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Inside The GSEs

March 24, 2017

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GSE Buybacks Fell to Record Low in 4Q16, Legacy Lingers at Freddie

Mortgage lenders that sell loans to Fannie Mae and Freddie Mac saw a huge drop in the volume of repurchases and other indemnifications in 2016, according to a new Inside The GSEs analysis of disclosure reports filed with the Securities and Exchange Commission. During the fourth quarter of 2016, lenders repurchased just $207.31 million of home loans, a 37.0 percent decline from the third quarter. That brought total repurchases to $1.101 billion last year, down 35.9 percent from 2015. Those are record lows in the contentious recent history of GSE buyback demands. Fannie and Freddie, along with other “asset securitizers,” began filing quarterly repurchase reports with the SEC in early... Read More

Pence’s Economist Hints at GSE Reform Principles in the Works

Vice President Mike Pence’s chief economist said the Trump administration is working on GSE reform principles. The comments came this week during a government relations summit hosted by the American Bankers Association. Mark Calabria, former director of financial regulation studies at the Cato Institute, caused a media frenzy when during a general session he said that a “set of principles” on GSE reform is likely to emerge in the coming months. Calabria is not a proponent of the GSEs, and believes that without Fannie Mae or Freddie Mac, commercial banks would step in to fill the liquidity void for the simple reason they have so much in the way of “excess reserves.” Read More

CSP Release Delayed to 2019 to Allow More Time For Testing

The Federal Housing Finance Agency announced this week that it moved back the anticipated date of “release 2” of the common securitization platform in which both GSEs will use the security, to the second quarter of 2019, instead of 2018. In a progress report update, the FHFA said it decided to delay the project after an “extensive review” of lessons learned from the first release and progress on release 2. The agency said it needs more time for the development, testing, validation of controls, and governance necessary “to have the highest level of confidence that the implementation will be both smooth and successful.” Read More

Small Lender, Consumer Groups Push to Suspend Upcoming Sweep

Small lending organizations, including the Community Home Lenders Association and Community Mortgage Lenders of America, urged the Federal Housing Finance Agency to suspend the upcoming Treasury sweep of GSE profits. After fourth-quarter earnings, the GSEs plan to pay the Treasury $20 billion per the preferred stock purchase agreement. A March 23 letter from CHLA, CMLA and six consumer and civil rights groups pled with Treasury Secretary Steve Mnuchin and specifically asked FHFA Director Mel Watt to “exercise its discretion under the preferred stock purchase agreement to suspend the dividend payment on their senior preferred stock this month.” The groups, like others in the industry, are concerned about the GSEs’ declining capital buffer that will plummet to zero on Jan. 1, 2018. Read More

Moody’s Examines Impact of GSE Reform on Mortgage Market

Moody’s Investors Service said GSE reform proposals could have unintended consequences on different market segments. In a report released this week it noted that there’s no shortage of proposals on the table and some may have a larger impact than planned. The impact of many would seem straightforward at a high level, according to the ratings firm, but they could have unintended consequences in practice. Proposals range from winding down the GSEs without an explicit replacement to winding them down and providing other entities with access to the federal catastrophic risk insurance, to re-privatizing them but with tighter regulations. The report looks at possible impacts from the broad range of reforms being proposed and the... Read More

Former Freddie Employee Explains Why Crisis Could Happen Again

Former Freddie Mac employee Susan Wharton Gates recently released a book detailing the events leading up to the conservatorship and suggests that the industry stop looking for a “single scapegoat.” She argues in her book that while Freddie made plenty of mistakes, so did Wall Street, the regulators, the industry and homeowners. Wharton, an advocate of privatizing the GSEs, worked at Freddie for close to 20 years, most recently in public policy. She left the company in 2009 and said by giving a fuller account of what happened she hoped to help “light a fire” under policymakers who have stalled on reforming the GSEs. Read More

Adverse Examination Findings Redefined for 2017 Exam Cycle

For the 2017 examination cycle, the Federal Housing Finance Agency recently issued an advisory bulletin for new classifications of adverse findings for the GSEs and the Federal Home Loan Banks. Three designated classifications were established to help examiners define the issues more effectively with hopes of a faster remediation plan. When communicating adverse examination finds to the regulated entities and Office of Finance, the FHFA said the examiners will classify them as either “matters requiring attention, recommendations or violations.” MRAs are broken down into two separate categories: critical supervisory matters and deficiencies. The difference boils down to the nature and severity of the issues requiring corrective action, according to the bulletin. Read More

FHLBank 4Q Advances Up 4 Percent, Led By Chase

Member institutions of the Federal Home Loan Bank system had outstanding advances of $563.3 billion at Dec. 31, a quarterly increase of 4.0 percent, according to an analysis by Inside The GSEs. But, the year-over-year increase was greater with a 13.8 percent growth from the fourth quarter of 2015 when advances were at $495.0 billion. JP Morgan Chase continues to lead among borrowers with $79.5 billion worth in advances, the same as the previous quarter. Chase was followed by Wells Fargo, which reported $77.1 billion in advances, up 12.3 percent from the previous quarter. Wells had the largest quarterly advance increase among the top five borrowers. Read More

FHFA Amends Freedom of Information Act Regulation

The Federal Housing Finance Agency issued an interim rule last week that changed some of the components of its Freedom of Information Act regulation, including the fee categories. The interim rule gives notice about the circumstances in which the FHFA can extend its response time to the FOIA request and tells when it should notify the person requesting the information about their right to seek dispute resolution services. In the new FOIA rule, the agency is required to provide a minimum of 90 days for requestors to file an administrative appeal and must notify requesters about available dispute resolution services. Read More

Fannie, Freddie Credit Risk Transfer Inefficiencies Explored

Perceived flaws in the current and proposed GSE credit-risk transfers are explored in a recent blog posting by Tim Howard, former Fannie Mae executive. He said that the GSE CRTs are too expensive and Fannie has too much first-loss exposure in its Connecticut Avenue Securities structure before it takes effect. Howard also said that because the risk-transfer tranches can prepay and amortize over time, they most likely won’t be outstanding long enough to absorb many of the losses that exceed the first-loss limit. As an example, Howard pointed to Fannie’s CAS prospectus, which shows no losses transferred to investors in more than 60 different scenarios of combined credit loss and prepayment rates... Read More

GSE Roundup

MBA: Don’t Bet on GSE PSPA Change. Mortgage Bankers Association President Dave Stevens said this week he expects no movement by the Trump Treasury Department to modify the preferred stock purchase agreements governing the GSE bailouts that would allow Fannie Mae and Freddie Mac to build retained capital. In an interview with IMFnews, Stevens – who has been in touch with the new administration on GSE reform – noted that the PSPAs do not necessarily require the payment of GSE dividends to Treasury on a quarterly basis. (A commitment fee payment may be required though.)Smaller trade groups – though not the MBA – have asked the Federal Housing Finance... Read More

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