Single GSE Security Release Date Set…Fannie Mae and Freddie Mac (the GSEs) have each issued birth announcements for their long-anticipated Uniform Mortgage-Backed Securities (UMBS). The two companies will begin issuing the UMBS on June 3, 2019.
Meet My Friends: Fannie and Freddie
Before the downturn, banks underwriting practices had fallen apart. Fannie, Freddie, and others weren’t ding a good job auditing those loans. They were bought nd sold “supposedly” under Fannie/Freddie guidelines, but weren’t. Since then, rules have been rewritten to correct those failures, but still allow a debt-to-income (DTI) ratio of 45%…Also, FHA allows up to 57% DTI ratio on FICO scores lower than 600. Source: Milton Herald, January 10, 2019, Page 13, Geoff Smith
5-13-2017: Discussions have bubbled up to free up Fannie Mae and Freddie Mac to either go private or have some role of US Government involvement. The fix is in – the US Government has fixed the game by minimizing Fannie and Freddie reserves while at the same time extending $258 Billion in US Treasury assistance. Can you say EXTORTION?
Source: WSJ, 5-12-2017, Page B10.
3-11-2016: Fannie, Freddie, Conventional Conforming Updates. In 9/08, the government took over Fannie and Freddie after investing $116 billion and $71.5 billion in them respectively. In exchange, the government initially took a 10% dividend on bailout monies and since 2012, against stockholders wishes, has been taking all profits. In 2015, Fannie earned $10.3 billion, Freddie $5.5 billion, dividend rates of 8.9% and 7.7% respectively, significantly less than the 10% dividend. This is bad news for stockholders since it means the common stock in both is worthless.
2-4-2016: They’re baaaaccckkkk…In a different form…just like evil spirits…Fannie Mae & Freddie Mac are using synthetic collateralized debt obligations (CDOs) to shift risk from Fannie & Freddie to investors…sound familiar? They are selling these NEW “unsecured & unguaranteed” debt instruments (called “Structured Agency Credit Risk”) to investors who are taking MORE of the risk (and in return a HIGHER return if successful) of default. So far, it is reported that about $800 Billion of the existing $4 Trillion (or about 20% of mortgages Fannie and Freddie are holding) are involved with these instruments. WSJ, 12-31-2015, A12.
4-15-2015: First-time homebuyers seeking to buy a house through Fannie Mae’s HomePath program can receive a significant hand-up from a new program – the BuyerReady program. The new program provides Buyers up to 3% of purchase price in closing costs provided they complete a homebuyer class and buy a HomePath home.
1-29-2015: Judge rules Fannie, Freddie lawsuits can continue. Investors Unite and others are suing over the Treasury Department’s sweep of shareholder profits after Fannie and Freddie were put in conservatorship. Source: http://www.housingwire.com/articles/32748-judge-rules-fannie-freddie-lawsuits-can-continue
3-28-2014: The US Senate bill to reform Fannie & Freddie proposed by Senators Tim Johnson (D) and Mike Crapo (R) (based on a bill introduced last year by Bob Corker (R) and Mark Warner (D) that didn’t fly) provides for a new tier of Governmental Agencies (the Federal Mortgage Insurance Corporation (FMIC)) and 10% first hit to banks “unless” sufficient capital isn’t available and therefore the banks can “waive” this requirement – huh? And all the loss ill be back on the US taxpayer…thanks US Congress! Mr. Rosner says keep Fannie & Freddie but control the gamesmanship on their balance sheets, banks should be required to hold “meaningful levels of capital”; and “price mortgages according to credit risks” and not be played by Congress. Source: WSJ, 3-28-2014, A13.
