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Inside The GSEs

August 16, 2013

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Second Thoughts on GSE Wind Down Emerge

Recent public comments by President Obama and Congressional leaders have seemingly re-energized the debate over housing finance reform even though some are questioning the cashiering of the now profitable GSEs. But as lawmakers draft and/or refine dueling bills, it remains to be seen whether summer recess chatter will translate into an actionable legislative result this fall, say industry observers. In a highly anticipated speech last week, the president didn’t break much new ground in calling for Fannie Mae and Freddie Mac to be wound down through a “responsible transition.” However, Obama listed among his key reform principles that private capital should be in a first-loss position and the government should provide an appropriately priced, explicit government guaranty to ensure continued access to the 30-year fixed-rate mortgage. Read More

FHFA Looks to Shrink GSEs’ MF Presence

When the government took control of Fannie Mae and Freddie Mac almost five years ago, the thought of securitizing multifamily loans had already been planted, but both preferred the idea of holding the paper in portfolio for obvious reasons: high returns and ultra-low delinquencies. Today, both GSEs are securitizing a record amount of MF mortgage-backed securities – but all of that is about to change with the Federal Housing Finance Agency forcing them to shrink their balance sheet holdings including multifamily. Moreover, FHFA is now soliciting comments from the public on how to whittle down the GSEs’ role in the MF business. The agency recently published notice that it wants input in evaluating “alternatives for further contracting the multifamily business” and is seeking views “on the potential market impact of various strategies.” Read More

Fannie, Freddie Revise Servicing Incentives

Fannie Mae and Freddie Mac are eliminating or tweaking certain servicing initiatives, the two GSEs announced last week in separate bulletins. Effective Aug.1, the two enterprises have eliminated the complete Borrower Response Package and Delinquency Improvement Performance Standard, and the related incentive and compensatory fee structure. Read More

FHFA Headhunts CEO For Securitization Platform

The Federal Housing Finance Agency has hired Washington-based Spencer Stuart to help find a chief executive to man the helm of the “common securitization platform” project. One former Fannie Mae official familiar with the effort told Inside The GSEs that the project has taken on a more “serious” urgency at the agency. “I’m not sure of the timeline, but it’s moving along.” One mortgage official who was approached about the job – but who made it clear he is not interested – said that the CEO FHFA hires “will need to be creative, revolutionary and good at many things.” Read More

FHFA Explores Eminent Domain Countermeasures

The Federal Housing Finance Agency is ready, willing and able to use its big stick as regulator of the GSEs to play hardball against municipalities that move forward with proposed efforts to seize underwater mortgages via local government eminent domain powers, say industry observers. One year ago nearly to the day after the FHFA warned “action might be necessary” to protect the GSEs, the Finance Agency released a legal memorandum outlining a number of steps it could take in response to an eminent domain action to restructure mortgages. The FHFA reiterated its “significant concerns” as conservator of Fannie Mae and Freddie Mac, as well as regulator of the 12 Federal Home Loan Banks, that widespread seizures of the loans and their subsequent refinancing “presents a clear threat to the safety and sound operations of the GSEs.” Read More

Judge Denies Ally/ResCap Motion to Stay FHFA Suit

The Federal Housing Finance Agency may pursue a fraud lawsuit against Ally Financial despite the bankruptcy status of Ally’s Residential Capital mortgage unit, a Manhattan federal judge ruled this week. U.S. District Court Judge Denise Cote denied Ally’s request to stay the FHFA’s litigation, a typical motion by bankrupt debtors to defer litigation as they seek to reorganize. In 2011, the FHFA filed 18 lawsuits alleging that Ally and other large financial institutions misrepresented the quality of non-agency mortgage-backed securities sold to Fannie Mae and Freddie Mac before the 2008 financial crisis. Read More

Obama Fails to Aggressively Push Rep. Watt’s FHFA Nomination

President Obama’s cursory mention of his nominee to head the Federal Housing Finance Agency during his big housing policy speech last week in Phoenix continues to fuel doubts as to just how committed the White House is to replace current FHFA Acting Director Edward DeMarco. Watt’s nomination cleared the Senate Banking, Housing and Urban Affairs Committee last month along a party-line vote amid Republican vows to block the “unqualified” 20-year House veteran. Obama afforded Watt only three sentences in his speech, noting that his nomination should receive “an up or down vote without any more obstruction or delay.” Read More

OIG: FHFA Must Tighten FHLBank Lending Practices

Despite a “proactive and thorough” horizontal review of the Federal Home Loan Banks’ previously diagnosed deficiencies in unsecured lending practices, the Federal Housing Finance Agency needs to clamp down harder on the FHLBanks to ensure total compliance, according to a new report by the FHFA’s Office of Inspector General.The FHFA-OIG report issued last week follows up on the official watchdog’s June 2012 audit in which it flagged “potentially risky unsecured credit management practices” by the 12 FHLBanks. Over 900 primary and secondary unsecured credit violations at seven FHLBanks were noted, with risk-management deficiencies “of varying degrees” found at the other five Banks, noted the OIG. Read More

GSE Dataset to Support Pending CFPB Disclosures

Fannie Mae and Freddie Mac, at the direction of the Federal Housing Finance Agency, are developing a standardized dataset to support the Consumer Financial Protection Bureau’s yet-to-be finalized consolidated closure disclosure forms, the GSEs recently announced. The GSEs’ new Uniform Closing Dataset is a component of the FHFA-mandated Uniform Mortgage Data Program, which is designed to standardize the way loan data is defined, captured and delivered. “The UMDP is a multifaceted, ongoing program in which the GSEs develop and implement mortgage data standards for the single-family loans we purchase and/or securitize,” Freddie said. “Capturing consistent and accurate data is essential to our ability to effectively assess risk on the mortgages we purchase and will create efficiencies for all industry participants.” In conjunction with the uniform appraisal data standards, Freddie said it has worked with Fannie on a joint appraisal data delivery portal, the Uniform Collateral Data Portal, for the electronic capture of appraisal data. Read More

OIG: GSE Staff Turnover Mitigated for Now

The voluntary attrition rate of experienced and knowledgeable staffers within Fannie Mae’s and Freddie Mac’s capital markets businesses remains a concern, but for the time being the problem “appears to have been mitigated,” according to the Federal Housing Finance Agency’s official watchdog. Although employee turnover at both GSEs has been an issue that accelerated following the companies’ move into government conservatorship in 2008, the FHFA’s Office of Inspector General zeroed in on staffing at Fannie’s Capital Markets Group and Freddie’s Investments & Capital Markets Division “because of their portfolios’ size, complexity and susceptibility to sustaining significant losses.” Read More

GSEs’ 2Q Earnings Swell, Freddie Passes on DTA

The U.S. Treasury will receive a massive cash payment of $14.6 billion by Fannie Mae and Freddie Mac next month following robust second-quarter earnings, leaving the two GSEs potentially within a quarter or two of reaching the point where their dividend payments equal the massive bailout provided to them by taxpayers. The period ending June 30, 2013, saw Fannie reporting $10.1 billion in net income, the company’s sixth consecutive quarterly profit, while Freddie posted $5.0 billion in net income. The second quarter was Freddie’s seventh straight profitable quarter and its second largest in company history. Under the revised conservatorship agreement rolled out a year ago by the Federal Housing Finance Agency and the Treasury Department, any GSE net worth exceeding $3.0 billion is impounded by the government. Read More

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