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Inside The GSEs

December 22, 2016

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GSE Scorecard Includes Review of Alternative Credit Assessment

Fannie Mae and Freddie Mac are expected to closely examine the mortgage servicing business model and wrap up their analysis of alternative credit scoring options in 2017, according to the Federal Housing Finance Agency’s “scorecard” for the GSEs, which outlines specific priorities for the duo.Access to credit has been a much-debated topic of late, and many have called for the GSEs to explore alternative models to the traditional FICO scoring system. Industry insiders argue that the GSE credit profile has remained elevated even though there’s been a significant drop in seller repurchase risk and the housing market has recovered. Under its goals of increasing access to credit, which include access for underserved... Read More

Jump in GSE Buybacks in 3Q16 May Signal the End of an Era

A sudden increase in seller repurchases during the third quarter of 2016 likely represents the dying gasp of a controversial period in the relationships of Fannie Mae and Freddie Mac with their sellers.A new Inside The GSEs analysis of repurchase activity disclosures made to the Securities and Exchange Commission shows a 31.5 percent jump in buybacks and other indemnifications from the second quarter. Seller repurchases totaled $328.9 million during the third quarter, reversing what had mostly been a steady decline since mid-2014. But a third of the industry-wide total was at Bank of America, where GSE repurchases jumped more than seven-fold from the second quarter to $109.6 million... Read More

FHFA’s Duty-to-Serve Gives Credit for MH Chattel Loans

In its much anticipated duty-to-serve final rule issued last week, the Federal Housing Finance Agency gave the green light for Fannie Mae and Freddie Mac to begin pilot programs for manufactured housing “chattel loans.” Although duty-to-serve was mandated eight years ago to make sure the GSEs support three underserved markets, (such as manufactured housing,) it was never implemented. The other markets are affordable housing preservation and rural housing. A proposed rule was issued in December 2015 and it’s taken a year to issue the final rule. The FHFA sifted through hundreds of comments on the proposed rule earlier this year, most focusing on the need for greater GSE support when it comes to manufactured housing lending. Read More

With Mulvaney and Mnuchin, is a Deal with GSE Shareholders A Strong Possibility?

One of the most speculative stock bets out there – buying shares in Fannie Mae and Freddie Mac – is looking more like a sure thing these days, thanks to the recent pick of Mick Mulvaney, R-SC, to head the Office of Management and Budget in the new Trump administration. At least that’s how some industry officials and market watchers view it, including the Washington-based research firm Cowen & Co. In a report issued earlier this week, Cowen analyst Jaret Seiberg called the choice of Mulvaney for OMB chief “the most bullish sign yet that the Donald Trump administration will favor a solution to housing finance reform that includes a continued role for Fannie and Freddie.” Read More

FHFA Needs Stronger Supervisory Standards, Says the OIG

The Federal Housing Finance Agency came up short when it comes to supervising the GSEs to ensure a “safe and sound operation,” according to a Federal Housing Finance Agency Office of Inspector General report released late last week. The IG also suggested that the FHFA follow the lead of other federal financial regulators with stronger supervisory standards including the Federal Reserve System and the Office of the Comptroller of the Currency. “Among our findings was that FHFA had difficulty completing its planned targeted examinations over four supervisory cycles from 2012 through 2015 and that the number of targeted examinations planned and completed during each supervisory cycle has fallen since 2012 for Freddie Mac and has diminished significantly for Fannie Mae,” said the IG. Read More

FHFA’s Flex Modification to Replace Expiring HAMP Program

With the Home Affordable Modification Program expiring in about a week, Fannie Mae and Freddie Mac recently introduced the Flex Modification foreclosure prevention program to take its place in helping delinquent borrowers get back on their feet. The Federal Housing Finance Agency said that the new program is based on lessons learned from loan modification programs created during the housing crisis. The Flex Modification is a hybrid of three different types of programs, including HAMP. “The Flex Modification program also reflects input received over the course of extensive engagement with lenders, mortgage insurers, consumer advocates, and other stakeholders,” said FHFA Deputy Director Sandra Thompson, adding that by avoiding... Read More

The 3Q16 Tally: FHLB Advances Up 19 Percent Year-Over Year

Member institutions of the Federal Home Loans Bank system had outstanding advances of $541.8 billion at Sept. 30, a slight sequential decline, but a 19.0 percent improvement from the same period a year ago, according to analysis by Inside The GSEs. The FHLBs said the growth in advances was primarily driven by higher demand from larger members. The megabanks, not surprisingly, continued to be the biggest clients of the system with JPMorgan Chase leading the pack at $79.5 billion worth of advances, followed by Wells Fargo ($68.7 billion), Citibank ($31.5 billion), PNC Bank ($17.1 billion) and Capital One ($16.3 billion). Read More

