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Inside The GSEs

March 16, 2018

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GSE Repurchases Hit Record Low in 2017 as Activity Slowed in 4Q17

Fannie Mae and Freddie Mac both saw significant declines in the volume of defective loans that sellers had to repurchase from mortgage-backed securities pools last year, according to a new Inside The GSEs analysis. Mortgage sellers in 2017 repurchased – or made other indemnifications for defects – for just $973.5 million of single-family loans from Fannie and Freddie MBS. It was the lowest annual total since the two GSEs began filing quarterly repurchase disclosures with the Securities and Exchange Commission back in 2012. Buyback volume fell 11.6 percent from the 2016 total, including an 11.4 percent drop from the third to the fourth quarter of last year. Read More

Next Steps If Housing-Finance Reform Legislation Doesn’t Happen

Most experts agree that passing housing-finance reform legislation in 2018 now looks improbable, leaving the immediate future of Fannie Mae and Freddie Mac in the hands of the Treasury Department and the Federal Housing Finance Agency. Researchers at the Urban Institute say that if legislation remains stalled, the two GSEs could be placed into receivership and reconstituted. Laurie Goodman, director of UI’s Housing Finance Policy Center, said Fannie and Freddie could be wound down within five years, under the Housing and Economic Recovery Act, and be replaced by new entities with no government backstop. She noted that this scenario would leave the fate of government support for the GSEs’ legacy mortgage-backed securities unclear. Read More

Freddie Rolls out New Risk-Transfer Pilot. Fannie Planning Similar Move

Freddie Mac this week rolled out a pilot program that aims to lay off credit risk on mortgages it buys to a group of offshore insurance firms, using Arch Capital Group as a conduit and manager. Initially, 12 lenders will be part of the program, including Freedom Mortgage, the nation’s fifth largest originator overall. Arch is the parent company of the nation’s largest private mortgage insurer. Industry sources told Inside The GSEs that Fannie Mae is working on a similar pilot, but details were sketchy. A Fannie spokesman would only say, “It’s a bit premature to comment.” And a source close to the matter added that Fannie is “always looking for innovative ways” to reduce risk. Read More

Analysis Shows Inflated Mortgage Payments Without 30-Year Note

Possible changes suggested for Fannie Mae and Freddie Mac could lead to borrowers paying an extra $400 a month in mortgage payments, according to a new analysis from Zillow. If the 30-year fixed-rate mortgage were to be done away with, Zillow said future mortgage borrowers would get loans with shorter terms and higher interest rates. For example, without the popular 30-year fixed-rate mortgage, the typical buyer would pay an additional $390 each month on the median-priced home for a 15-year fixed-rate mortgage. Moreover, the conforming market would move closer to the jumbo sector. Zillow noted that a 30-year non-conforming loan would cost borrowers about $20 more per month than they now pay. Read More

Credit Scoring Controversy Brewing Among Industry Stakeholders

A battle is brewing over whether Fannie Mae and Freddie Mac should allow lenders to use alternatives to the ubiquitous FICO credit score. Some industry participants argue that the current credit scoring system works well. Others complain that the Federal Housing Finance Agency and the GSEs should be doing more to encourage alternatives to a system some deem outdated. The FHFA has been evaluating alternative credit scoring models over the past year and charged the GSEs with closely examining potential changes in how they use credit scores. Right now Fannie and Freddie rely exclusively on the Classic FICO score. Read More

GSEs Paid Treasury Required 10 Percent IRR, Should Hasten Reform

Both GSEs have now paid the government the 10 percent compound rate of return required by the original senior preferred stock agreement, according to the R Street Institute. The think tank’s senior fellow, Alex Pollock, said it’s time to put the senior preferred stock purchase agreement to rest. Fannie just recently joined Freddie in this “10 percent moment.” He said because Treasury has received dividend payments from both Fannie and Freddie that equal the economic equivalent of repayment of the entire principal of their senior preferred stock, plus a full 10 percent yield, “it is now entirely reasonable for it to consider declaring the senior preferred stock retired.” Read More

FHFA Auditor Said Better Oversight Needed For GSE High-LTV Programs

The GSEs purchased close to 100,000 low-downpayment loans from 2013 to 2016, but not all borrowers participated in a homeownership counseling course when required, according to a recent audit.In a new report, the Federal Housing Finance Agency Office of Inspector General concluded that both Fannie and Freddie had high rates of compliance in their 97 percent loan-to-value programs.During the three-year period, the GSEs purchased 94,328 loans that fit into the 97 percent mortgage product. Fannie was responsible for 74,700 of those loans with about one-fourth of the borrowers requiring homeownership education. This is where the GSE fell short. Read More

Proposed Rule Gives FHLBank AH Programs More Leeway

The Federal Home Loan Banks would have more flexibility in allocating their affordable housing funds under a proposed rule issued last week from the Federal Housing Finance Agency. The FHFA estimates that the number of competitive AH program competitive applications the banks receive may increase by 10 percent with this change. In addition to giving the FHLBanks additional authority over their funds, the rule would authorize them to set up special competitive funds targeting affordable housing needs in their districts. It would also give the banks authority to design and implement their own project selection scoring criteria, subject to meeting certain FHFA requirements. Read More

Federal Home Loan Bank Advances Up Again in Fourth Quarter 2017

Banks and thrifts reported holding $582.5 billion of Federal Home Loan Bank advances at the end of December, a quarterly increase of 1.2 percent and the largest volume of advances in the past 12 months, according to an Inside The GSEs analysis. On a year-over-year basis, that number is also up 3.4 percent from the $563.3 billion in advances held in the fourth quarter of 2016. While JPMorgan Chase remains in the number one spot with $60.6 billion in advances, the bank’s borrowing continued to spiral downward from the previous quarters. Fourth quarter numbers show a 4.9 percent decline for Chase from the third quarter and a 23.8 percent drop from the year before. Read More

Fannie Selling, Consolidating Washington Region Office Space

Fannie Mae is making moves as it prepares to relocate its iconic Wisconsin Avenue headquarters to a new building in downtown Washington by consolidating its three properties in Northern Virginia into one central hub. The GSE is looking to sell three office buildings in Reston and Herndon, VA, where it leases about 1.5 million square feet of space. Fannie recently signed on to be the anchor tenant at Reston Gateway, occupying 850,000 square feet. The building is currently under construction and Fannie is set to move into the mixed-use property in 2022. With about three years left before the move into the new Reston office, observers said the GSE could execute a sale-leaseback... Read More

GSE Briefs

New Disclosures Show GSEs Keep Adding Workers. Fannie Mae and Freddie Mac started the new year with more workers on their payrolls than the year prior, according to an analysis of 10-K reports filed by the two government-sponsored enterprises. At Jan. 31, 2017, Fannie reported a staff of 7,200 workers compared to 7,000 in February of last year. However, two years ago its head count was higher at 7,300. Of the new reading, Fannie noted the total includes full- and part-timers and employees on leave. Freddie had a staff of 6,144 full-timers... Read More

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