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Inside The GSEs

February 24, 2017

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GSE Earnings Nearly $10B for the Fourth Quarter of 2016

Fannie Mae and Freddie Mac ended 2016 with a bang when fourth quarter combined earnings totaled stellar results, nearly $9.9 billion, representing the best quarter of the year. Fourth-quarter earnings were largely driven by high gains in the fair market value of the GSEs’ hedges, which gained $10.2 billion on a combined basis. “Interest rates went up in the fourth quarter, therefore you saw an unusually large gain in the accounting,” Freddie CEO Donald Layton told Inside The GSEs. Both GSEs had quarterly earnings increases throughout the year. Fannie reported $5.0 billion in the fourth quarter, up from the $3.2 billion in the third quarter, and Freddie more than... Read More

Appeals Court Ruling Voids Treasury Sweep Claims

Despite a Feb. 21 ruling barring GSE shareholders from making illegal Treasury sweep claims, plaintiffs and speculators are keeping hope alive. In Perry Capital LLC vs. Treasury, the U.S. Court of Appeals for the District of Columbia put a stop to shareholders who have been arguing that the government is illegally confiscating GSE profits, citing language in the Housing and Economic Recovery Act of 2008. The Appeals Court notes: “We hold that the stockholders’ statutory claims are barred by the Recovery Act’s strict limitation on judicial review … We also reject most of the stockholders’ common-law claims. Insofar as we have subject matter jurisdiction over the stockholders’ common-law claims against... Read More

Sen. Crapo Speaks on Potential GSE Reform, Analysts Weigh in

Sen. Mike Crapo, R-ID, newly elected chair of the Senate Banking, Housing and Urban Affairs Committee, said reforming Fannie Mae and Freddie Mac would likely happen in 2018, but he’s concerned about the divisiveness on Capitol Hill. During remarks at the Mid-Size Bank Coalition of America meeting last week, the senator echoed Treasury Secretary Steve Mnuchin’s comments and said that a housing reform bill would be a “high priority” and he doesn’t expect the administration to take unilateral action. Crapo said the atmosphere on Capitol Hill is more toxic than he’s ever seen, with constant pushback over President Trump’s election win. Analysts noted that this is the ultimate risk to housing finance reform, as bipartisan support is needed. Read More

Opposition to Fannie Single-Family Rental Finance Deal Grows

Skepticism over Fannie Mae’s foray into the single-family rental market has been growing and some lawmakers are voicing their concern. Since announcing the $1 billion deal with Invitation Homes in January, trade groups have expressed anger over Fannie’s pilot program with the Blackstone Group subsidiary, even as Freddie Mac may be next to test the SFR waters. On Feb. 17, 10 Democratic Congressmen sent a letter to Federal Housing Finance Agency Director Mel Watt, asking him to reconsider the deal since it hasn’t been finalized yet. The pilot program is the first time that Fannie backed a large institutional investor. Invitation is the largest single-family rental operator in the U.S. and has a portfolio of about 50,000 homes that it acquires from foreclosures. Read More

GAO Report Stresses Need for Reform, Leadership Commitment

A prolonged conservatorship coupled with a change in leadership at the Federal Housing Finance Agency could shift priorities for Fannie Mae and Freddie Mac, according to the Government Accountability Office. The GAO said a potential priority change for Fannie Mae or Freddie Mac would only send mixed messages, creating uncertainties for market participants and hindering the development of the broader secondary mortgage market. In its 2017 biennial report released this month, the GAO discussed actions that need to be taken in order to resolve the federal role in housing finance. The need for leadership commitment by Congress and the administration to reform the system was one of the primary themes. Read More

FHLBank Members Under Annual Review for Community Support

The Federal Housing Finance Agency is reviewing individual members of the Federal Home Loan Banks to help gauge their level of support to the community as part of their membership requirement. This includes making sure those banks are lending to first-time homebuyers.Every two years the FHFA reviews FHLBank members and invites the public to comment on how they help support their communities. Nonprofit housing developers, along with community and advocacy groups, are asked to submit comments to the FHFA by March 31.In order to maintain access to long-term advances, the banks must meet the community support requirements and criteria established by the FHFA.This means that the FHFA will examine the... Read More

New Govt. Documents Released, Talks of Treasury Sweep Plans

Several more documents were released in relation to an ongoing GSE shareholder case out to prove that the government knew Fannie Mae and Freddie Mac were on the path to profitability at the time the Treasury sweep was put in place.The release came after a judge rejected the government’s appeal of an earlier ruling requiring it to turn over a slew of documents for which it had asserted various forms of privilege in Fairholme Funds vs. United States, et al. All of the latest documents are from 2012. They include a July 20, 2012, memo stating “thoughts on how to signal a plan to amend the preferred stock purchase agreements,” from Treasury... Read More

Federal Home Loan Bank Earnings Rose Almost 20 Percent for 2016

The Federal Home Loan Bank System increased its earnings by 6 percent in the fourth quarter and saw an 18.7 percent increase for all of 2016. Earnings rose in the last three months of the year to $913 million, from $861 million in the third quarter, rounding out the year with a net income total of $3.408 billion. The FHLBank Office of Finance noted that the quarterly net income increase was primarily due to higher gains on derivatives and hedging activities. Moreover, higher gains on litigation settlements helped grow both the quarterly and yearly increase. Additionally, the yearly earnings growth was due to gains on trading securities, partially offset by lower gains on derivatives and hedging activities, said the OF. Read More

Wells Says Structural Changes to STACR are a Prudent Move

A structural change in Freddie Mac’s popular Structured Agency Credit Risk transfer program gives Freddie less credit protection at higher loss levels, according to an analysis of the GSE’s first STACR deal of the year. So far, this year, Freddie has priced STACR Series 2017-DNA1 on Jan. 31 and STACR Series 2017-HQA1 on Feb. 14. The first deal of the year was an $802 million STACR debt notes offering referencing mortgages with low loan-to-value ratios ranging from 60 to 80 percent. This particular deal has a reference pool of single-family mortgages with an unpaid principal balance of about $33.9 billion. Read More

DeMarco Talks Ginnie-based Model for GSE Housing Reform

Former Federal Housing Finance Agency Acting Director Ed DeMarco continues to push his housing finance reform proposal leaning toward a Ginnie Mae model that would convert the GSEs into companies mutually owned by mortgage lenders. DeMarco, while speaking at a secondary market symposium in Florida earlier this month sponsored by Keefe Bruyette and Woods, said the proposal calls for risk sharing using private capital to meaningfully increase capital present at the mortgage-backed securities level. KBW called the plan “promising” because it’s proposing changes that are incremental as opposed to proposing a completely new structure for the mortgage market. “We think the mortgage insurers and mortgage real estate investment trusts are well... Read More

GSE Roundup

Freddie’s First NPL Sale of 2017. Freddie Mac announced its first nonperforming loan sale of the year last week, a $759 million auction of seasoned non-performing residential whole loans. The NPLs are currently serviced by Nationstar Mortgage LLC and Specialized Loan Servicing LLC. This is also Freddie Mac’s second multi-servicer NPL transaction. The NPLs are being marketed via five pools: four Standard Pool Offerings and one Extended Timeline Pool Offering, which targets participation by smaller investors, including non-profits and minority and women-owned businesses. HARP Refi Volume Slow in 4Q. The Federal Housing Finance Agency reported that 13,220 borrowers refinanced their mortgages through the Home Affordable Refinance Program... Read More

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