3-25-2014: $192.5 Billion of the $187.5 Billion bailout of these GSEs has effectively been repaid to the US Treasury. Furthermore, under current regulations, none of the $ paid back “officially” goes toward the bailout costs…so now you see that no real GSE reform is on the horizon regardless of what you read and hear. Why stop the gravy train and kill a cash cow for congress and king obama? Sources: WSJ, 2-22/23, 2014, A6 and Johnson-Crapo plan to reform Fannie Mae and Freddie Mac
of money making been sent to the US
11-10-2013: Anther $39 Billion is coming from these two GSEs – that almost makes them whole on the $188 Billion they received under receivership terms….with Fannie being about $2 Billion short and that’s it! Keep them onies rolin’ – and I’m sure that stifles the incentive to eliminate Fannie & Freddie from Government hands… Source: WSJ, 11-8-13, A2.
10-17-2013: Only now does FHFA release the dogs at Fannie Mae & Freddie Mac to go after “strategic mortgage defaulters” (i.e., those who can afford to pay for their mortgage but let the property go into foreclosure because it’s “too far” underwater to recover). None of the 75,000 bad loans with possible collections were not pursued. Also, about 1 million Fannie & Fredie loans are shadow inventory (i.e., those in foreclosure or 60 or more days late on payments). Source: http://www.latimes.com/business/realestate/la-fi-lew-20131013,0,7334270.story
10-15-2013: Fannie Mae raising down payment minimums in November and imposing other changes including eliminating interest only loans. Source: http://www.mortgagenewsdaily.com/10112013_higher_down_payment_requirements_coming_in_november.asp
9-18-2013: Foreclosures to slow and late fees waived by Freddie Mac to homeowners of possible 11,000+ homes destroyed by Colorado floods. Source: http://www.mortgagenewsdaily.com/09172013_disaster_assistance.asp
9-2-2013: US Senate (Corker-Warner) bill is brewing to not only encourage merger of Fannie Mae and Freddie Mac into a single entity, but continues to support the packaging of mortgages into securities and permit an explicit US Government guarantee through insurance from a “public guarantor” (Federal Mortgage Insurance Corporation) of certain Qualified Residential Mortgages (QRMs) defined (by the CFPB as Qualified Residential). Also of note, the CFPB is taking public comments through October 2013 on the new 500 page QRM definition Source: WSJ, 6-17-2013, A2
5-9-2013: Effective January 10 2014 – Fannie and Freddie will be implementing Dodd-Frank’s Qualified Residential Mortgage (QRM) definition when buying loans from lenders. The GSEs recently notified lenders that they were to make “reasonable determinations” of a Borrower’s ability to repay the debt as a QRM the GSEs could purchase. Source: http://www.mortgagenewsdaily.com/05062013_qualified_mortgages.asp
5-9-2013: Freddie Mac turned $4.6 B profit 1Q13 and plans to forward $7B to US Treasury in dividends – reducing their debt tab to $34.7B…whoopppeee!….now both GSEs are still on the US Debt dole for $120B..and falling. Source: Wall Street Journal, 5-9-13, A3.
5-7-2013: Does Fannie Mae or Freddie Mac own your loan? Both Fannie and Freddie (effective 6-1-2013: loans >90 days delinquent & >12 months old) are offering some type of streamline/modified loans, as long as they own them. Source: http://realtytimes.com/rtpages/20130422_streamliinedmods.htm
3-26-2013: Special loans and terms are available from both Fannie Mae & Freddie Mac and their details and advantages (i.e., no appraisal, down payment funding flexibility, no mortgage insurance, lower credit scores, etc,.) are on their respective loan websites. Fannie Mae’s website is http://www.homepath.com/ and Freddie Mac’s website is http://www.homesteps.com/. It will be interesting to wait and see if these two merge into one organization in light of DeMarco’s consolidation of back office functions of the two GSE’s.
3-23-2013: Anyone aware of the planned Fannie Mae and Freddie Mac financing to be rolled out in 2013? http://www.thetruthaboutmortgage.com/freddie-mac-homesteps-review/
3-23-2013: Fannie Mae’s 1,200 employees (down from 5,800 in 2008) and Freddie Mac’s 90 employee are directed by the US Treasury Department to reduce their portfolios (Fannie has $2.9 Trillion – unsure of Freddie’s) by 15% per year – i.e., Fannie’s balance was supposed to be $729 Billion already…oooops! Source: WSJ, Opinion 11-20-2012, Page A15.
