullins, a senior vice president and interim head of single-family at Freddie Mac. During remarks at the secondary market conference sponsored by the Mortgage Bankers Association this week, he said “The odds are reasonably good you will see higher guaranty fees.” Already around 50 bps and twice their historic level, the fees charged...
The mortgage industry has a window of opportunity to improve the secondary market without having to wait years for Congress to deal with Fannie Mae and Freddie Mac, according to the leadership of the Mortgage Bankers Association, which this week announced a three-prong agenda that doesn’t depend on new legislation. The conservatorships of the two government-sponsored enterprises, which will be five years old in October, were intended to be a short “time out,” and there is still no endgame in sight or any plan for transition, said MBA President and CEO David Stevens, during the group’s secondary market conference in New York this week. Stevens outlined...
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