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Inside The GSEs

August 31, 2018

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GSE Buybacks Decline in 2Q18 But Pipeline of Pending Demands Grew

Mortgage lenders selling loans to Fannie Mae and Freddie Mac had to repurchase fewer defective loans in the second quarter of 2018, according to a new Inside The GSEs analysis. GSE sellers repurchased $226.84 million of home loans during the second quarter or provided some other form of indemnification. That was down 5.8 percent from the first three months of the year and represented the lowest quarterly buyback total since the fourth quarter of 2016. Freddie repurchases were up 5.3 percent from the first quarter, while Fannie’s fell 17.6 percent. On a year-to-date basis, combined GSE buybacks were down 7.2 percent from the first half of 2017. Again, Fannie volume was down, Freddie’s was up. Read More

Worried Mortgage Industry Pens a ‘Don’t be Rash’ Letter to Treasury

A dozen or so mortgage, housing and consumer groups are putting the final touches on a new letter to Treasury Secretary Steven Mnuchin, asking that the department not make any radical administrative changes to the operations of Fannie Mae and Freddie Mac, according to industry stakeholders familiar with the matter. The immediate and chief concern is that Federal Housing Finance Agency Director Mel Watt could depart prematurely, throwing the balance of power over to the White House, which would then move to pick a new FHFA director. The industry fears the administration’s pick, working in tandem with Treasury, would then move to cut GSE loan limits as a test to see if the private... Read More

CBO Says Expect Rising Rates if Housing Market is Privatized

New housing finance structures created to increase private capital would leave borrowers with slightly higher interest rates but greatly reduce federal costs, according to a new report from the Congressional Budget Office. The report examined several structures, ranging from a fully federal guarantee on mortgage-backed securities to a largely private market. On a “fair value” basis, it will cost the federal government $19 billion over the next 10 years to backstop an estimated $12 trillion in Fannie Mae and Freddie Mac mortgage-backed securities. The CBO notes the cost “represents the estimated amount that the government would have to pay private guarantors to bear the credit risk of the new guarantees.” Read More

FHFA Orders GSEs to End Involvement in SFR Financing

After exploring and dipping their toes in the single-family rental market since 2016, the GSEs have ended their somewhat controversial pilot programs that provided financing to corporate landlords. The Federal Housing Finance Agency announced last week it was pulling the plug on the programs because SFR operators don’t need the “liquidity provided by the enterprises.” This was welcome news to some who believed that institutional investors don’t need a taxpayer guarantee on top of rental revenues.The agency approved several “test and learn” pilot transactions and solicited industry feedback but ultimately concluded that it was premature to allow the GSEs to enter this portion of the single-family rental market. Read More

GSE Shareholders Lose Appeal in Case Against Treasury Sweep

Fannie Mae and Freddie Mac shareholders faced another hurdle last week when the Eighth Circuit Court ruled that the Treasury sweep of GSE profits was legal. In fact, in the 14-page ruling, filed on Aug. 23, the judge said, “This shareholder lawsuit crashes into a roadblock before it can get started,” and stated that the Federal Housing Finance Agency did not exceed its conservatorship powers, as the plaintiffs argued. “Congress, intentionally or otherwise, may have created a monster by handing an agency breathtakingly broad powers and insulating the exercise of those powers from judicial review. Even so, clear statutory text dictates the outcome,” said Judge David Stras in Saxton vs. the FHFA. Read More

Moody’s: FHLBanks Continue to Benefit from Interest Rate Uptick

Rising interest rates continue to benefit the Federal Home Loan Banks whose net income was up by more than 10 percent for the first half of the year, according to a report released this week by Moody’s Investors Service. FHLBank net income was $1.83 billion in the first six months of 2018, up from the $1.67 billion a year earlier. This reflected a 10.45 percent increase that was driven by growth in net interest income, partially offset by lower non-interest income. Moody’s noted that yields on both advances and liabilities increased because of higher interest rates. Overall, the net interest margin improved nine basis points to 0.47 percent from the same period in 2017. Read More

IG Takes Issue with FHFA’s Community Investment Reviews

The examinations of the Federal Home Loan Banks’ community investment programs were not up to par, according to a recent report by the Federal Housing Finance Agency’s Office of Inspector General, which faulted the program for having examiners review their own work. The report noted that the quality control reviews of community investment examinations didn’t meet FHFA’s standard for independence. In other words, the examination specialists who performed the quality control reviews for community investment examinations didn’t follow FHFA’s guidelines because the specialist was not independent of the examination process. In fact, the IG noted, “All 11 quality control reviews of community investment examinations conducted during the 2017... Read More

FHFA Details Multifamily Oversight, IG Reviewing Fraud Against GSEs

The fast-growing multifamily loan programs of Fannie Mae and Freddie Mac are garnering a bit of attention these days – but not necessarily for good reasons. The Federal Housing Finance Agency wants the two mortgage giants to take more precautions when selecting and monitoring their multifamily seller/servicers. Also, the FHFA’s Office of Inspector General and the FBI are investigating a multi-million-dollar mortgage fraud scheme in the multifamily sector that impacted Fannie Mae and Freddie Mac MBS. The FHFA recently issued an advisory bulletin detailing its expectations for Fannie and Freddie to institute proper controls and perform monitoring to identify and manage multifamily counterparty risks. Read More

Advisory Bulletin Focuses on Liquidity Guidance for GSEs

Fannie Mae and Freddie Mac should focus on things like cash flow projections, diversified funding and identifying potentially adverse events to manage their liquidity risk, according to a new advisory bulletin issued late this month by the Federal Housing Finance Agency. The regulator said it expects the GSEs to use liquidity metrics that coincide with their funds management strategies and provide a comprehensive view of their liquidity risk to make sure enough funds are available, at reasonable cost, to meet potential demands. “Strong liquidity risk management enables an enterprise to be financially sound to perform its public mission and to limit and control shortfalls in cash,” said the FHFA. Read More

GSE Roundup

Fannie Mae and Freddie Mac should focus on things like cash flow projections, diversified funding and identifying potentially adverse events to manage their liquidity risk, according to a new advisory bulletin issued late this month by the Federal Housing Finance Agency. Read More

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