Mortgage lenders that sell loans to Fannie Mae and Freddie Mac saw a huge drop in the volume of repurchases and other indemnifications in 2016, according to a new Inside The GSEs analysis of disclosure reports filed with the Securities and Exchange Commission. During the fourth quarter of 2016, lenders repurchased just $207.31 million of home loans, a 37.0 percent decline from the third quarter. That brought total repurchases to $1.101 billion last year, down 35.9 percent from 2015. Those are record lows in the contentious recent history of GSE buyback demands. Fannie and Freddie, along with other “asset securitizers,” began filing quarterly repurchase reports with the SEC in early...
Vice President Mike Pence’s chief economist said the Trump administration is working on GSE reform principles. The comments came this week during a government relations summit hosted by the American Bankers Association. Mark Calabria, former director of financial regulation studies at the Cato Institute, caused a media frenzy when during a general session he said that a “set of principles” on GSE reform is likely to emerge in the coming months. Calabria is not a proponent of the GSEs, and believes that without Fannie Mae or Freddie Mac, commercial banks would step in to fill the liquidity void for the simple reason they have so much in the way of “excess reserves.”
The Federal Housing Finance Agency announced this week that it moved back the anticipated date of “release 2” of the common securitization platform in which both GSEs will use the security, to the second quarter of 2019, instead of 2018. In a progress report update, the FHFA said it decided to delay the project after an “extensive review” of lessons learned from the first release and progress on release 2. The agency said it needs more time for the development, testing, validation of controls, and governance necessary “to have the highest level of confidence that the implementation will be both smooth and successful.”
Small lending organizations, including the Community Home Lenders Association and Community Mortgage Lenders of America, urged the Federal Housing Finance Agency to suspend the upcoming Treasury sweep of GSE profits. After fourth-quarter earnings, the GSEs plan to pay the Treasury $20 billion per the preferred stock purchase agreement. A March 23 letter from CHLA, CMLA and six consumer and civil rights groups pled with Treasury Secretary Steve Mnuchin and specifically asked FHFA Director Mel Watt to “exercise its discretion under the preferred stock purchase agreement to suspend the dividend payment on their senior preferred stock this month.” The groups, like others in the industry, are concerned about the GSEs’ declining capital buffer that will plummet to zero on Jan. 1, 2018.
Moody’s Investors Service said GSE reform proposals could have unintended consequences on different market segments. In a report released this week it noted that there’s no shortage of proposals on the table and some may have a larger impact than planned. The impact of many would seem straightforward at a high level, according to the ratings firm, but they could have unintended consequences in practice. Proposals range from winding down the GSEs without an explicit replacement to winding them down and providing other entities with access to the federal catastrophic risk insurance, to re-privatizing them but with tighter regulations. The report looks at possible impacts from the broad range of reforms being proposed and the...
Former Freddie Mac employee Susan Wharton Gates recently released a book detailing the events leading up to the conservatorship and suggests that the industry stop looking for a “single scapegoat.” She argues in her book that while Freddie made plenty of mistakes, so did Wall Street, the regulators, the industry and homeowners. Wharton, an advocate of privatizing the GSEs, worked at Freddie for close to 20 years, most recently in public policy. She left the company in 2009 and said by giving a fuller account of what happened she hoped to help “light a fire” under policymakers who have stalled on reforming the GSEs.
For the 2017 examination cycle, the Federal Housing Finance Agency recently issued an advisory bulletin for new classifications of adverse findings for the GSEs and the Federal Home Loan Banks. Three designated classifications were established to help examiners define the issues more effectively with hopes of a faster remediation plan. When communicating adverse examination finds to the regulated entities and Office of Finance, the FHFA said the examiners will classify them as either “matters requiring attention, recommendations or violations.” MRAs are broken down into two separate categories: critical supervisory matters and deficiencies. The difference boils down to the nature and severity of the issues requiring corrective action, according to the bulletin.
Member institutions of the Federal Home Loan Bank system had outstanding advances of $563.3 billion at Dec. 31, a quarterly increase of 4.0 percent, according to an analysis by Inside The GSEs. But, the year-over-year increase was greater with a 13.8 percent growth from the fourth quarter of 2015 when advances were at $495.0 billion. JP Morgan Chase continues to lead among borrowers with $79.5 billion worth in advances, the same as the previous quarter. Chase was followed by Wells Fargo, which reported $77.1 billion in advances, up 12.3 percent from the previous quarter. Wells had the largest quarterly advance increase among the top five borrowers.
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