The Treasury Department’s surprise announcement late last week that it will now “sweep” up any and all future profits from Fannie Mae and Freddie Mac in lieu of the dividends the GSEs had been paying in return for taxpayer support solves some problems but creates new ones, industry observers say. Rather than continue to borrow from the Treasury to make dividend payments to the Treasury – as the GSEs have since they were placed in conservatorship in September 2008 – the revised preferred stock purchase agreements will replace the 10 percent quarterly dividend with a “full income sweep” of “every dollar of profit that each firm earns going forward,” according to Michael Stegman, counselor to the Treasury for Housing Finance Policy.

The Federal Housing Finance Agency this week announced that Fannie Mae and Freddie Mac will implement new short sale guidelines that expand eligibility criteria, as well as align and consolidate existing GSE short sales programs into one standard offering. The new guidelines, which go into effect Nov. 1, will permit homeowners with a Fannie or Freddie mortgage to sell their home in a short sale even if they are current on their mortgage, provided they have an eligible hardship.

Fannie Mae and Freddie Mac’s newly amended preferred stock purchase agreement with the U.S. Treasury requiring the companies to accelerate the rate at which they reduce their investment portfolios will have little immediate impact but will become more challenging to the GSEs as time goes on, analysts predict. The Treasury’s amended agreement calls for the GSE portfolios to be wound down at an annual rate of 15 percent, instead of the 10 percent annual reduction originally required of the two companies. The more aggressive 15 percent reductions will go into effect in 2013. Consequently, Fannie’s and Freddie’s portfolios must be reduced to the $250 billion target by 2018, four years earlier than initially scheduled.

A federal appeals court has agreed to hear a rare appeal by one of the non-agency mortgage-backed securities issuers and underwriters being sued by the Federal Housing Finance Agency for allegedly misrepresenting the deals that were sold to Fannie Mae and Freddie Mac. A three-judge panel of the Second Circuit Court of Appeals accepted UBS Americas’ appeal to re-argue and reverse a lower court’s denial of the bank’s motion to dismiss the FHFA’s suit as time-barred under the Housing and Economic Recovery Act.The FHFA sued UBS in July 2011 on behalf of Fannie and Freddie, seeking damages and civil penalties on behalf of the government-sponsored enterprises under the Securities Act of 1933.

The Federal Housing Finance Agency violated federal law when it rolled back the Property Assessed Clean Energy program without going through the required notice and comment period, a California federal judge ruled earlier this month. U.S. District Judge Claudia Wilken’s Aug. 9 ruling held that the FHFA was not acting as conservator of Fannie Mae and Freddie Mac but as a regulator that had improperly exercised substantive regulatory oversight in violation of the Administrative Procedure Act when the agency put a stop to GSE involvement with PACE programs.“The FHFA’s directives on PACE obligations amount to substantive rule-making, not an interpretation of rules that would be exempt from the notice and comment requirement,” wrote Judge Wilken. “The notice and comment process must be followed.”

Six federal financial regulatory agencies have put out a proposal to establish new appraisal requirements for mortgage loans deemed to be higher risk. The Dodd-Frank Act generally defines a “higher-risk mortgage” as a closed-end consumer credit transaction secured by a principal dwelling with an annual percentage rate exceeding certain statutory thresholds (1.5 percent for first-lien loans, 2.5 percent for first-lien jumbo loans, and 3.5 percent for subordinate-lien loans). “Qualified mortgages” will be exempt from this...

The Department of Housing and Urban Development is looking into SunTrust Bank’s FHA-related lending practices, the bank reported in its latest regulatory filing. SunTrust, Atlanta’s largest bank, disclosed the investigation in its second-quarter filing with the Securities and Exchange Commission but provided no additional details. HUD notified the bank of the probe on April 25. SunTrust said it is “cooperating with the investigation,” which is being conducted by HUD’s Office of the Inspector General. The bank did not respond to a request for comment and the IG office neither ...

The Federal Housing Finance Agency captured the industry’s attention this week by formally citing “significant concerns” about proposals to use local government eminent domain powers, a paradigm shift the agency sees as potentially costly to Fannie Mae, Freddie Mac and the Federal Home Loan Banks. In a request for public comment, published in the Aug. 8 Federal Register, the Finance Agency warned that “action might be necessary” on its part “to avoid a risk to safe and sound operations” at the GSEs and to avoid taxpayer expense.

Freddie Mac’s government conservator is stepping up to shut down a potentially costly lawsuit filed against the GSE by the Mortgage Guaranty Insurance Corp. both by legal and by extra-legal means. Last month, the Federal Housing Finance Agency told a Wisconsin federal court that it lacks jurisdiction over the pool insurance suit the mortgage insurer filed against Freddie. Given that the suit would impede FHFA in its capacity as the GSE’s conservator, the court should dismiss MGIC’s suit, according to court papers filed by the Finance Agency on July 20.