12-21-2012: Freddie Mac says “sunshine & unicorns for 2013” – Source: http://realtytimes.com/rtpages/20121220_freddiebullish.htm
10-19-2012: FHFA says “thanks” to low mortgage interest rates. Since 2009, almost 1.6 million homeowners have received loan modifications from Fannie & Freddie. Source: http://www.homefinder.com/news/real-estate/2012/10/18/fhfa-record-low-mortgage-rates-help-harp-refinances-surge-in-august/ My guess is that >50% of the loan mods happened since rates have fallen.
10-18-2012: The FHFA Office of Inspector General just released their investigative report on the “lack” of aggressive debt collection action by Fannie and Freddie regarding deficiency judgments when resulting from 2nd homes or investment properties. In fact, part of the conclusions was the “Enterprises (Fannie & Freddie) appear to have room for improvement in how they manage their deficiencies”. No duh! Please note that this collection effort would be against those homeowners who might be more capable of liquidating their assets to pay something to taxpayers for the losses (i.e., the 1%), yet Obama never forced collection. Hmmm-hmmm-hmmm. Source: http://origin.www.fhfaoig.gov/Content/Files/AUD-2013-001.pdf
10-8-2012: FHFA published a white paper proposing an infrastructure that attempts to create a new Fannie/Freddie type secondary market with 3 goals in mind: (1) wind down Fannie & Freddie (i.e., hide their ultimate cost to taxpayers of >$185 Billion); (2) maintain (the appearance) of foreclosure prevention activities; and (3) ensure money is available for future loans.
As Marko from Tropoya in Taken 1 said “Good luck”!
4-26-2012: FHFA (Federal Housing Finance Agency) plans to require lenders servicing loans originated under Fannie & Freddie guidelines (and I assume that they still have 100% ownership?) to respond to borrower’s short sale request in 30 days and a buyer’s purchase offer within 60 days. Source: http://abiblog.abuyeragent.com/short-sales/
Banks tend to favor short sales over foreclosures since they usually get more from short sales than foreclosures since the lender avoids the costs related to foreclosure action.
Things I see with this plan and these rules (which with appropriate pressure from lobbyists, change):
(a) It only affects loans originated under Fannie/Freddie guidelines and are not foreclosed. What about the huge number of non performing FHA loans – do these rules apply to lenders with FHA loans? — No!
(b) I can see some games with the 30 day rule since the lender can always say “they never got the original request – please resend-refax” – I have heard that happening before.
(c) What happens if one lender fails to respond but subsequently sells loan to another lender to avoid hassle (i.e., fines, nasty letters, progress reports, etc,.) – Does the clock start over?
(d) If you speed a bank’s decision, more people ill be force to move earlier than they have been – forcing quicker displacement of families and more rapid turmoil. Most people now spend 6+ months in their homes during a short sale process. Speeding the process will displace them faster. Be prepared to hear the stories of “evil lenders” displacing families through rapid short sales.
(e) What happens if the loan is part of a collateralized financial instrument with several owners (i.e., CDOs)? Does this ruling only apply to those loans owned by the lender and that haven’t been collateralized under CDOs or other financial instruments?
4-25-2012: Fannie Mae to start peddling foreclosures to investors as potential rental properties. Source: http://blogs.wsj.com/developments/2012/02/27/fannie-mae-begins-marketing-foreclosed-homes-as-rentals/
2-20-2012: Freddie Mac issues policy statement to mortgage servicers of Freddie Mac loans that unemployed homeowners (representing about 10% of Freddie Mac’s mortgage delinquencies) can have up to 12 months of suspended mortgage payments. Source: http://www.pe.com/business/business-headlines/20120106-real-estate-freddie-mac-extends-forbearance-for-jobless-borrowers.ece
2-19-2012: Do you think Fannie, Freddie, or the Federal Housing Finance Agency is more interested in big bank welfare or taxpayer welfare by not getting a better settlement from the major banks? My big question is: What kind of due diligence did Fannie and Freddie perform when buying any toxic mortgage loans or securities? Also, my question is: Why ask the taxpayers for another effective bailout to drop the loan balances unless they are liens against future sales prices to recapture losses for the taxpayers?
