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.

Fannie Mae demonstrated measurable progress during 2011 while conditions at Freddie Mac neither worsened nor improved significantly but both GSEs have ample room for improvement, according to a report issued this week by the Federal Housing Finance Agency. The FHFA’s fourth annual Report to Congress deemed the two GSEs “critical supervisory concerns” last year with “continuing credit losses” coming primarily from loans originated during the years 2005 to 2007. The report identified “key challenges facing each company, including the ongoing stress in the nation’s housing markets, the challenging economic environment and the uncertain future facing the enterprises,” noted the FHFA. “However, management and the boards were responsive throughout 2011 to FHFA’s findings and challenges and took appropriate steps to begin resolving identified issues.”

Fannie Mae and Freddie Mac should remain intact, albeit smaller, as a hedge against future market uncertainty and to ensure further destabilization does not occur, according to a white paper issued last week by the Community Mortgage Lenders of America. The CMLA, the first industry trade group to unambiguously endorse retaining the GSEs, made its recommendation in a letter sent to Federal Housing Finance Agency Acting Director Edward DeMarco and Treasury Secretary Timothy Geithner as well as to senior Congressional Democrats and Republicans. “The CMLA believes that the housing industry and the public at large are best served through sensible and calculated reformation of the enterprises that reduces their footprint in the industry while at the same time allowing them to serve their historically critical functions,” said the letter.

A working paper authored by two Federal Reserve Bank of New York economists found that refinancing can be “fruitfully employed” as a tool for loss mitigation by investors and lenders. In their paper, “Payment Changes and Default Risk: The Impact of Refinancing on Expected Credit Losses,” Fed economists Joseph Tracy and Joshua Wright found that the relationship between borrowers’ monthly payments and future credit performance is important for the design of an initiative such as the Home Affordable Refinance Program. The authors used a competing risk model to estimate the sensitivity of default risk...