When was the last time a financial institution operating under a government conservatorship started a new company, one that potentially stands to make a bunch of money, given the rapidly improving mortgage market? Answer: Never. This and other questions are being asked by mortgage executives who are trying to track the progress of the Federal Housing Finance Agency’s common securitization platform, a joint venture between Fannie Mae and Freddie Mac. FHFA officials...
Freddie Mac this week issued $1.04 billion of MBS backed by modified loans, making a small dent in the government-sponsored enterprise’s portfolio of distressed mortgages. The securities were issued under a new MBS prefix reserved just for modified loans, and Freddie officials indicated that the securities would be held in portfolio rather than sold in the market. All of the modified loans are fixed-rate mortgages, although $138.2 million of the loans were originally adjustable-rate mortgages. Most of the loan mods have 30-year terms. The loans in the first batch of mod MBS were originated...
Sens. Mark Warner, D-VA, and Bob Corker, R-TN, are working on legislation that would create a new federal mortgage guarantor, replacing Fannie Mae and Freddie Mac, according to trade and legislative officials familiar with the matter. However, as Inside The GSEs went to press this week, little was known in terms of specifics. “This would be a federal insurance entity, involving insurance wraps” said one trade group official. “It would involve a tiered risk-sharing system.”
The watchdog agency charged with overseeing the regulator of Fannie Mae, Freddie Mac and the Federal Home Loan Banks said it plans to remain “active on the law enforcement front.” In its semi-annual report to Congress issued this week, the Federal Housing Finance Agency’s Office of Inspector General gave a tally of its accomplishments for the six-month period ending March 31, noting that it issued 13 audit, evaluation survey and white paper reports, and participated in several criminal and civil investigations.
Speculators have been driving up the price of Fannie Mae and Freddie Mac junior preferred stock, hoping that given the GSE’s rapidly improving fortunes they could make a killing down the road. One hedge fund official told Inside The GSEs that Fannie junior preferred shares that had an original face value of $50 are trading in the secondary market for $8 to $9 a unit. Stock originally priced at $25 can be had for $5 and change. Fannie common stock is now trading at $2.20 per share compared to a 52-week low of just 9 cents. Fannie and Freddie recently reported record quarterly profits of $63 billion, a large chunk of it tied to the recapture of deferred tax assets. But on a pure operating basis – minus the DTA – their combined earnings are in the range of $12 billion, which is almost $50 billion annualized.
The director of the Federal Housing Finance Agency would be able to review and revise the take-home pay of Fannie Mae, Freddie Mac and Federal Home Loan Bank executives should the director determine that a senior official’s compensation is “not reasonable or comparable” with the earnings of counterparts in similar businesses, under newly revised agency rule. An interim final rule, published by the FHFA in the May 14 Federal Register authorizes and clarifies the FHFA director’s authority to review and withhold executive compensation at Fannie, Freddie and the 12 FHLBanks in particular. “In view of FHFA’s statutory obligation to prohibit compensation to any executive officer that is not reasonable and comparable, prior review and non-objection rather than review after-the-fact can help set expectations and avoid the need for later remedial action,” explained the Finance Agency.
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