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Inside The GSEs

December 18, 2015

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FHFA Releases GSE 2016 Scorecard with Increased CRTs

The Federal Housing Finance Agency gave Fannie Mac and Freddie Mac their marching orders for 2016 by releasing its annual objectives late this week. Increasing access to credit, more risk sharing and continued work on building a new single security are among the primary goals for the year.As credit risk transfers continue to evolve, the FHFA said the GSEs should be transferring credit risk on a minimum of 90 percent of the unpaid principal balance of newly acquired single-family mortgages in loan categories targeted for risk transfer. For 2016, those targets include non-Home Affordable Refinance Programs, fixed-rate terms greater than 20 years, and loan-to-value ratios above 60 percent. Read More

GSE Buyback Activity Continued to Tumble in Third Quarter

A new Inside The GSEs analysis reveals that seller repurchases of Fannie Mae and Freddie Mac mortgages fell to an all-time low during the third quarter as the industry continued to move beyond the havoc caused by pre-crash lending excess. Fannie and Freddie reported combined repurchases or other indemnification related to $434.2 million of home loans backing their mortgage-backed securities during the third quarter. That was down just 0.5 percent from the second quarter, but it was the lowest total since the GSEs began filing repurchase disclosures with the Securities and Exchange Commission back in early 2012. The GSEs also reported all-time lows in their inventory of pending and disputed buyback... Read More

'Jumpstart' Language in 2016 Spending Bill Cause for Concern

President Obama is expected to sign the $1.5 trillion omnibus spending bill this Friday, which includes several provisions in the Jumpstart GSE Reform Act and prohibits the GSEs from building capital anytime soon. The bill would prevent the Treasury from selling its stock in the GSEs, but would not prevent guaranty fee increases to fund other government spending. A recent twist introduced a sunset provision this week that would limit the prohibition on Treasury sales of GSE stock just for the next two years. Investors Unite, a shareholders trade group, noted that this provision is “effectively locking in the status quo of the flawed conservatorship well into 2017.” Section 702 of the 2,000-plus page omnibus spending bill limits the sale of... Read More

FHFA Makes Progress on Manufactured Housing Rule

The Federal Housing Finance Agency is tackling duty-to-serve rulemaking, several years after being mandated by the Housing and Economic Recovery Act, and issued a proposed rule this week that could expand the GSEs’ role in manufactured housing loans, affordable housing preservation and mortgages funded in underserved rural areas. FHFA is seeking comments on the proposed rule to implement duty-to-serve and its focus on making sure Fannie Mae and Freddie Mac are serving markets that have traditionally been underserved. The manufactured housing industry is one of those underserved markets where leaders have been asking for more clarity. “In developing the proposed rule, the FHFA tried to strike a balance between the requirements... Read More

‘Risk Fee’ Repurchase Alternative To Debut in First Quarter 2016

Fannie Mae recently said that in 2016 it would announce details about its plans to let lenders pay a risk fee as an alternative to repurchase for some of the defective loans it receives. While both GSEs have already put some remedies for defects in place, this alternative lets the lender pay a fee for some loans labeled defective, instead of being asked to repurchase the loan. … Read More

Watchdog Group Requests DOJ Investigation Following NYT Article

There was a flurry of activity, including a call for an investigation by the Department of Justice of Mortgage Bankers Association President David Stevens and two others, following a Dec. 7 New York Times piece criticizing the Obama administration and MBA for looking to shut down the GSEs. Stevens, along with Michael Berman, a former MBA chair, and Jim Parrott, senior fellow at the Urban Institute, all former government officials turned private-sector employees, each met with housing policy officials at the White House after leaving their government posts, according to a guest log review by the New York Times. Read More

Lawmakers Call for GSEs to Use Alternative Credit Scoring Models

In hopes of ending a credit scoring system monopoly, Reps. Ed Royce, R-CA, and Terri Sewell, D-AL, recently introduced H.R. 4211, a bill that lets the GSEs consider alternative credit scoring models when deciding which mortgages to purchase. “The GSEs' use of a single credit score is an unfair practice that stifles competition and innovation in credit scoring,” said Royce. He added that breaking up the credit score monopoly at Fannie and Freddie will also assist them in managing their credit risk and decreases the potential for another taxpayer bailout. The Federal Housing Finance Agency directed the GSEs to look into the potential of alternative forms of credit scoring earlier this year. Read More