3-14-2011: The SEC is investigating whether Fannie & Freddie had properly & timely reported their exposure to subprime mortgage loans. Also, Republicans in Congress are drafting proposals to eventually eliminate Fannie & Freddie – Fannie & Freddie have estimated combined portfolio of about $1.5 Trillion and guarantee about $5 Trillion of mortgage loans.
3-11-2011: According to the Wall Street Journal (3-1-2011,C1) both Fannie Mae and Freddie Mac are borrowing money from the US Treasury to pay their preferred dividends..to the US Treasury…does this make sense?
3-7-2011: The Securities and Exchange Commission (SEC) issued a Wells Notice to investigate Freddie whether the company violated federal securities laws.
(NOTE to the Insane: Freddie wants to borrow $500 million from the Treasury to remain solvent after already paying the Treasury Department $1.6 Billion in dividends. Fannie Mae may require $2.6 Billion to cover cost of dividend payments to the Treasury. Is this a great country or what? WSJ, 2-25-2011, C7)
3-7-2011: Interesting – Fannie & Freddie have total portfolio of $1.4 Trillion in home mortgages – They plan to reduce their portfolio by 10% each year. (WSJ, 2-9-2011, A4) (Comment: I don’t think that will happen – Who will buy the loans? The loans better be good quality, but what is good quality today – may be crap tomorrow.)
2-15-11: I don’t believe Fannie and Freddie were as a large a problem (they were a big part but the private market was worse at times) as the securitization process was to push us into a big slide. We all saw the writing on the wall that home prices were climbing faster than we could justify the price. No matter which way we establish the mortgage market in the future, it’s gonna take one mean mo-fo regulator to manage to watch every move and warn all involved that there’s any problems that need correcting. So which regulatory body in the US Government has done that good of a job in the past – I say the U.S. Marines, and they can “fire at will” once they contact the enemy!
1-11-2011: However Fannie and Freddie are structured from …now on, here’s what they’re faced with – in the current home price decline, there are 19 million subprime mortgages supported by the Federal Government (i..e., the taxpayer) – (12 million delinquent Fannie Mae/Freddie Mac foreclosures; 5 million FHA insured properties; 2.2 million mortgages held by banks under the Community Reinvestment Act (CRA) requirements. NOTE: About 8 million were securitize by various lenders. The Federal Housing Finance Agency (formerly part of the Office of Federal Housing Oversight Committee), the US Government Agency in charge of overseeing Fannie and Freddie, estimates the final cost of bailing Fannie/Freddie out is as high as $363 Billion (right now we’re at at least $148 billion).
See the Financial Crisis Inquiry Commission on Cspan for more details.
12-29-2010: Sounds like the Republicans (who were clamouring to Obama about restructure Fannie and Freddie during the Frank Dodd discussions in more privatization and fast) are now back tracking and saying that we should slow down and lose the Federal grip over time. The House Financial Services Committee in the next Congressional session (112th Congress) is set to tackle the restructuring – and some suggest gradual lowering over time of limits insured by the Federal Government.
12-26-2010: How should Fannie Mae-Freddie Mac be structured in the future? The Treasury Department has a January 2011 deadline to propose a revised system to Congress. Should it be limited guarantees of loans? No guarantees? All or nothing? Both Fannie and Freddie have announced increased risk based fees to lenders in 2011, raising the cost of loans to borrowers. There maybe lower loan limits limiting exposure to taxpayers
Note: Fannie and Freddie guarantee about 50% of the $10.6 trillion in home mortgages.
