Fannie Mae and Freddie Mac mortgage-backed securities remained the preferred investment choice of the 12 Federal Home Loan Banks during the second quarter of 2012, with a modest increase from the previous quarter, according to a new analysis and ranking by Inside The GSEs based on data from the Federal Housing Finance Agency. Meanwhile, Ginnie Mae securities posted an ever-so-slight decline within the FHLBank system during the period ending June 30, 2012. GSE MBS accounted for 72.0 percent of combined FHLBank MBS portfolios, up 2.7 percent from the first quarter. The Finance Agency’s data do not separately break out Fannie and Freddie volume or share.

The Federal Housing Finance Agency this week joined a growing chorus raising warnings about proposals to use the eminent domain powers of local government to seize performing underwater mortgages out of non-agency MBS pools. In an unusual move, the agency said it has “significant concerns about the use of eminent domain to revise existing financial contracts and the alteration” of Fannie Mae, Freddie Mac and Federal Home Loan Bank securities holdings. The FHFA formally invited public comment on the concept and warned that “action may be necessary on its part [as conservator and regulator of the government-sponsored enterprises] to avoid a risk to safe and sound operations and to avoid taxpayer expense.” The issue drew attention this week because both Fannie and Freddie managed...[Includes one data chart]

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.

The Federal Home Loan Bank Office of Finance announced last week that preliminary combined net income for the FHLBanks dropped 24.7 percent to $552 million in the second quarter of 2012, down from the $733 million in the first quarter but more in line with the $515 million earned in the fourth quarter 2011. The FHLBanks net income for the six months ended June 30, 2012, was $1.285 billion, an increase of $676 million or 111.0 percent compared to the same period in 2011, said the Office of Finance.“The FHLBank system continues to fulfill its mission to make available favorably priced wholesale funding to members while supporting the FHLBank system’s commitment to affordable housing,” said the OF. “In addition, the FHLBanks continue to strengthen the FHLBank system’s capital base through increased retained earnings.”

Standard and Poor’s Rating Services has corrected its long-term issuer credit rating on the Federal Home Loan Bank of Seattle by lowering it from ‘AA+’ to ‘AA,’ S&P announced last week. “The rating reflects FHLB Seattle’s unchanged stand-alone credit profile of ‘A+’, plus two notches of uplift to reflect expected extraordinary government support if needed, according to our government-related entity criteria,” said the rating agency. “The S&P outlook on the bank remains negative and this correction did not affect the Seattle bank’s short-term ‘A-1+’ rating or the ratings on the consolidated obligations of the Federal Home Loan Bank System.”

There appear to be no immediate plans to move the GSEs beyond conservatorship status but news this week that the Federal Housing Finance Agency is actively investigating the possibilities of receivership may be designed to attract the attention of thus far indifferent policymakers and snap official Washington into action, say industry experts. The FHFA this week confirmed that it has commissioned the consulting firm PricewaterhouseCoopers to create contingency plans for taking Fannie Mae, Freddie Mac and the Federal Home Loan Banks into receivership. A Finance Agency spokesman said the hiring of PwC, which was not officially announced, is just one of a number of “ordinary regulatory activities” that the FHFA is authorized and obligated to pursue under the authority granted the agency by the Housing and Economic Recovery Act of 2008.

The Federal Home Loan Bank system is one of three potential hosts for a proposed new refinance program unveiled this week by a Senate Democrat aimed at rescuing underwater homeowners without direct federal assistance. Oregon Sen. Jeff Merkley’s proposal – spelled out in a white paper titled “The 4% Mortgage: Rebuilding American Homeownership” – would create a temporary government-backed trust to purchase eligible mortgages issued by private lenders. The RAH Trust would be funded by the federal government’s sale of bonds to investors. The plan would allow underwater borrowers who are current on their mortgages to refinance at a lower interest rate.

A bill introduced in the House earlier this month would allow privately-insured credit unions access to the Federal Home Loan Bank system for the first time. H.R. 6105, introduced by Rep. Steve Stivers, R-OH, would amend the Federal Home Loan Bank Act to allow non-federally-insured credit unions to become members of one of the 12 FHLBanks. Currently, only federally insured credit unions can access the FHLBanks’ low-cost, secured funds, and certain requirements must be met.

The Federal Housing Finance Agency should enhance its supervision of Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks by taking better advantage of the FHFA’s call report system, a recent audit has concluded. The FHFA’s Office of Inspector General report noted last week that despite requiring the GSEs to enter data into the CRS, the Finance Agency has not “optimized its use of the system” to enhance oversight. “Two FHFA supervisory divisions rarely use CRS in their analysis and oversight of the enterprises,” explained the OIG audit. “Instead, they receive routine submissions of loan-level data and standard management reports containing relevant metrics and data.”

The Federal Housing Finance Agency has hired PricewaterhouseCoopers to develop a plan for taking Fannie Mae, Freddie Mac and the Federal Home Loan Banks into receivership. The FHFA reports it has entered into a contract with PricewaterhouseCoopers to create a blueprint for liquidating Fannie, Freddie or any of 12 Federal Home Loan Banks, if ever necessary. But it is all part of routine planning activity under the agency’s mission, said a spokesperson. “The FHFA has engaged in...