The Federal Housing Finance Agency issued guidance for the GSEs and Federal Home Loan Banks to establish independent internal audit (IA) functions. This is so they can relay timely information and make the appropriate corrections when it comes to elevated risks. The agency requires the boards of Fannie Mae, Freddie Mac and the FHLBanks to have an audit committee and a chief audit executive (CAE) solely responsible for the IA function. The FHFA said that the CAE must establish internal audits that are independent and objective so that they effectively identify and assess risks. Internal audits should cover the entire audit universe over a maximum four-year period.

The supervision of examiners in the Division of Federal Home Loan Bank Regulation has been lax when it comes to making sure deficiencies within the FHLBanks are corrected, according to a recent Federal Housing Finance Agency Office of the Inspector General report. The IG reviewed a sample of nine matters requiring attention (MRA) that the division issued from January 2014 through December 2015. When it comes to correcting serious supervisory matters, the IG said that the bank regulator has been inconsistent in following FHFA requirements. For two of the MRAs, examiners determined that the affected FHLBank made no progress in remediating the deficiencies and reissued MRAs with the same exact terms.

Foreign investors, commercial banks and mutual funds all beefed up their holdings of agency MBS during the second quarter of 2016, according to a new Inside MBS & ABS analysis. The Federal Reserve remained the biggest investor in the agency MBS market with $1.744 trillion on its books at the end of June. That accounted for 29.7 percent of the $5.867 trillion of single-family agency MBS outstanding at that time, but it was down 0.5 percent from the end of March. The central bank’s MBS holdings vary slightly in the Fed’s weekly snapshots as pending transactions wait to clear, but its game plan is to hold its portfolio steady by reinvesting principal payments. The single-family agency MBS market grew...[Includes two data tables]

The Federal Home Loan Bank System witnessed a quarterly drop in earnings, but posted an 11.6 percent jump in advances in the second quarter as lenders ramped up mortgage originations. The combined net income was $792 million in the second quarter of 2016. That number is down from the $825 million in the previous quarter. The report noted that the 12-month increase was mostly due to ...

Look for the Federal Reserve to repeat last year’s performance and raise interest rates one quarter of one percent in December, according to some supporters and critics of the U.S. central bank, enabling the Fed to say it did, in fact, lift interest rates this year. During its meeting in Washington, DC, this week, the Fed once again, as expected, opted to hold rates unchanged and did not tip its hand about a future move, although some market participants came away with the impression an increase in September is a little more likely than had been the case after the central bank’s last meeting. The Federal Reserve’s Open Market Committee last raised...

We pick up where we left off last issue with the Department of Veterans Affairs attempting to clarify certain guidance in the VA Lender Handbook. ? If the TRID (Truth in Lending/Real Estate Settlement Procedures Act Integrated Disclosures) closing disclosures change after the veteran signs [the form], should the lender require the veteran to sign it again? VA: The short answer is yes. The lender is required to provide the TRID closing disclosure no later than three business days before consummation. The lender is required to provide a corrected closing disclosure to the borrower three days before consummation or closing in certain instances, and at or before consummation if other types of changes occur, such as adjustment of costs or credits. Therefore, any changes made that require an amended disclosure must have the borrower’s signature. ? Is the Amendatory Clause mandatory for all ...

The Federal Home Loan Banks’ Mortgage Partnership Finance program and Redwood Trust announced a number of changes this week to the MPF Direct product. Beginning Aug. 31, the loan limit will increase to $2.5 million and hybrid adjustable-rate mortgages will be eligible for delivery. The MPF Direct program was launched in 2014, with a loan limit of $729,750, the high-cost loan limit for the government-sponsored enterprises at the time. In the third quarter of 2015, the loan limit for the product was increased to $1.5 million. The loan limit for cash-out refinances is $750,000. “We continue...

The Federal Home Loan Bank’s Mortgage Partnership Finance Direct program significantly raised its loan limits from $1.5 million to $2.5 million, and now includes hybrid adjustable-rate mortgages. This is the second jump in about a year. Last June, the loan limit more than doubled from $729,750 to $1.5 million. MPF Direct participants are often small lending institutions. Eric Schambow, senior vice president and senior director with MPF product management, told Inside The GSEs that in working with members that already deliver under the MPF program and its Advisory Council of Private Funding Institutions, the FHLB heard them express the need to more completely match what the marketplace offers.

Fannie Mae and Freddie Mac have sold 41,649 nonperforming loans through May 2016, according to the Federal Housing Finance Agency’s inaugural report on nonperforming loan sales and borrower outcomes. The report, released last week, is the first of two reports the FHFA plans to publish each year highlighting NPL sales activities. The loans had an aggregate unpaid principal balance of $8.5 billion and were delinquent 3.4 years on average. Freddie led the NPL sales market for the GSEs having sold 26,436 delinquent loans. Fannie was a distant second at 15,213. The average loan-to-value ratio was 98 percent. LSF9 Mortgage Holdings and Pretium Mortgage Credit Partners were the top...

Examiners raised several issues in the Federal Housing Finance Agency’s annual report to Congress detailing the work of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.One critical issue in the report, released last week, was the GSEs’ inability to build capital. Examiners said income reductions from shrinking portfolios, coupled with decreases in income from reserve releases and legal settlements and market-to-market volatility from their derivatives portfolio all increase the likelihood of negative net worth in future quarters. Moreover, the examiners said credit-risk transfer initiatives also impose costs that will reduce the GSEs’ earnings. Fannie’s problem assets continued to decline in 2015, but the examiners...