Freddie Debuts Credit Risk-Transfer Focused on Seasoned Loans

Freddie Mac this week issued a new risk-sharing transaction backed by seasoned mortgages. The Seasoned Credit Risk Trust 2016-001 is comprised of all modified, seasoned reperforming first-lien residential mortgages funded by the issuance of asset-backed certificates totaling $934 million.The SCRT securitization program is a key part of Freddie’s efforts to reduce less liquid assets in its mortgage-related investments portfolio and shed credit and market risk. The GSE announced in July that it would be expanding its reperforming loan program by introducing the seasoned loans. This includes option adjustable-rate mortgages as well as loans that were originally option ARMs but have been modified through a Home Affordable Refinance Program or other modification. Read More

FHFA IG Report Notes Lack of Transparency in CSP Cost, Risk

The Federal Housing Finance Agency agreed to disclose the total cost of the common securitization platform after a Dec. 15 audit by the FHFA Office of Inspector General revealed issues in transparency.The auditors said that while the FHFA committed to be transparent in its development of the multiyear project in 2014, the FHFA has not disclosed detailed costs or associated risks in its public reports. Instead, it only discloses the costs incurred though mid-2015. FHFA only disclosed specific CSP cost data once in a September 2015 status report, in which it announced that, from 2012 through mid-2015, the GSEs spent $146 million to develop the actual CSP platform. Then, their 2015 10-Ks revealed the amount increased to $218 million by year-end 2015. Read More

The ‘To Privatize or Not to Privatize’ Fannie, Freddie Debate Continues

Whether to privatize Fannie Mae and Freddie Mac continues to be a topic up for debate ever since Steven Mnuchin, president-elect Donald Trump’s pick for Treasury secretary, said getting the GSEs out of conservatorship is a priority. This week the Community Home Lenders of America applauded Mnuchin’s recent comments about promptly returning Fannie and Freddie to the private sector. The group told President-elect Trump that he should permit the GSEs to retain a capital buffer and submit a recapitalization plan to end their conservatorship and re-privatize them. In the letter, which included other recommendations of what should be done in Trump’s first 30 days, the CHLA noted that because... Read More

Two House Bills Push to Expand GSE Credit-Risk Transfers

Two House bills introduced last week focus on making sure Fannie Mae and Freddie Mac broaden their scope of credit risk-sharing transactions through pilot programs and the use of deeper mortgage insurance coverage. The “Taxpayer Protections and Market Access for Mortgage Finance Act of 2016” would require the Federal Housing Finance Agency to push the GSEs to transfer at least 400 basis points of their total risk. Meanwhile, the “Moving Housing Forward Act” would set up a system for Fannie and Freddie to sell off some of the “catastrophic” risk retained by the GSEs on mortgage-backed securities issued in the to-be-announced market. Read More

FHFA Final Rule Allows FHLBanks To Transfer MSR to Nonmembers

The Federal Housing Finance Agency published a final rule this week allowing the Federal Home Loan Banks to transfer mortgage servicing rights on Acquired Member Assets to any institution, including a nonmember and nonbank. The Dec. 19 final rule reorganizes much of the current regulation governing the FHLBanks’ AMA programs and makes it easier for the banks to take on new business activities. The change was made, in part to recognize the evolving market landscape where a good amount of servicing is being done by nonbanks. The provision noted that any such transfer cannot result in the AMA loan failing to meet any other AMA requirement, including the credit enhancement. Read More

Fannie Mae’s ‘Day 1 Certainty’ Now In Effect in Desktop Underwriter

Fannie Mae’s Desktop Underwriter has been updated this month to include an employment and asset verification service under its Day 1 Certainty initiative announced in October. Day 1 was created to alleviate buyback fears on some loan components for lenders using its underwriting and appraisal tools. The GSE said that lenders would be relieved from most representations-and-warranty risk when it comes to verifying a borrower’s income, assets and employment. When a lender opts in to use the DU validation service, Fannie said that DU will use third-party vendor data to perform calculations and validate information entered by the lender. Read More

GSE Roundup

FHLBank Topeka President to Retire. The Federal Home Loan Bank of Topeka announced on Dec. 20 that Andrew Jetter, president and CEO, will begin serving as senior advisor on Jan. 1, 2017, until his retirement date in the first quarter of 2017. Mark Yardley, executive vice president and chief risk officer, will serve as interim president and CEO until a new one is appointed. CBO Suggests Higher G-Fees, Lower Loan Limits. The Congressional Budget Office is looking for ways to reduce the budget impact of government-backed mortgage programs and recommends that Fannie Mae and Freddie Mac increase their guarantee fees and/or significantly lower their loan limits. Read More

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