The Federal Housing Finance Agency found itself on the defensive this week following a rapid-fire series of highly critical reports issued by its inspector general that questioned the agency’s capacity to oversee Fannie Mae and Freddie Mac effectively, as well as its decisions in specific cases. The FHFA Office of Inspector General said late last week that the FHFA’s examination program, the primary means by which it supervises and regulates the government-sponsored enterprises, faces “capacity and transparency shortfalls.” “The agency has too few examiners to ensure the efficiency and effectiveness of...

The supply of mortgage debt outstanding continued to decline in the second quarter of 2011, reaching levels not seen in nearly five years. The Federal Reserve reported that single-family mortgage debt totaled $10.396 trillion as of the end of June, down 0.5 percent from the end of the previous quarter. It marked the 13th consecutive quarterly decline in the mortgage servicing business, which has shrunk by $783.2 billion since peaking in the first quarter of 2008 at $11.179 trillion. The only sector of the market that’s growing is the Ginnie Mae program, where the supply of the agency’s single-family mortgage securities...(Includes one data chart)

Home-purchase mortgage lending continues to sputter along in 2011 and lender hopes of any increased mortgage production in the months ahead remain focused on declining mortgage rates and the refinance sector – and not the listless housing market. According to numbers compiled by Inside Mortgage Finance, home-purchase mortgage originations totaled an anemic $209 billion in the first half of this year – the lowest level seen in more than a decade. While weak home sales in 2011 are the major reason for the low home-purchase mortgage activity, another big factor is the prevalence of cash purchases in the current housing market. Results from...(Includes one data chart)

Fannie Mae and Freddie Mac’s guarantee fee stucture continued to convey cross-subsidies from lower-risk mortgages to higher-risk mortgages but overall cross-subsidization in 2010 declined from previous years, according to a report from the Federal Housing Finance Agency. The agency said cross-subsidization in single-family guarantee fees charged by the two government-sponsored enterprises remained evident in 2010 across product types, credit score categories and loan-to-value ratio categories. “There were cross-subsidies from mortgages that posed lower credit risk, on average, to loans that posed higher credit risk. The greatest...

Wall Street MBS insiders met this week to talk about making Fannie Mae and Freddie Mac MBS backed by high loan-to-value refinance mortgages eligible for the to-be-announced market. The Securities Industry and Financial Markets Association held a telephone conference call to discuss the issue, a SIFMA representative confirmed, but the group declined to provide any details. Mortgages with LTV ratios above 105 percent can be sold to Fannie Mae and Freddie Mac under the Home Affordable Refinance Program, but these loans must be pooled in separate MBS that are not eligible for the TBA market. HARP loans with...(Includes one data chart)

The Treasury Market Practices Group late last week clarified its recommended fails charge trading practice for agency MBS to limit the scope to pass-throughs, where fails are most likely to happen. “The agency debt and agency MBS trading practice has been updated to reflect the TMPG’s recommendation that a fails charge apply to agency pass-through MBS issued or guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae,” the group said. The original recommendation was that the charge apply to agency MBS issued or backed by Fannie, Freddie and Ginnie Mae, which also issue most REMICs backed by agency pass-throughs. The TMPG has not...

While it will be nice if it materializes, MBS market watchers are taking a wait-and-see posture to the Federal Housing Finance Agency’s professed intention to explore new and alternative methods of sharing Fannie Mae and Freddie Mac’s credit risk with the private sector. In a speech early this week, FHFA Acting Director Edward DeMarco outlined efforts his agency is taking to ramp up private market discipline while reducing Fannie’s and Freddie’s risk to taxpayers. “The FHFA will be considering a number of alternatives, such as expanded use of mortgage insurance and securities structures that allow for...

The supply of MBS in the market edged slightly higher in the second quarter of 2011, appearing to stem a nearly two-year decline in the market, according to a new Inside MBS & ABS analysis. A total of $6.58 trillion of MBS were outstanding at the end of June, up 0.3 percent from the first quarter. The MBS market was still down 1.7 percent from a year ago. All of the growth came from Ginnie Mae and Fannie Mae. The supply of Ginnie single-family MBS rose 4.0 percent in the first quarter, hitting a record $1.12 trillion and extending a vigorous growth trend since the housing market began to unravel in 2007. Ginnie MBS accounted for...(Includes one data chart)

Although the outlines of an expanded Home Affordable Refinance Program are far from clear, MBS analysts say the most likely changes designed to help more borrowers take advantage of record low mortgage rates will not have a disastrous impact on the MBS market. Observers note that there are two ways to expand the potential HARP population: remove the existing chronological restriction (loans made prior to June 2009) or lift the current loan-to-value restriction of 125 percent. The chronological restriction is relevant because a lot of borrowers who have used HARP already could benefit from refinancing again because...

Guarantee fees up, loan limits down. Reform of the government-sponsored enterprises is set to begin with subtle adjustments to Fannie Mae and Freddie Mac pricing, not with sweeping legislation from Congress. Federal Housing Finance Agency Acting Director Edward DeMarco noted that the guaranty fees charged by the GSEs have already started to increase, and further gradual increases will be implemented next year. ...