The Federal Reserve’s Open Market Committee is moving closer to beginning what is likely to be a long and drawn-out process to gradually and predictably unwind the U.S. central bank’s huge portfolio of agency MBS and debt – the sooner, the better, according to Fed chief Janet Yellen. “The FOMC intends to gradually reduce the Federal Reserve’s securities holdings by decreasing its reinvestment of the principal payments it receives from the securities held in the System Open Market Account,” she said this week in her semi-annual Humphrey-Hawkins testimony on monetary policy to members of Congress. “Specifically, such payments will be reinvested...

The average daily trading volume of agency MBS reached $209.9 billion in June, the second highest reading of the year and a sign that liquidity is picking up, according to figures compiled by the Securities Industry and Financial Markets Association. The increase in trading comes despite the fact that Fannie Mae, Freddie Mac and Ginnie Mae issued a total of $317.7 billion of new MBS in the second quarter, a 6.1 percent decline from the first quarter. For the six-month period, 2017 holds the edge with volume up 3.5 percent. But it hasn’t been...

ABS investors could see strong returns by employing the “Moneyball” strategy pioneered in Major League Baseball by the Oakland Athletics, according to analysts at Wells Fargo Securities. The strategy, detailed in a book and movie, focuses on certain statistics that managers of the Athletics thought were undervalued by other teams. Wells said the theory can be adapted to the ABS market, with an emphasis on deals that can reliably hit “singles” instead of potentially risky investments that aim for home runs. “With interest rates low and ABS spreads reasonably tight, many market participants are...

As talks intensify on how to get Fannie Mae and Freddie Mac out of limbo, smaller lenders are clamoring to make sure they have a say in how housing-finance reform plays out. Nearly all sides agree that small lenders should continue to have access to the secondary market; how that’s accomplished is a different matter. The Main Street GSE Reform Coalition – an umbrella group made up of small-lender and community-advocacy groups – wants the government-sponsored enterprises to begin rebuilding capital buffers by suspending their dividend payments to the Treasury Department. It also wants...

The proposal to restructure the credit-risk transfer debt-note programs at Fannie Mae and Freddie Mac to make them more attractive to real estate investment trusts likely won’t have a negative impact on the credit risk and quality of those deals, Morningstar said in a new report. The proposed changes to Fannie’s Connecticut Avenue Securities and Freddie’s Structured Agency Credit Risk programs would characterize them as real estate mortgage investment conduits. This would allow REITs and some overseas investors to participate more broadly in the programs. Currently, the structure of the government-sponsored enterprises’ popular CRT programs doesn’t meet...

After a few months of delay, the Consumer Financial Protection Bureau last week issued its long-awaited final rule clarifying a number of aspects of its integrated disclosure rulemaking under the Truth in Lending Act and the Real Estate Settlement Procedures Act, otherwise known as TRID 2.0. The most noteworthy revisions relate to good faith and revised disclosures, calculating cash to close, construction-to-permanent loans, and the sharing of disclosures during the origination process. In terms of good faith and revised disclosures, the 2017 TRID rule provides...

The Department of Veterans Affairs is seeking approval from the Office of Management and Budget to continue collecting information considered crucial in approving certain lender requests to close VA loans automatically. Currently, non-supervised VA lenders requesting approval to close VA loans on an automatic basis use VA Form 26-8736 to submit the information needed for VA approval. Upon receiving the form, the appropriate VA regional loan center processes and evaluates the information. Without the required data, VA would not be able to determine if a non-supervised lender is qualified for automatic loan processing. The required data include, among other things, a resume of each principal officer’s experience in mortgage lending in a managerial capacity and the latest financial statements audited and certified by a certified public accountant. The form also requires a listing of all ...

At the end of July, Fannie Mae and Freddie Mac will report second quarter results that might be marred – at least a little bit – by non-cash hedging charges caused by lower interest rates. When June ended, the benchmark 10-year Treasury bond carried a yield of 2.30 percent, 10 basis points lower than at March 31. Lower rates usually translate into hedging markdowns, but since the decline was so small it’s unlikely that either government-sponsored enterprise will record a net accounting loss for the period. In general, the two don’t discuss...

Federal Reserve Governor Jay Powell urged lawmakers to figure out a solution to the extended conservatorships of Fannie Mae and Freddie Mac, noting that a healthy economy and the risk to taxpayers make now an ideal time to act. In a speech this week at the American Enterprise Institute, Powell noted that the two government-sponsored enterprises are now in their ninth year of conservatorship. He worries that if reform doesn’t happen soon it may not happen at all. Powell said any change would be more challenging to enact during difficult economic times. “The risk that we settle into this current situation for the long run is...

More Fannie Mae and Freddie Mac shareholders are arguing that the structure of the Federal Housing Finance Agency is unconstitutional and are calling for courts to vacate the third amendment that sweeps the profits of the mortgage giants into the Treasury Department. Within the past month, two new cases have been introduced in Michigan and Minnesota, likely piggybacking on last year’s decision in which the single-director structure of the Consumer Financial Protection Bureau was found to be unconstitutional. Several shareholders of the government-sponsored enterprises filed...