Fannie, Freddie LTV Product Lags Behind FHA/VA Program

The GSEs’ low-downpayment product still lacks any strong momentum but has witnessed modest growth since it was launched earlier this year. The FHA/VA maintains its place as the preferred product for borrowers in need of downpayment assistance. Ginnie Mae has accounted for 94.5 percent of purchase mortgages with loan-to-value ratios ranging from 95.1 percent to 97.0 percent that were securitized by the three agencies during the first 11 months of 2015, according to an analysis by affiliated publication Inside Mortgage Finance of loan-level data on agency mortgage-backed securities. Because LTV data is not available for all loans in Ginnie MBS, the agency’s actual share of these high-LTV loans is likely somewhat higher. Read More

GSEs and Industry Groups Talk Credit Risk-Sharing Issues

Fannie Mae and Freddie Mac both said they plan to ramp up their credit risk transfers in 2016 and explore more types of transactions. Representatives from the GSEs and FHFA spoke on a Securities Industry and Financial Markets Association risk-sharing panel last week in New York. This goes in line with Fannie’s and Freddie’s recently released 2016 scorecard in which the Federal Housing Finance Agency directed the GSEs to transfer credit risk on at least 90 percent of the unpaid balance of newly acquired mortgages. Laurel Davis, a Fannie vice president, said the GSE wants to continue to grow its investor base and added that Fannie was recently in Australia talking to potential investors. Read More

White Paper: Could Fannie Have Avoided Conservatorship?

A number of financial indicators and documents suggest that Fannie Mae was not in the dire straits reported to justify its takeover, according to a new white paper. Adam Spittler, GSE activist investor, along with Mike Ciklin, owner of a small law firm specializing in MBS, and G. Stevenson Smith, an accounting professor specializing in fraud, published a white paper saying they reviewed financial statements to better understand the viability of the GSE from 2007 to 2014. Read More

Fannie, Freddie Loan Application Undergoing Major Redesign

For the first time in two decades, the Uniform Residential Loan Application form will get a makeover.The redesign is intended to give lenders and borrowers a more useful and consumer-friendly experience, according to Fannie Mae and Freddie Mac, who said the changes are expected to be completed by the summer of 2016. The GSEs are going to update the URLA to collect more relevant and useful information to help lenders make better underwriting decisions. Moreover, the new form will define a mortgage industry standards maintenance organization (MISMO) compliant dataset that supports the URLA. “Given the mortgage industry’s many changes over the years, along with the GSEs’ changes to underwriting policies and eligibility requirements, the... Read More

Fannie’s Policy Change Targets More Borrowers for Loan Mods

Fannie Mae is reaching out to the last of the pack of borrowers looking to modify their loans and announced a policy change to its Servicing Management Default Underwriter tool that is aimed at qualifying more borrowers for foreclosure prevention assistance. Servicers use the tool to determine what foreclosure prevention options are available to help a borrower facing financial difficulty. The change requires servicers to now calculate the borrower’s full mortgage obligation, including the outstanding principal balance, past due interest and other arrearages, to determine eligibility for a Fannie Mae Standard Modification or Streamlined Modification. Prior to the change, only the outstanding principal balance was used. Read More

GSE Roundup

GSE foreclosure moratorium. Fannie Mae and Freddie Mac will suspend foreclosures for 17 days in its annual eviction moratorium. From Dec. 18, 2015, through Jan. 3, 2016, there will be no evictions.“As we have done in past years, we are suspending evictions during the holidays,” said Joy Cianci, Senior Vice President of Credit Portfolio Management for Fannie Mae. “We also continue to remind homeowners who may be struggling with their mortgages to reach out for help. Options are available to avoid foreclosure, and we want to help pursue those options whenever possible. Freddie makes single-family loan-level data on all fixed-rate mortgages publicly available.... Read More

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