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.

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.”

The use of Federal Home Loan Bank advances among bank and thrift members fell overall during the first quarter of 2012 with the top three members showing a drop-off substantially larger than the overall industry’s year-over-year rate of decline, according to the Inside Mortgage Finance Bank Mortgage Database. All of the nation’s banks and thrifts used a combined $305.8 billion in advances as of March 31, 2012, down 6.6 percent from the fourth quarter of 2011 and off 14.6 percent from the same period a year earlier. The Federal Home Loan Bank’s Office of Finance in its first quarter combined finance report cited decreased member demand, regular maturities and continuing prepayments for the first quarter decline.

Although it has taken steps to mitigate risk related to advances and collateral at the 12 Federal Home Loan Banks, the Federal Housing Finance Agency needs to do more to strengthen its supervisory framework for the FHLBanks' risk management practices, according to a new report by the FHFA’s official watchdog. The FHFA Office of Inspector General found in an audit released late last week that the agency has not implemented a majority of its own examiners’ recommendations to effectively manage advances and collateral risks within the FHLBank system. “Although preliminary evidence suggests...

Fannie Mae and Freddie Mac mortgage-backed securities remained the preferred investment choice of the 12 Federal Home Loan Banks during the first 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 a decline within the FHLBank system during the first three months of the year. GSE MBS accounted for 70.7 percent of combined FHLBank MBS portfolios, up 2.3 percent from the fourth quarter of 2011. The Finance Agency’s data do not separately break out Fannie and Freddie volume or share.

The “scalability” of the nation’s 12 Federal Home Loan Banks as well as their demonstrated ability to access global markets could play a significant role in their favor as policymakers ponder the future of the FHLBank System in a post-Fannie Mae and Freddie Mac housing market, the FHLBanks’ chief regulator told bank directors and executives last week. During a speech at the annual Federal Home Loan Banks Directors Conference in Washington, DC, Federal Housing Finance Agency Acting Director Edward DeMarco noted the banks already have strong relationships, including a cooperative ownership structure, with their nearly 8,000 front-line local lenders.

The Federal Home Loan Bank Office of Finance announced this week that preliminary combined net income for the FHLBanks jumped 42.3 percent to $733 million in the first quarter of 2012, up from $515 million from the end of the fourth quarter and a whopping 104.7 percent increase from the same period last year. The FHLBank system’s $375 million year-over-year income increase was driven by lower other-than-temporary impairment charges, higher net gains on derivatives, hedged items and financial instruments carried at fair value, and lower assessments, partially offset by lower net interest income, said the Office of Finance.

Four and a half years after it was placed on a form of probation, the Federal Home Loan Bank of Chicago was officially released from its consent cease-and-desist order by the Federal Housing Finance Agency this week. FHFA Acting Director Edward DeMarco said the Finance Agency terminated the order because of improvements in the Bank’s financial condition and capital position, resolution of the agency’s risk management concerns and consideration of “specific comments and assurances made by the FHLBank’s board of directors to FHFA.”

The Federal Housing Finance Agency has revised and consolidated its categories for safety and soundness and Affordable Housing Program examination findings pertaining to Fannie Mae, Freddie Mac and the Federal Home Loan Banks, the FHFA announced in a recent advisory bulletin. Examination findings are deficiencies related to risk management, risk exposure, or violations of laws, regulations or orders that affect the performance or condition of a regulated entity, according to the FHFA.