The housing finance reform legislation authored by Sens. Tim Johnson, D-SD, and Mike Crapo, R-ID, will result in higher guaranty fees and less cross-subsidization than the current Fannie Mae and Freddie Mac fee structure, according to the government-sponsored enterprises. The Johnson-Crapo bill, which was abruptly pulled from a scheduled markup before the Senate Banking, Housing and Urban Affairs Committee this week, would establish a new type of MBS with an explicit government backstop that requires private capital to absorb the first 10 percent of losses. “There is...

Concerns about the functionality of the to-be-announced market and potential incentives for riskier lending have prompted some to suggest that legislation under consideration in the Senate to reform the government-sponsored enterprises should remove the capital markets option for risk sharing and rely solely on a guarantor model. A number of agency MBS participants aren’t too pleased with the suggestions and have countered that a capital markets option is necessary in the country’s housing finance system. Under the capital markets option envisioned in the GSE reform bill from Sens. Tim Johnson, D-SD, and Mike Crapo, R-ID, investors would hold...

Several big banks are in various phases of negotiation with the federal government to resolve alleged violations of federal and state securities laws in connection with legacy non-agency MBS. Bank of America is in new settlement talks with the Department of Justice over residential MBS backed mostly by faulty loans stemming from BofA’s acquisition of Countrywide Financial Corp. and Merrill Lynch & Co., which securitized the loans and sold the bonds to investors. The tentative talks could cost...

Did someone in the mortgage industry actually ask one of the GSEs recently to increase the 25 basis point servicing fee that it pays to residential servicers?

This week’s abrupt, last-minute postponement of a much-anticipated markup of a Senate housing finance reform draft bill effectively doomed the prospects of the legislation making it to a floor vote, note industry observers. The delay came amid continued progressive dissatisfaction with the legislation and an increasingly bold effort by advocates to keep Fannie Mae and Freddie Mac alive. Senate Banking Committee Chairman Tim Johnson, D-SD, and Ranking Member Mike Crapo, R-ID, announced to a packed committee chamber that they would delay consideration of S. 1217 in order “to build a larger coalition of support.”

New GSE stress test results released by the Federal Housing Finance Agency this week reveal what many in the industry have been talking about for the past year: Because Fannie Mae and Freddie Mac are not allowed to build capital, they would be forced to tap Uncle Sam once again for cash assistance should a financial calamity strike the nation. If a severe recession hits, Fannie and Freddie would need Treasury draws ranging from $84.4 billion to $190 billion, depending on the treatment of deferred tax assets, according to new calculations made by the GSEs and the FHFA. Adjustments to DTAs have allowed the two to book huge earnings the past year, but those accounting adjustments are now running out.

The Senate’s GSE reform proposal in its current form would create an extremely high risk for Freddie Mac’s core policy functions during the bill’s proposed five-year wind down of the company, Freddie’s chief executive warned. In a confidential memo to Federal Housing Finance Agency Director Mel Watt that was leaked to the media, Freddie CEO Donald Layton said that the housing finance reform legislation by Sens. Tim Johnson, D-SD, and Mike Crapo, R-ID, fails to state clearly that the GSEs’ core policy function must be maintained and such an omission would create potentially crippling uncertainty among staffers during the transition.

While the housing finance reform legislation authored by Sens. Tim Johnson, D-SD, and Mike Crapo, R-ID, recognizes the “distinct nature and role of the Federal Home Loan Banks,” concern remains that the bill’s treatment of FHLBank regulation within the proposed regulator could lead to a conflict of interest that impedes the 12 Banks and their members, according to the American Bankers Association. An ABA memo to the members of the Senate Banking, Housing and Urban Affairs Committee suggested that lawmakers leave regulation of the FHLBanks with either an independent agency or strengthen the bill’s proposed regulatory firewalls.

Although recently installed Federal Housing Finance Agency Director Mel Watt delayed an increase in guaranty fees earlier this year, executives at Fannie Mae and Freddie Mac have told some mortgage executives in private conversations that raising g-fees may not be a bad idea, according to industry officials briefed on the matter. “They’re actively saying they want an increase in g-fees,” said one source, speaking about the GSEs. However, others suggest that the situation needs to be placed into context. The FHFA and the GSEs may be working on a deal to reduce charges tied to loan-level price adjustments.

Building on the success of its previously issued Structured Agency Credit Risk debt notes, expect Freddie Mac to continue to crank out additional risk-sharing deals, while the GSE pursues reinsurance opportunities to further mitigate risk, say company officials and industry observers. Last week, Freddie announced it has reduced taxpayer exposure by obtaining insurance policies for a combined maximum of $269.5 million of losses to a portion of the credit risk associated with a pool of single-family loans funded in the first quarter of 2013. The GSE said the policies were underwritten by a group of well-capitalized and well-established insurers and reinsurers and were obtained under Freddie’s Agency Credit Insurance Structure, which has attracted private capital from non-mortgage guaranty insurers and reinsurers.