Despite a “proactive and thorough” horizontal review of the Federal Home Loan Banks’ previously diagnosed deficiencies in unsecured lending practices, the Federal Housing Finance Agency needs to clamp down harder on the FHLBanks to ensure total compliance, according to a new report by the FHFA’s Office of Inspector General.The FHFA-OIG report issued last week follows up on the official watchdog’s June 2012 audit in which it flagged “potentially risky unsecured credit management practices” by the 12 FHLBanks. Over 900 primary and secondary unsecured credit violations at seven FHLBanks were noted, with risk-management deficiencies “of varying degrees” found at the other five Banks, noted the OIG.

Bank of New York Mellon has come under scrutiny for its actions in the proposed $8.5 billion settlement involving Bank of America and investors in 530 non-agency MBS issued by Countrywide Financial. A trial to approve the settlement regarding repurchase requests started in June and is on a break until early September. While the proposed settlement involves a payout from BofA, which acquired Countrywide, the settlement is an agreement between BNYM and 22 institutional investors represented by the law firm of Gibbs & Bruns. The agreement was reached under Article 77 which allowed BofA to have the settlement apply to all investors in the Countrywide securities in question. “I can honestly say...

Standard & Poor’s Rating Services has revised its outlook for the Federal Home Loan Bank of Seattle to “stable” from “negative,” S&P announced two weeks ago. S&P said its revision reflects “significantly reduced losses within the bank’s private-label mortgage-backed securities portfolio and strengthening capital.”

Preliminary combined net income for the 12 Federal Home Loan Banks jumped 25.9 percent to $730 million in the second quarter of 2013, up from $580 million in the first quarter, according to the Federal Home Loan Bank Office of Finance. The FHLBanks’ net income for the six months ended June 30, 2013, was $1.310 billion, a 1.9 percent increase compared to the same period in 2012. “These increases were driven primarily by improvements in non-interest income and reductions in non-interest expense, partially offset by lower net-interest income,” noted the Office of Finance.

In a move designed to allow qualifying members to sell fixed-rate, conforming mortgage loans into the secondary market, the Federal Home Loan Bank of Seattle announced last week it has joined the Mortgage Partnership Finance Program and is now offering the MPF Xtra product.Under the MPF Xtra program, loans are sold to the FHLBank of Chicago and are concurrently sold to Fannie Mae as a third-party investor.

Over the past four years, the number of insurance companies joining Federal Home Loan Banks has grown by an average of about 10 percent as several insurance groups have substantially increased their borrowing capacity within the FHLBank system, and there is more where that came from, according to a report by Fitch Ratings. Among the 17 top insurance company FHLBank borrowers at year-end 2012, Fitch noted that only one was not a life insurance company. "Life insurance companies dominate insurance company FHLB advance usage, mostly due to the presence of housing-related assets in their investment portfolios,” said Fitch. “Life insurers are usually more likely than other insurers to invest in this sector due to their need for long-duration investment assets to match against the long-duration and cash flow characteristics of their insurance liabilities.”

Republican and Democrat lawmakers in the Senate formally unveiled their ambitious plan to replace Fannie Mae and Freddie Mac with a new federal entity providing backstop guaranties for securities backed by high-quality conventional mortgages. Although they made a variety of changes to a “discussion draft” version of the legislation that has been widely circulated in recent weeks, the proposal still faces a huge hurdle in the House despite winning generally favorable reactions from industry groups. As it was introduced this week, S. 1217, the Housing Finance Reform and Taxpayer Protection Act of 2013, would create...

Fannie Mae and Freddie Mac would cease to exist while the Federal Housing Finance Agency would be repurposed into a new incarnation as a “capable and empowered” regulator of a “pragmatic” housing finance system as envisioned in a new blueprint released this week by four industry experts. Spearheaded by Moody’s Analytics Chief Economist Mark Zandi – most recently on the White House’s short list to head the FHFA – the group’s white paper calls for the federal government to play an “explicit and transparent” role in the new housing finance system and to act as an insurer that covers catastrophic losses. The blueprint calls for an emphasis on mortgage funding diversity.

Compensation for directors at each of the 12 Federal Home Loan Banks increased in 2012, continuing a trend begun in 2011 when a director’s earnings “started to show a wide range across the FHLBanks for similar positions,” according to the Federal Housing Finance Agency. The FHFA’s fifth annual report to Congress noted that during 2012, the total fees paid to all FHLBank directors were $12.1 million, ranging from $679,817 for the 14-member board of the FHLBank of Seattle to $1.44 million for the 18-member board of the Indianapolis Bank.Compensation for the position of board chair at the Banks ranged from $60,000 at the FHLBanks of Boston and Seattle to $100,000 or more at the FHLBanks of New York, Indianapolis and Topeka.

“As lawmakers, it is time to open up our eyes and open up our minds to alternative models and a pathway forward,” said Rep. Jeb Hensarling, R-TX, chairman of the House Financial Services Committee, at the beginning of a hearing he convened this week to consider housing finance models without explicit government guaranties. Hensarling, along with many Republicans in his committee, is angling to replace the government-sponsored enterprises with some sort of a non-agency market. However, a number of obstacles exist in that path, including the preference among Democrats and a significant portion of industry players for the GSEs’ functions to be replaced with some form of government guaranty. Most of the witnesses at the hearing provided...