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Inside The GSEs

August 14, 2015

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GSE Business Up in July, Little Change in Traits

Fannie Mae and Freddie Mac saw modest gains in issuance of single-family mortgage-backed securities during July, with little sign of any expanded underwriting by sellers The two GSEs generated $83.29 billion of single-family MBS last month, up 7.2 percent from June. Fannie managed only a 1.9 percent gain for the month, while Freddie volume surged 13.8 percent, which gave the company an unusually high 47.0 percent share of the GSE market. A big part of Freddie’s sharp increase in issuance came from the $8.00 billion of seasoned loans the company securitized in July. That was nearly double the volume of Freddie mortgages more than three months old that were securitized in June. Some $1.92 billion of those loans were modified.... Read More

New NPL Auction From Freddie, Combined UPB of $1.2 Billion

Freddie Mac continues to unload seriously delinquent loans from its retained portfolio and unveiled plans late this week to auction off $1.2 billion of non-performing loans. The NPLs are currently serviced by Ocwen Loan Servicing, LLC. The planned sale marks Freddie’s sixth NPL auction of the year.The GSE is now marketing the nonperformers in five geographically diversified pools. Bids are due from qualified investors by Sept. 9. The sale is expected to settle in October. The government sponsored mortgage giant said the winning bidder “will be determined on the basis of economics, subject to meeting Freddie Mac’s internal reserve levels.” Credit Suisse Securities, Wells Fargo Securities, LLC, and First Financial Network are the advisors on the deal. Read More

GSEs' 97 LTV Product Still Lacks Any Momentum

The GSEs’ low-downpayment products designed to loosen credit availability have been slow to pick up steam. Freddie Mac introduced its 97 percent loan-to-value program in March 2015, on the heels of Fannie Mae kicking off its 97 LTV program in December 2014. The CEOs of both companies recently said that so far the volume of low-downpayment purchase loans in GSE business is relatively small. Freddie CEO Donald Layton said during last week’s earnings call, “Actually the numbers have not grown large enough to be reporting level in terms of size.” Fannie echoed that sentiment in its earnings call and said it introduced the 97 LTV product as part of its effort to create programs that make credit available on a broader basis. Read More

Fannie, Freddie Reap Rising Profits in Q2 Due to Interest Rate Hikes

Both Freddie Mac and Fannie Mae reported second-quarter earnings last week that were significantly higher than the first quarter, thanks primarily to rising interest rates. Freddie posted a net income of $4.17 billion, compared to $524 million in the first quarter. In addition to higher interest rates, the GSE attributed the increased income to a steeper yield curve and $3.1 billion in derivative gains. That gain represents a big comeback from the $2.4 billion in derivative losses in the first quarter. Fannie reported a net income of $4.64 billion, compared to $1.89 billion in the first quarter. Fannie said that number was largely driven by guaranty fee income in the second quarter. Read More

DeMarco: Detailed Data Needed When It Comes to Risk-Sharing

More detailed information sharing is a key component of reforming the housing finance industry, according to Ed DeMarco, the Federal Housing Finance Agency’s former acting director. Speaking at a National Association of Realtors housing forum on Wednesday, DeMarco pointed to the need to work on the standardization of data and said there should be an increased robustness of disclosure to investors if they are to bear mortgage credit risk. “They need to have more information than they have had in the past about the credit characteristics of underlying loans,” he said. DeMarco emphasized that continuing to develop an infrastructure that produces a security that has common data disclosures is important so investors have more confidence in... Read More

Freddie Targets Small Apartment With New Risk-Transfer Program

The smaller apartment building market has become a part of Freddie’s risk-transfer program as the GSE guaranteed its first multifamily small-balance loan securitization last week. This new credit risk- transfer is composed of multifamily mortgage-backed securities by small-balance loans underwritten by Freddie and issued by a third-party trust. Freddie said the goal is to more effectively provide liquidity and service to markets that are less populated and to smaller apartment communities with between five and 50 units. Approximately 31 percent of U.S. renter households live in apartment properties this size, said the GSE. In these deals, Freddie is selling the first-loss position, which allows it to unload substantially all of the credit risk associated with the small-balance loans. Read More

Fannie Says Homeowners Miscalculating Amount of Equity

Homeowners may be selling themselves short when it comes to the amount of equity in their homes and faulty valuation tools may be the culprit, says a new Fannie Mae analysis released last week.As many as 15 million homeowners are underestimating how much equity they’re actually sitting on, especially as house prices continued to rise over the past several years. CoreLogic estimates of the percent of homeowners having significant home equity was much higher than the percent who actually perceived themselves as having equity in Fannie consumer surveys. Many homeowners also mistakenly think a large downpayment is required to buy a home, according to data from Fannie’s National Housing Survey. This means the number of consumers... Read More

Redwood Trust Now Risk Sharing With Fannie and Freddie

Redwood Trust set up a new risk-sharing agreement with Freddie Mac last month. This makes the real estate investment trust the first to execute proprietary risk-sharing arrangements with both GSEs. In the arrangement with Freddie, Redwood commits to absorb the first 1 percent of credit losses on up to $1 billion of new conforming loans it expects to deliver to Freddie over the course of the third quarter of 2015. Redwood said this is done through a special-purpose entity. The REIT entered into the risk-sharing agreement with Freddie in July and had already been in a risk-sharing transaction with Fannie since the fourth quarter of 2014. In that transaction, Redwood sold protection on the first 1 percent of losses on a $1.1 billion Fannie pool. Read More

FHLB Combined Net Income Rose Due to Higher Litigation Gains

The Federal Home Loan Bank system earned $678 million in the second quarter of 2015 and attributes the 32 percent year-over-year increase to higher gains on litigation settlements and derivatives as well as hedging activities. Total net income for the first half of the year was even higher than the previous year, according to figures compiled by the system’s Office of Finance. Net income for the first six months witnessed a 58 percent jump, to $1.69 billion. Litigation settlements accounted for $143 million in the second quarter, driven by FHLBank of Boston’s $135 million settlement. Those claims came directly from investments in non-agency mortgage-backed securities. Total FHLB assets for the first half of the year were pretty much flat at $916.9 billion, representing... Read More

FHFA's Watts Dishes on eClosings And Reaching the Millennials

Although Fannie Mae and Freddie Mac are not directly involved with the Consumer Financial Protection Bureau’s eClosing pilot project, Federal Housing Finance Agency Director Mel Watt said that the GSEs have been writing loans or purchasing e-mortgages from approved lenders. “We have found that if we’re going to be a part of the new normal and participate in it as Fannie and Freddie, we’ve got to figure out a way to get to the millenials,” he said, adding that they don’t communicate in the same way as previous generations. “So movement in this direction is critically important. And if we can use this process to get more engagement by millenials in the process, I think it would be advantageous to us.” Read More

GSE Roundup

FHLB Will Stay in Topeka. After mulling a move to places like Kansas City and Denver, the Federal Home Loan Bank of Topeka said it would stay put and build a new headquarters there. Construction on the $26 million, 80,000 square foot building will begin next year and employees anticipate a move to the new building in 2018. The bank needed a more modern and larger space than its current 60,000 square foot location offers. Freddie Prices $471 Million K-Deal. Freddie Mac priced a new offering of Structured Pass-Through Certificates backed by fixed-rate multifamily mortgages with seven-year terms. The company plans to issue more than $471 million in K-719 Certificates, which is expected to settle around Aug. 19. This is Freddie’s 15th K Certificate offering this year. Read More

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