Captive insurance companies don’t belong in the Federal Home Loan Bank system, according to the former chair of the Federal Housing Finance Board, the system’s previous regulator. “Simply put, the Federal Housing Finance Agency got it right with this regulation,” said Ronald Rosenfield, who served as chair of the FHFB in 2005, prior to the creation of the FHFA. During his three-year tenure, there were some captives joining, but he said they were doing so at a much slower pace. The Federal Housing Finance Agency’s recent decision to ban captives from joining the system has caused some uproar among industry groups who opposed the final ruling, but Rosenfield thinks it was the right thing to do.
The Obama administration released its budget proposal for 2017 last week and it illustrates a key challenge to managing reform. How can you phase out the GSEs while at the same time planning to use profits from them? The budget emphasized that the housing finance system must be reformed, and the GSEs should be wound down in order to finish addressing the weaknesses exposed by the financial crisis. The administration’s fiscal 2017 budget proposal estimates that Fannie Mae and Freddie Mac will pay $151.5 billion in dividends to the government over the next 10 years, on top of the $241.2 billion in dividends they already paid as of the end of 2015.
Freddie Mac expects the multifamily market to remain strong, despite the onslaught of new supply, with purchases slightly greater in 2016. Multifamily origination volume in 2015 is expected to be at $225 billion and the GSE anticipates 2016 industry volume to reach between $240 billion and $250 billion. GSE participation in the multifamily market constituted the largest portion of 2015’s increase over 2014. Freddie did $47.2 billion in multifamily business in 2015. “It was a great year for the multifamily market and for the Freddie Mac multifamily market. Great for both the mortgage market in terms of record volume of origination and for the property market with continued strong growth in demand, positive fundamentals...
Although captive insurance companies are now barred from joining, membership among traditional insurers in the Federal Home Loan Banks is growing. Fitch Ratings reports that the number of insurance companies participating in the FHLB system has grown by an average of close to 8 percent annually over the past five years. Membership is more commonly associated with commercial banks and other deposit and lending institutions, but there were 304 FHLBank insurance company members by the end of 2014, representing 4 percent of the total membership and nearly 13 percent of all funds advanced to members, said Fitch. Several groups of insurance companies have also substantially increased their borrowing capacity.
Fannie Mae revealed that Canyon Partners, Goldman Sachs and Pretium Mortgage Credit Partners were the winning bidders of its first nonperforming loan sale of 2016, which amounted to $1.32 billion in delinquent loans. The four pools went to market on Jan. 12 with the help of Bank of America Merrill Lynch and First Financial Network. They included approximately 6,500 loans spread across four different pools. Canyon Partners won the first pool comprised of 3,127 loans with an aggregate unpaid principal balance of $637.4 million, a weighted average note rate of 5.7 percent and average delinquency of 59 months.
GSE credit risk-sharing will witness a leveling off of Fannie Mae’s and Freddie Mac’s popular back-end credit risk transactions and an increase in first-loss and front-end risk sharing, according to the Urban Institute. Sales of Fannie’s Connecticut Avenue Securities and Freddie’s Structured Agency Credit Risk have been dominated by money managers and insurance companies, but a recent paper by the UI’s Laurie Goodman and Jim Parrott suggests that this investor base may face some constraints including liquidity issues. The report noted that investors are not able to sell significant positions in CAS or STACR deals without spreads widening significantly because market makers are only willing to hold modest positions given the capital requirements.
Fannie Mae’s Latest CAS Sells First-Loss Position. Fannie priced its latest credit risk sharing transaction under its Connecticut Avenue Securities series last week. For the first time, it is selling a portion of the first-loss position, further reducing taxpayer exposure to credit losses. To promote additional liquidity, Fannie for the first time sought a credit rating for the M2 notes in a CAS transaction. Servicer Expense Reimbursement Notification. Fannie Mae Expense Reimbursement will be consolidating the available expense reimbursement claim line item categories and subcategories in the Black Knight Financial Services LoanSphere Invoicing Application on March 21, 2016. This update will streamline the claim line item choices in the application for improved consistency in submitting and processing expense reimbursement requests. Freddie Prices...
The CEO noted that Freddie Mac has made great inroads in doing more business with small to medium-sized lenders, but also said that when it comes to the GSE’s credit box, “it is not being fully used” by the industry.
In particular, Watt expressed his concerns about January 1, 2018 when Fannie and Freddie – as promulgated by the U.S. Treasury – are forced to have a capital “buffer” of zero dollars.
RSS