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Inside The GSEs

November 6, 2015

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A Tale of Two GSEs: Fannie Profits in Q3 While Freddie Reports Loss

Freddie Mac and Fannie Mae both reported third quarter earnings this week but the numbers were in stark contrast to one another. Freddie announced a $475 million loss and set off a firestorm of reaction surrounding a possible Treasury draw when its reserves decline to zero. Two days later, Fannie posted net earnings of $2.2 billion for the third quarter. Freddie pointed to losses on derivatives used to hedge the company’s interest rate risk as the reason for its first loss in four years. In addition to falling interest rates, Freddie marked down its investment in derivatives by $4.17 million. Don Layton, Freddie’s CEO, noted that earnings volatility “stems from our usage of derivatives to... Read More

Amendment Passed, Removes G-Fees Extension from Highway Bill

The House approved an amendment to remove an extension of higher guaranty fees for Fannie Mae and Freddie Mac with strong bipartisan support. The Neugebauer-Huizenga amendment to H.R. 22, introduced by Reps. Randy Neugebauer, R-Texas, and Bill Huizenga, R-Mich., was adopted by the House on Nov. 5. About 30 industry trade groups, including lenders and builders, rallied behind the effort and sent a letter to Speaker Paul Ryan, R-WI, and former House Speaker Nancy Pelosi, D-CA, earlier this week urging that the g-fee extensions be removed. Without the amendment, a 10 basis point surcharge on Fannie and Freddie g-fees that went into effect in 2012 could have ended up... Read More

Fannie Mae, Freddie Mac New Business Volume Slows in October

Fannie Mae and Freddie Mac securitized $68.13 billion of single-family mortgages in October, an 8.2 percent decline from the previous month, according to a new Inside The GSEs analysis of mortgage-backed securities disclosures. The slowdown appears to be based on seasonal decline in home-purchase activity. The volume of purchase mortgages securitized by Fannie fell 15.3 percent, while Freddie’s purchase-mortgage activity dropped 11.6 percent. Fannie’s refinance activity was off 1.0 percent from September, while Freddie saw a 5.8 percent increase in its refi business for the month. Overall, Freddie single-family MBS issuance was down 7.2 percent from September, while Fannie’s volume fell 9.2 percent. On a year-to-date basis, both GSEs were still well ahead of the pace they set during the first 10 months of 2014. Read More

FHFA, Freddie and Others Speak on Potential of a Treasury Draw

With the GSEs’ capital reserve expected to hit zero by 2018, and in the wake of Freddie Mac’s third quarter earnings loss, industry leaders and observers have shifted their attention to addressing the possibility of a future draw from Treasury. Freddie posted a $475 million loss in the third quarter after marking down its investment in derivatives by $4.17 billion. This is the first time in four years that the GSE had a quarterly loss. Donald Layton, Freddie’s CEO, said in an earnings call that this loss represented 28 percent of the allowed capital reserve of $1.8 billion, so there’s no draw requested from the U.S. Treasury, but that didn’t stop speculation on what happens in the event of future losses. Read More

FHFA: Freddie's 2014 Low-Income Home Purchase Goals Not Met

The Federal Housing Finance Agency determined that Freddie Mac did not meet all of its low-income and very low-income home-purchase goals for 2014, according to the FHFA’s preliminary annual housing report released on October 30. Under the GSEs’ affordable housing goals, low-income is for home-purchase mortgages to families with incomes no greater than 80 percent of the area median income, and the very low-income home- purchase goal is for families with incomes no greater than 50 percent of AMI. Freddie fell short of meeting both goals. The low-income home-purchase goal was 23 percent and Freddie ended 2014 at 21 percent. The very low-income home-purchase goal was 7 percent and Freddie topped out at 4.9 percent. Read More

Proponents of GSE Recap and Release Grow Amid Concerns

The furor continues to grow over recapitalizing and releasing Fannie Mae and Freddie Mac, and this week’s third quarter earnings report, along with recent comments by senior government officials, likely only intensified the debate. Several industry groups addressed letters to President Obama urging the White House to take a stand now instead of waiting for housing reform legislation in Congress and release the GSEs from conservatorship while allowing them to re-build capital. The most recent letter was from two mortgage trade groups that represent smaller nonbanks. This week, the Community Home Lenders Association and Community Mortgage Lenders of America addressed a letter to Obama arguing that the Federal Housing Finance Agency has the power under a... Read More

FHLB Combined Net Income Decreases in Third Quarter

The Federal Home Loan Bank system earned $484 million in the third quarter of 2015 and attributes the 23 percent year-over-year decrease to net losses on derivatives and hedging activities. But total net income for the first nine months of the year saw a 29 percent jump, to $2.18 billion, according to figures compiled by the system’s Office of Finance. This was driven by higher litigation settlements and net gains on derivatives and hedging activities. After falling flat last quarter, total FHLB assets from the end of June were up at the end of the third quarter by less than 1 percent to $919.6 billion. Read More

House Vote to Cap GSE's CEO Salaries Rescheduled

A bill to cap the salaries of Fannie Mae and Freddie Mac CEOs at $600,000 is expected to become law, but has been rescheduled for vote in the House sometime during the week of Nov. 16. The budget vote last week, coupled with the debate over the Export-Import Bank and election of a new House Speaker, resulted in the salary cap legislation being postponed for a floor vote at a later date this month, said Rep. Ed Royce, R-CA. Royce introduced the “Equity in Government Compensation Act” back in May. It would suspend the $4 million compensation packages for Fannie’s Timothy Mayapoulos and Freddie’s Donald Layton that were approved early this year after... Read More

Freddie Describes Single-Security Transition Via Legacy PC Exchange

Investors will be able to exchange existing Freddie Mac participation certificates for new single securities when the GSE creates new “mirror” securities to help facilitate the transition.The exchange program will be available when the new single security goes live and Freddie plans to keep it open for the foreseeable future. Held in a Federal Reserve account, the mirror securities will not increase the outstanding principal balance of Freddie MBS, the GSE explained in an update on the exchange program. The mirror securities will track existing Freddie MBS but substitute a 55-day payment cycle for Freddie’s current 45-day cycle. Freddie will pay compensation equal to the fair market value of the 10 days of lost float when... Read More

Fannie Mae's Headquarters Now on the Market in Washington

Fannie Mae’s most recognizable headquarters in Washington, DC, along with two others, recently hit the market as the GSE plans to sell the properties in preparation for its move downtown in 2017. Commercial real estate firm Cushman & Wakefield began marketing the GSE’s three properties in late October. They include the storied main building at 3900 Wisconsin Ave., which replicates Williamsburg, VA, architecture, a smaller building at 3939 Wisconsin Ave. and Fannie’s 1990’s-era building at 4240 Connecticut Ave. The primary building and land are currently valued at approximately $92.1 million, according to 2015 records from the DC Office of Tax and Revenue. The Connecticut Avenue building is valued at $84 million and the 3939 Wisconsin Ave. building is... Read More

GSE Roundup

Conforming Loan Limit Highly Unlikely to Change in 2016. The baseline $417,000 conforming loan limit is almost certain to remain unchanged in 2016, according to an Inside Mortgage Finance analysis of key house-price trends. Recent news reports have stated that the Federal Housing Finance Agency is considering raising the $417,000 baseline limit to $500,000, but knowledgeable sources say these reports are unfounded. Freddie officials confirmed that the agency does not have discretionary authority to raise the baseline limit unless the Home Price Index mechanism provides for an increase. NSM Partners with FHLB. Nationstar Mortgage announced a program with the Federal Home Loan Bank to provide... Read More

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