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Volume 17 - Number 10

May 19, 2017

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FHFA’s Capital Buffer Plan Draws Praise, Criticism and Questions

Federal Housing Finance Agency Director Mel Watt’s comments last week that he’s prepared to allow the GSEs to build a capital buffer to avoid a Treasury draw was met with both applause and concern. But this week, Bob Ryan, special director to Watt, clarified the comments stating that the plan would entail delaying the dividend payments to the U.S. Treasury Department and not suspending them. Ryan, speaking during a credit-risk transfer symposium in New York City, kicked off the first five minutes of a panel discussion about GSE reform by talking about the potential capital buffer plan. He said that it would be done strictly for the purpose of avoiding draws on the “limited resources of the preferred stock purchase agreement.”

GSE 1-Family Business Dropped In April, Despite Purchase Gains

The purchase-mortgage business showed some green shoots in April, but not enough to offset another drop in refinance activity, according to a new Inside The GSEs ranking and analysis. Fannie Mae and Freddie Mac securitized $31.84 billion of purchase mortgages last month, a 12.2 percent increase from March. It was the third straight monthly gain in purchase-mortgage volume, bringing year-to-date activity to $123.46 billion, a 13.6 percent improvement over the same period in 2016. Purchase mortgages accounted for over half of GSE business in April for the first time since August of last year. But the refinance side of the business fell again in April, to just $25.49 billion. That was down 17.8...

Watt Continues to Promote GSE Reform in Remarks to Bankers

Federal Housing Finance Agency Director Mel Watt reiterated his view this week that housing finance reform should fall in the hands of Congress, not the FHFA, and discussed the GSEs’ role in expanding access to credit. Speaking at the American Mortgage Conference in North Carolina, Watt followed up on points he made during last week’s Senate Housing, Banking and Urban Affairs Committee. “I drew a distinction between decisions we have made, and continue to make, as conservator and decisions Congress must make,” he said. Watt explained that decisions the FHFA has made during the conservatorship have “fundamentally reformed” the GSEs’ operations, practices and protocols.

CRT Programs Play Key Role in Housing Finance Reform

Fannie Mae and Freddie Mac credit-risk transfer programs have evolved from their prior business model but the market still has a ways to go before it fully matures, according to Federal Housing Finance Agency Director Mel Watt. Watt noted that the GSEs have made a tremendous amount of progress on credit risk transfers in a short amount of time, increasing their transaction volume from an unpaid principle balance of $90 billion in 2013 to $548 billion in 2016. “From 2013 through the end of 2016, the enterprises have transferred a meaningful portion of credit losses on a combined $1.4 trillion in mortgages, with a risk in force of about $49 billion,” said Watt, while...

Watt Dishes on Complications with Alternative Credit Scoring

While the FHFA’s capital buffer plan was the most talked about news that came out of the Senate Banking, Housing and Urban Affairs Committee last week, Watt also dished on a number of other issues including credit access, nonperforming loans and the delay of the common securitization platform. When asked about a timeline for exploring alternative forms of credit analysis, Watt said that the FHFA hopes to get through that by the end of the year. …

GSE CRT REMIC Structure Proposal is REIT-Friendly

The GSEs proposed changes to their credit-risk transfer programs last week making them more conducive for real estate investment trusts to participate. Analysts say the changes will help create REIT demand for CRTs. REITs have long argued that regulatory rules have kept them out of the CRT market. Currently the structure of the GSEs’ popular CRT programs don’t meet the income test for REITs since they are structured as agency debt securities The proposed enhancements to Fannie’s Connecticut Avenue Securities program and Freddie’s Structured Agency Credit Risk would let their future CAS and STACR offerings qualify as real estate mortgage investment conduits.

GSEs View Front-End Transactions As a Compliment to CRT Program

The GSEs view their recent front-end credit-risk transfer pilots as another complementary addition to their CRT programs but have no plans of a big rollout for these types of transactions. During a CRT symposium this week in New York, officials from the GSEs discussed the use of mortgage insurance in CRTs. Robert Schaefer, Fannie’s vice president for credit enhancement strategy and management, called the transactions “a good tool in the toolkit,” but said he doesn’t see them taking over the majority of CRT activity. Gina Healy, Freddie’s vice president of credit risk transfers, agreed that the front-end CRTs, which use MIs is a good mechanism to have because it provides certainty and efficiency it terms of pricing.

Fannie, Freddie Release DTS Drafts, Detail Chattel Loan Pilot

Fannie Mae and Freddie Mac have proposed to pilot chattel loan programs within the next couple of years, but the manufactured industry wasn’t exactly impressed. Early last week, the GSEs released draft proposals detailing how they plan to boost underserved manufactured housing, rural housing and affordable housing preservation markets for low- and moderate-income families over the next three years. Under the Federal Housing Finance Agency’s duty-to-serve requirement, Fannie and Freddie are charged with coming up with ways to increase financing in those three areas. The drafted plans are part of an extended implementation process. The GSEs admitted there is not much information available about chattel lending and said...

BlackRock Reform Proposal Recommends Explicit Guarantee

BlackRock joined the chorus of GSE reform proposals by releasing its own last week. It aligns with the consensus view that reform should include an explicit government guarantee for mortgage-backed securities. An explicit government MBS guarantee is necessary to fully support a deep and liquid to-be-announced market, according to the asset manager. “Without this support, we believe credit would be more expensive and more difficult to obtain, which would negatively impact housing markets,” said BlackRock. Ginnie Mae MBS have an explicit guarantee, while Fannie and Freddie securities had an “implied” guarantee until they went into conservatorship. Although many proposals believe that’s the best...

IGSE Roundup

Freddie’s Second RPL Sale.  Freddie Mac announced an approximately $292 million structured sale of a pool of seasoned reperforming loans. The pool is comprised of loans with step-rate modifications using GSE proprietary modifications. The pool includes reperforming and moderately delinquent loans being serviced by Select Portfolio Servicing, Inc. The GSE’s first RPL sale was a pilot program that proved to be successful, according to Freddie. …


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