Despite indications of heightened risk that the Federal Housing Finance Agency initially missed, the Federal Home Loan Banks substantially increased their unsecured lending to foreign financial institutions in 2010 and 2011, particularly in Europe, according to a report issued this week by the FHFA’s official watchdog. The FHFA’s Office of Inspector General noted that unsecured lending by the FHLBanks swelled from $66 billion at the end of 2008 to more than $120 billion by early 2011, but declined sharply by year-end 2011, as the European sovereign debt crisis continued to worsen.

The Federal Housing Finance Agency should “expeditiously finalize” its long-awaited analysis as to whether Fannie Mae and Freddie Mac will be allowed to offer principal forgiveness modifications under the Treasury Department’s Home Affordable Modification Program, according to the Government Accountability Office. In a report issued late this week, the GAO reminded the FHFA that the Obama administration’s loan modification program, which would be used to implement any principal reductions, expires at the end of December 2013.

Fannie Mae’s and Freddie Mac’s conservator is pushing back in court against local government efforts to squeeze the GSEs for payments of real estate transfer taxes – taxes that are contrary to the companies’ Congressional charter and to federal law, according to the Federal Housing Finance Agency. Last week, the FHFA filed suit in the U.S. District Court for the Northern District of Illinois against the Illinois Department of Revenue and six counties led by DeKalb County that are trying to collect transfer taxes from Fannie and Freddie. The counties initiated litigation earlier in the week by filing a class-action lawsuit to compel the GSEs to pay hundreds of thousands of dollars in uncollected real estate transfer taxes from the past five years.

The Federal Housing Finance Agency would employ a new, more comprehensive examination rating system which would be used to inspect Fannie Mae, Freddie Mac and the Federal Home Loan Banks and the Banks’ Office of Finance under a proposed rule issued last week. The proposed new system, published in the June 19 Federal Register, seeks to implement a single risk-focused examination system for all three entities that would be similar to the “CAMELS” rating system used by federal prudential regulators for depository institutions.

Military homeowners holding Fannie Mae or Freddie Mac loans with Permanent Change of Station Orders will be eligible to sell their homes in short sale even if they are current on their mortgage under a new policy announced by the GSEs’ regulator late last week. The Federal Housing Finance Agency’s short-sale policy change is intended to make it easier for military homeowners with GSE loans to honor their financial commitments when they are required to move…

The Federal Housing Finance Agency last week finalized a rule which establishes prudential standards relating to the management and operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks. The Housing and Economic Recovery Act of 2008 requires the FHFA director to establish standards that address 10 separate areas relating to the management and operation of the GSEs and FHLBanks and authorizes the director to establish the standards by regulation or by guideline.

The Federal Reserve surprised some analysts this week by taking a cautious path in its latest effort to stimulate employment growth, choosing to extend its Operation Twist bond-buying program until the end of 2012 by focusing on Treasuries. The Federal Open Market Committee “intends to purchase Treasury securities with remaining maturities of 6 years to 30 years at the current pace and to sell or redeem an equal amount of Treasury securities with remaining maturities of approximately 3 years or less,” the FOMC said after its two-day meeting this week. “This...(Includes one data chart)

The Department of Housing and Urban Development is looking for ways to expand the FHA’s home renovation program to accommodate real estate-owned properties even as the mortgage industry urged HUD to open the program to investors. Acting FHA Commissioner and Assistant Secretary for Housing Carol Galante said HUD is considering use of the 203(k) Rehabilitation Loan program to ease FHA’s huge inventory of foreclosed properties. HUD’s REO inventory has dropped from a peak of 68,997 foreclosed properties in March 2011 to 29,692 in February. As of May 27, the inventory was ...

The official watchdog of Fannie Mae and Freddie Mac’s government regulator announced last week it will conduct a “proactive audit and evaluation strategy” of the two government-sponsored enterprises’ real estate owned management policies, as well as the REO oversight efforts of the Federal Housing Finance Agency. “FHFA has a crucial responsibility to ensure that the enterprises manage their REO inventories so as to minimize costs and mitigate the negative effects that foreclosed properties can have on the communities in which they are located,” said the Office of the Inspector General. “Given the...

The Federal Housing Finance Agency this week said it is still deliberating writedowns on Fannie Mae and Freddie Mac mortgages as industry insiders aren’t sure what to make of the agency’s recent thumbs up to GSE participation in two state principal reduction programs. Last month, the GSEs – with the FHFA’s blessing – opted to participate in principal reduction programs in California and Nevada. Both programs will use part of the $7.6 billion Hardest Hit Fund to pay down the loans Fannie and Freddie own or guarantee. The FHFA noted that critical directives issued by the GSEs last year cleared the way for participation in such programs as long as the servicers or the GSEs would not have to match those funds.