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Volume 18 - Number 12

June 8, 2018

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MBS Business Up Modestly in May But Little Change in Credit Box

A strong surge of purchase-mortgage business helped lift Fannie Mae and Freddie Mac production of single-family mortgage-backed securities in May, according to a new Inside The GSEs analysis. Credit characteristics in May production were relatively unchanged, however. The two GSEs securitized $65.63 billion of single-family MBS last month, a 6.8 percent increase from April’s volume. Most of the gain came from a 23.6 percent jump in purchase-mortgage business as home buying season kicked into gear. Refinance volume was up slightly, and neither ... [Includes two data charts.]

GSE Pilot Programs Drawing More Attention for Lack of Transparency

Industry groups and lawmakers have turned their attention to the GSEs’ pilot programs and how they’re being implemented. Many argue that as of late, pilot programs such as recent initiatives involving mortgage insurance and home rentals are being launched without much transparency. This week, the Mortgage Bankers Association penned a letter to the Federal Housing Finance Agency recommending the regulator increase the level of transparency for new products and activities the GSEs take on. The trade group noted it’s concern about new initiatives which raised “significant” questions as whether they have the public’s best interest in mind. There’s also some unease about Fannie Mae and Freddie Mac possibly infringing on the primary market.

Will Mel Watt’s Eventual Successor Wear Two Hats, Like Mulvaney?

Industry insiders are continuing to play the speculation game regarding who might replace Mel Watt as director of the Federal Housing Finance Agency, a position that holds immense power given the role Fannie Mae and Freddie Mac play in the housing market. So far, analysts and lobbyists have identified a handful of potential candidates who might replace the director when his five-year term ends early next year, including Treasury counselor Craig Phillips; Mark Calabria, chief economist to Vice President Mike Pence; and Michael Bright, EVP of Ginnie Mae, among others. Another candidate who has been mentioned is Comptroller of the Currency Joseph Otting, who was sworn into that post in late November of last year.

Think Tank Suggests Merge Fannie Mae and Freddie Mac into HUD

There are benefits to merging Fannie Mae and Freddie Mac with the Department of Housing and Urban Development, according to one conservative think tank opining on the future of the GSEs. The American Action Forum said because the government-sponsored enterprises are being funded in part by taxpayers, and treated as being on the federal budget, the goal should be to align policy with the budget. “This raises an intriguing possibility. Merge Fannie and Freddie into the Department of Housing and Urban Development,” said Douglas Holtz-Eakin president of the AAF and a former director of the Congressional Budget Office in the early 2000’s.

Investigations Open into Price Manipulation by GSE Bond Traders

Some banks may be manipulating prices in Fannie Mae and Freddie Mac unsecured debt, according to several investigations launched late last week.The Department of Justice has reportedly opened a criminal investigation while the law firm of Hagens Berman is investigating the potential fraud.They suspect that traders from several banks have engaged in a coordinated attempt to manipulate pricing. Hagens Berman attorneys encourage investors and whistleblowers to report any information about potential antitrust violations and other fraud in the bond trading market to a tip line they recently established. This type of fraud has a large impact on market participants, according to Steve Berman, managing partner of Hagens Berman.

GSEs Evolving to Cater to Gig Economy Borrowers

Fannie Mae and Freddie Mac are taking note of the growing number of borrowers earning extra income outside of the traditional weekday, 9-to-5 job and look to make mortgage underwriting more accommodating to this demographic.The gig economy is made up of consumers providing on-demand services such as driving for Uber or Lyft, renting rooms in their homes via Airbnb type outlets, and providing personal services such as handyman tasks or deliveries. A recent survey by Fannie showed that 71 percent of lenders reported having had borrowers with gig employment income apply for a mortgage over the past year and about 89 percent expect this trend to grow over the next few years.

Fannie Mae Warns Lenders of Fraudulent CA Companies

Fannie Mae recently warned lenders to be wary of misrepresentations of borrower employment on loan applications. In a fraud alert issued last week, the GSE published a list of 34 companies that were named on applications as the borrower’s place of employment. The problem came to light when Fannie was not able to confirm that any of the 34 companies located in Southern California actually existed.The GSE said a couple of red flags that drew attention to the issue were that the applications were third-party originator and broker loans. Moreover, Fannie said the borrowers’ occupation often didn’t sensibly coincide with the named borrower’s profile, including their age and experience.

FHLBank of Seattle Loses Appeal on MBS Case Against RBS

The Federal Home Loan Bank of Seattle lost another round recently when the U.S. Court of Appeals in Washington ruled to dismiss its mortgage-backed securities claim against RBS Securities, even in light of newly discovered information in the case. In the suit, the FHLBank of Seattle alleged that it relied on RBS’ prospectus supplement to purchase $200 million in MBS back in 2006. The plaintiff said that the information provided about the MBS was not sufficient, and in fact, it included “untrue or misleading” statements. This was in relation to the loan-to-value ratio of the loans as well as the origination and underwriting...

FHFA Capital Rule Proposal Not a Recap Plan, Will Seek Input

The Federal Housing Finance Agency plans to propose a new risk-based capital rule for the GSEs based on current operations to replace the old Office of Federal Housing Enterprise Oversight capital regulation. But just like the OFHEO rules, the proposed ones will be suspended as long as Fannie Mae and Freddie Mac are in conservatorship. Having a capital framework is useful when it comes to evaluating business decisions, according to FHFA Director Mel Watt. But he was quick to emphasize that the proposal is not based on some grand scheme to promote recapitalizing the GSEs. In fact, it’s largely an exercise that Watt said is...

GSE Briefs

Brookings Encourages Fannie to Expand CRT Market. The Brookings Institute applauds Fannie Mae’s credit-risk transfer program in a paper published this week, but said the GSE should increase the amount of credit it transfers to investors. The think tank also noted that guaranty fees that Fannie mortgage originators chose should be based on the implied g-fee paid to investors. Moreover, Brookings said that Fannie should continue to examine how much risk they should transfer using the Connecticut Avenue Structure program and look at past losses during times of stress. Freddie Prices Largest STACR SPI Deal to Date. Freddie Mac had its second Structured Agency Credit Risk - Securitized Participation Interests (STACR SPI) deal of the year. The $263.5 million STACR 2018 and SPI2 securities are backed by participation...


With mortgage production down noticeably this year from 2017, how many lenders might disappear via M&A or failure during the next 12 months?

10% or less. It’s not that bad out there.
11% to 25%. It’s a challenging market.
25% to 40%. It’s going to be very ugly.
No opinion.

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