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Inside The GSEs

February 19, 2016

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Watt Uneasy About Long Conservatorship, Zero Capital

Federal Housing Finance Agency Director Mel Watt recently dished on the mounting challenges that come with Fannie Mae and Freddie Mac being in conservatorship for eight years and reiterated his unease about declining capital buffers. He said the prolonged conservatorship makes it difficult to plan for the future when much is uncertain. “Some of the challenges and risks we are managing are escalating and will continue to do so the longer the enterprises remain in conservatorship,” said Watt, speaking at the Bipartisan Policy Center in Washington, DC, this week. The most serious risk is the GSEs’ lack of capital, according to the former North Carolina congressman, who pointed out that on Jan. 1, 2018, Fannie... Read More

Fannie Mae 4Q 2015 Earnings Up More than 25 Percent

Fannie Mae earned $2.47 billion in the fourth quarter, according to its earnings statement released this week, a 25.9 percent increase from the previous quarter. The GSE attributes that rise to an increase in longer-term interest rates. For the full year 2015, Fannie’s income declined to $11.0 billion from $14.2 billion in 2014. The GSE said the decline was partially the result of a reduction in income from settlement agreements and increased expenses relating to its single-family foreclosed properties. Fannie plans to send $2.9 billion in dividend payments to the U.S. Treasury by the end of March. When that dividend payment is made, the GSE will have returned $147.6 billion to the government versus draws of... Read More

Freddie Reports Profit in 4Q 2105, CEO Says Strong 2016 Momentum

Freddie Mac reported earning $2.16 billion in its fourth quarter earnings statement announced this week and a $6.38 billion profit for all of 2015, slightly less than the $7.69 billion earned the previous year. But its net interest income, which includes guaranty fee income, rose 4.8 percent to $14.95 billion.Unlike in the third quarter, when the GSE announced a $475 million loss due to hedging activities, this time around hedging losses were a non-event. Overall, Freddie booked $744 million in gains on its derivatives in the fourth quarter. Freddie noted that the shift was primarily due to an increase in long-term interest rates during the period as opposed to a decrease as witnessed in the third quarter. Read More

FCA Targets Could Blur the Lines With Increased GSE Focus

The False Claims Act could potentially apply to Fannie Mae and Freddie Mac loans in the future, thanks to increased GSE cases and a broadened claim definition. The risk of the Department of Justice applying the FCA to GSE loans may seem remote, said Andrew Schilling, partner with BuckleySander LLP, but he isn’t counting it out. … Read More

Former Regulator Agrees with FHFA's Captive Ban Decision

Captive insurance companies don’t belong in the Federal Home Loan Bank system, according to the former chair of the Federal Housing Finance Board, the system’s previous regulator. “Simply put, the Federal Housing Finance Agency got it right with this regulation,” said Ronald Rosenfield, who served as chair of the FHFB in 2005, prior to the creation of the FHFA. During his three-year tenure, there were some captives joining, but he said they were doing so at a much slower pace. The Federal Housing Finance Agency’s recent decision to ban captives from joining the system has caused some uproar among industry groups who opposed the final ruling, but Rosenfield thinks it was the right thing to do. Read More

FY17 Budget Contradicts a Fannie, Freddie Wind-Down

The Obama administration released its budget proposal for 2017 last week and it illustrates a key challenge to managing reform. How can you phase out the GSEs while at the same time planning to use profits from them? The budget emphasized that the housing finance system must be reformed, and the GSEs should be wound down in order to finish addressing the weaknesses exposed by the financial crisis. The administration’s fiscal 2017 budget proposal estimates that Fannie Mae and Freddie Mac will pay $151.5 billion in dividends to the government over the next 10 years, on top of the $241.2 billion in dividends they already paid as of the end of 2015. Read More

Freddie Predicts Strong Multifamily in 2016, Despite Supply Growth

Freddie Mac expects the multifamily market to remain strong, despite the onslaught of new supply, with purchases slightly greater in 2016. Multifamily origination volume in 2015 is expected to be at $225 billion and the GSE anticipates 2016 industry volume to reach between $240 billion and $250 billion. GSE participation in the multifamily market constituted the largest portion of 2015’s increase over 2014. Freddie did $47.2 billion in multifamily business in 2015. “It was a great year for the multifamily market and for the Freddie Mac multifamily market. Great for both the mortgage market in terms of record volume of origination and for the property market with continued strong growth in demand, positive fundamentals... Read More

Traditional Insurance Membership in Federal Home Loan Bank Growing

Although captive insurance companies are now barred from joining, membership among traditional insurers in the Federal Home Loan Banks is growing. Fitch Ratings reports that the number of insurance companies participating in the FHLB system has grown by an average of close to 8 percent annually over the past five years. Membership is more commonly associated with commercial banks and other deposit and lending institutions, but there were 304 FHLBank insurance company members by the end of 2014, representing 4 percent of the total membership and nearly 13 percent of all funds advanced to members, said Fitch. Several groups of insurance companies have also substantially increased their borrowing capacity. Read More

Fannie Mae Names Winning Bidders of $1.32 Billion Auction

Fannie Mae revealed that Canyon Partners, Goldman Sachs and Pretium Mortgage Credit Partners were the winning bidders of its first nonperforming loan sale of 2016, which amounted to $1.32 billion in delinquent loans. The four pools went to market on Jan. 12 with the help of Bank of America Merrill Lynch and First Financial Network. They included approximately 6,500 loans spread across four different pools. Canyon Partners won the first pool comprised of 3,127 loans with an aggregate unpaid principal balance of $637.4 million, a weighted average note rate of 5.7 percent and average delinquency of 59 months. Read More

UI: Current Risk-Sharing Investor Base Faces Constraints

GSE credit risk-sharing will witness a leveling off of Fannie Mae’s and Freddie Mac’s popular back-end credit risk transactions and an increase in first-loss and front-end risk sharing, according to the Urban Institute. Sales of Fannie’s Connecticut Avenue Securities and Freddie’s Structured Agency Credit Risk have been dominated by money managers and insurance companies, but a recent paper by the UI’s Laurie Goodman and Jim Parrott suggests that this investor base may face some constraints including liquidity issues. The report noted that investors are not able to sell significant positions in CAS or STACR deals without spreads widening significantly because market makers are only willing to hold modest positions given the capital requirements. Read More

GSE Roundup

Fannie Mae’s Latest CAS Sells First-Loss Position. Fannie priced its latest credit risk sharing transaction under its Connecticut Avenue Securities series last week. For the first time, it is selling a portion of the first-loss position, further reducing taxpayer exposure to credit losses. To promote additional liquidity, Fannie for the first time sought a credit rating for the M2 notes in a CAS transaction. Servicer Expense Reimbursement Notification. Fannie Mae Expense Reimbursement will be consolidating the available expense reimbursement claim line item categories and subcategories in the Black Knight Financial Services LoanSphere Invoicing Application on March 21, 2016. This update will streamline the claim line item choices in the application for improved consistency in submitting and processing expense reimbursement requests. Freddie Prices... Read More

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