Pershing Square Capital Management – reportedly the largest investor in Fannie Mae and Freddie Mac common shares – filed two separate lawsuits last week demanding the federal government cease and desist its “net worth sweep” of GSE profits. The New York hedge fund contends that the government’s action not only illegally shortchanges investors of the GSEs’ common, it also amounts to a de facto liquidation of the two firms, according to its first complaint filed with the U.S. Court of Claims in Washington. The first complaint lists the U.S. as a defendant, as well as Fannie and Freddie as nominal defendants.
As the Federal Housing Finance Agency mulls over a proposed increase in fees charged by the GSEs to provide guarantees on mortgage-backed securities, so far those advocating for a g-fee hike remain in the minority. The Securities Industry and Financial Markets isn’t flatly opposed to an increase in g-fees under certain conditions but policy makers should “consider the broader context” in which the guaranty fee will be raised.
Delegated servicers hired by Fannie Mae failed on numerous occasions to close short sales at the authorized price, according to a new audit from the Inspector General of the Federal Housing Finance Agency. The IG also found that a Fannie Mae remediation plan does not hold servicers fully accountable for the resulting losses. Issued late last week, the IG audit focused on the effectiveness of the FHFA’s oversight and Fannie’s controls over delegated servicers to ensure that net proceeds for short sales met the authorized reserve established by Fannie. The IG found that both the GSE and its regulator came up short.
Fannie, Freddie Subprime Holdings Continue to Run Off. The GSEs’ holdings of nonprime mortgages continue to decline, largely due to runoff, according to a new analysis by Inside Nonconforming Markets, an affiliated publication. Fannie Mae and Freddie Mac held a combined $252.2 billion of Alt A and subprime mortgage assets at the end of the second quarter, down 18.3 percent from 2Q13. Purchased/guaranteed mortgages account for 71.9 percent of the holdings, with the rest of the GSEs’ nonprime exposure in non-agency mortgage-backed securities.
Currently, residential lenders only have to report information on a closed-end reverse mortgage if the transaction involves a home purchase, home improvement or refinancing.
In its statement announcing the settlement, BofA stressed, “The claims relate primarily to conduct that occurred at Countrywide and Merrill Lynch prior to Bank of America's acquisition of those entities.”
Among the banks reporting that the rules had no effect on their approval rates, half indicated that lending policies would have been tighter without the safe harbor for mortgages that pass the GSEs’ automated underwriting models.
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