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Inside The GSEs

April 29, 2016

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Fannie Mae to Start Securitizing Re-Performing Loans

This week, Fannie Mae announced it will start to securitize re-performing loans held on its balance sheet during the second half of the year. Loans that have been modified and are now performing and loans that have become current without a modification program will be included. Securitizing the once delinquent loans will help manage Fannie’s risk while dwindling down its portfolio, according to Fannie’s Bob Ives, vice president of retained portfolio asset management. “Over the long run, these securitizations can benefit investors, Fannie Mae and taxpayers.” Just weeks earlier the Federal Housing Finance Agency revealed a principal reduction program for Fannie and Freddie Mac loans. Read More

'Middle Class' Servicers Keep Gaining GSE Market Share

The outstanding supply of Fannie Mae and Freddie Mac servicing has remained essentially flat over the past year or so as the churning of refinance loans doesn’t create much growth. But some sectors of the GSE servicing market are clearly gaining share. A new ranking and analysis by Inside The GSEs shows the supply of Fannie/Freddie servicing attached to single-family mortgage-backed securities declined 0.3 percent in the first quarter of 2016. The Freddie market was actually up 0.3 percent from the end of 2015, while Fannie servicing declined 0.7 percent. The figures do not include servicing of unsecuritized mortgages held in portfolio by the two GSEs. The top tier of servicers continued to pull... Read More

GSE Shareholders See Bright Spot In Recent Legal Developments

Recent legal developments bode well for GSE shareholder lawsuits, according to one of the attorneys involved in the Perry Capital LLC v. Lew et al case where shareholders question the validity of the Treasury sweep of the profits of Fannie Mae and Freddie Mac.The D.C. Circuit Court heard oral arguments in the case on April 15 before three federal judges. The oral arguments took place as part of the appeal of the Fairholme Funds case dismissal in 2014, in which investors argued that the Treasury sweep violated the Housing and Economic Recovery Act. Hamish Hume, partner with Boies Schiller & Flexner, who argued before the panel of judges, said... Read More

Shelby Questions FHFA's Conservatorship Oversight

As the GSEs’ capital cushion continues to dwindle, Senate Banking Committee Chair Richard Shelby, R-AL, voiced concerns about oversight of the Federal Housing Finance Agency, the GSEs’ regulator. Shelby fired off letters on the same day to both the Congressional Budget Office and Government Accountability Office asking them to consider a number of questions pertaining to the FHFA and the structure of the future of the housing finance market. In the letters, addressed to the GAO’s Comptroller Gene Dodaro and Keith Hall, CBO’s director, Shelby said FHFA’s goals have changed from contracting the GSEs’ presence in the marketplace to reducing taxpayer risk through the increased role of private capital in the mortgage market. Read More

Fannie CEO Talks Lessons Learned, Capital Level Concerns

Capital matters, according to Fannie Mae CEO Timothy Mayoupolos, who reflected on lessons learned during the crisis. In a recent speech in Washington, he noted that while Fannie was meeting its statutory capital requirements heading into the crisis, it was clearly not enough to weather the storm. “We are a mono-line company. We are restricted in diversifying our business,” he said. “So any broad disruption in housing was going to affect us. And it did,” he said, recounting the growing number of default borrowers during that time. Although he stopped short of commenting on what amount the GSEs should be recapitalized at, he did say that there is not enough capital today. Read More

Some Say Lack of GSE Capital Impacts Affordable Housing Efforts

Rep. Mike Capuano, D-MA, wants the Federal Housing Finance Agency and Treasury Department to re-examine the policy that prevents Fannie Mae and Freddie Mac from building capital to avoid disrupting affordable housing initiatives.Before being placed into conservatorship, Fannie and Freddie were equipped to invest in affordable housing and underserved markets, he said, adding that in today’s environment, the underserved markets will suffer the most from the net worth sweep. Capuano wrote in a letter to the agencies that the lack of stability and strength caused by eliminating the GSEs’ capital buffer has “particularly serious consequences” for the residents of underserved markets across the country. Read More

Latest GSE Reform Ideas Include Return to Originate-and-Hold Model

Returning to the “originate-and-hold model” or replacing the GSEs with a financial market utility are a couple of the ideas being floated around in two recent essays published on the Housing Finance Policy Center’s new Housing Finance Reform Incubator. Patricia Moser, director of a new initiative on central banking and financial policy at Columbia University, said that the proposed utility would be a regulated private firm mutually owned by lenders, focused exclusively on securitization of standardized residential mortgages. “The utility pools mortgages into pass-through securities and provides a credit guarantee,” she said, adding that it would allow mortgage credit markets to function or restart even in times of market,,, Read More

Groups Suggest More Focused Questions in FHFA's Survey

There were just two comments regarding the Federal Housing Finance Agency’s American Survey of Mortgage Borrowers and both were generally supportive but suggested ways to enhance the survey’s usefulness. The FHFA issued a request for comment last month about the proposed survey to collect information from borrowers. The information will be used in a report highlighting the GSEs’ mortgage activities. The comment period closed this week. The National Association of Home Builders said the practical utility of information collected by the ASMB is clear and will allow for a more in-depth analysis of the mortgage market. While some argue that the information collected is duplicative of other available data, the... Read More

FHFA Seeks Comment for Incentive Based Compensation

The Federal Housing Finance Agency, along with five other agencies, is seeking comment on a proposed rule focused on compensating employees via incentives. It would prohibit incentive-based payment arrangements that the agencies determine encourage inappropriate risks by providing excessive compensation or compensation that could lead to material financial loss. It requires those financial institutions to disclose any information concerning incentive-based pay to the appropriate financial regulator. If finalized, FHFA’s proposed rule would apply to Fannie Mae, Freddie Mac and the Federal Home Loan Banks. It will also replace a proposed rule published by the joint agencies in April 2011. Read More

FHFA Issues New Guidelines for Banks Changing Risk Models

The Federal Housing Finance Agency issued guidance stating that a Federal Home Loan Bank can make changes to a previously approved internal market risk model only after properly notifying FHFA. Each of the model change notifications should include the signatures of a bank officer and be sent to the manager, risk model branch, FHFA division of regulation. Depending on the conditions, whether or not the model plans to supplement or replace another model, the FHFA can be notified in one of two ways. When implementing a significant model change without replacing an existing market risk model, the bank must meet four conditions. Read More

GSE Roundup

Freddie Sets Date for First Quarter Results. Freddie Mac announced that it plans to report its first quarter 2016 financial results before the U.S. financial markets open on Tuesday, May 3, 2016. Fannie Completes 10th CIRT Transaction to Date. Fannie Mae completed its latest Credit Insurance Risk Transfer transaction last week and it’s 10th deal since the program’s inception in 2013. This deal, CIRT 2016-3, shifts a portion of the credit risk on a pool of single-family loans with an unpaid principal balance of approximately $5.7 billion to a single insurer. The covered loan pool consists of 30-year fixed- rate loans with... Read More

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