Packaging the loans into a non-agency MBS suggests that Flagstar expects better execution in the non-agency market than from delivering the mortgages to Fannie Mae or Freddie Mac.
GSE earnings bounced back to a profitable status, as expected, in the first quarter, with Fannie Mae and Freddie Mac reporting a combined $7.2 billion profit. That number is up from the $9.4 billion earnings hit the GSEs took last quarter due to tax reform that went into effect in December 2017. [Includes one chart.]
Fannie Mae and Freddie Mac are in their 10th year of conservatorship and GSE shareholders rights group, Investors Unite, complained about reform still being in limbo. “No one in Washington has answers to fundamental questions about the future of affordable housing, the 30-year mortgage, and basic rights of shareholders,” said IU. Yet, the group noted that the GSEs continue to funnel their earnings to the Treasury Department, per the terms of the net worth sweep. In June, Fannie expects to pay Treasury a $938 million dividend payment.However, IU said the GSEs could be at risk for another taxpayer-funded bailout as long as the Trump administration delays needed reform “and allows the Obama Treasury Department’s net-worth sweep to remain in place.”
The conversation on GSE reform has shifted heavily as we approach midyear, having gone from optimism on congressional legislation to discussions on administrative options. And two Washington, DC-based think tanks recently offered their thoughts on reform and both point to 2019. Treasury Secretary Steve Mnuchin said last week that housing-finance reform will not happen this year. Karen Petrou, managing partner with Federal Financial Analytics, called this the “death knell” for GSE reform in this Congress. And she added that he didn’t seem sorry to deliver it. “With Mel Watt’s term as Federal Housing Finance Agency director coming to a close, Treasury...
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