12-26-2010: The Obama administration is pressuring Fannie and Freddie through their regulatory agency (Federal Housing Finance Agency (FHFA)) to accept a program run by the Federal Housing Authority (FHA) to write down mortgages and hand them to the FHA. Only 3 loan modification out of 61 applications in the first 6 months. Some say loan modifications aren’t doing enough (no duh!). Only 10 of 120,000 loans were modified by Fannie and Freddie in the first 6 months of 2010. Fannie and Freddie are hesitant to reduce loan balances due to limitations of option to recoup losses later. The FHA program is open to borrowers who “aren’t” behind on their mortgage payments. Also, banks were able to receive subsidies if they wrote down mortgages of borrowers who owed at least 15% more than their homes were worth. Source: WSJ, 12-8-2010, A2.
Note: An estimated 11 million homeowners (about 23% of all homeowners) are under water (i.e., owe more than their homes are worth).
11-12-2010: An interesting OP-ED piece in the WSJ 11-11-2010 (A19) gave a plan of how Fannie and Freddie could be unleashed on a gradual basis during an 8 year period which may allow the private market to pick up the slack. It’s certainly going to be interesting if Fannie and Freddie ever become privatized or a piece held in US Government control. I would hope privatization with strong oversight, but you know how that tune could play out – just as bad as it has before under Government control with Government oversight. We definitely need a good watchdog and a Congress that responds. And additional transparency wouldn’t hurt either.
11-4-2010: MDJ 11-4-2010, 6B – $4.1 billion loss for 3Q10 and requested an additional $100 million (less than the $1.8 billion last quarter) in federal assistance.
Fannie Mae and Freddie Mac (who owns or guarantees about 50% of all US mortgages) are planning to design an indemnification agreement (perhaps similar to the Bank of America – Fidelity National agreement covering clean foreclosures—but leaves B of A exposed to extra losses).
Fannie and Freddie may end up costing the US taxpayers $259 billion (currently has cost about $150 billion). (WSJ 10-23-2010, B2)…As a comparison, according to Treasury Department $50 billion was shelled out for financial and auto company bailouts.
Fannie May (in August 2010) notified loan servicers they could face fines if foreclosures became unreasonably long. (WSJ 10-230-2010, B2)
Federal Housing Finance Agency (FHFA Chief Edward DeMarco—-Joseph A Smith Jr was just appointed per Op-Ed 11-15-2010, A16) is Fannie’s and Freddie’s regulator is seeking legal assistance in recovering billions in mortgage backed securities that have now foreclosed that were purchased from banks and financial institutions. (WSJ, 10-21-2010, C1)
Fannie & Freddie purchased privately issued securities (about $227) billion as investments backed by subprime and other riky loans in 2006 and 2007.
9-17-2010: Fannie/Freddie taken over 191,000 homes as of 6-30-2010 and till taking them in faster than selling them; Fannie took a $13 Billion charge for carrying costs in 2Q10; lenders are taking too long to reclaim homes shadow inventory around 4 million homes; Fannie & Freddie are trying not to dump as many homes on market at one time to lower values in a neighborhood; Fannie plans to test foreclosure rentals in Chicago; Fannie offers HomePath mortgages at 3% down payment – no PMI on their own foreclosed properties.
8-7-2010: Rep.Spencer Bachus (R) has asked Rep Barney Frank for a hearing into the firing of Caroline Herron (former Fannie Mae Executive) …Apparently, (according to the 8-7-10 AJC), she was fired after she criticized how the company was running a loan assistance program….She asked that the borrower provide proof of income and these requests were ignored….
Yeah, let’s see if (a) Rep Frank holds a hearing and (b) if the real truth is told…I think I know the answer to both concerns…
8-6-2010: Fannie Mae and and Freddie Mac tighten lending standards since 2008 and lo and behold, since then those loans are performing better than any loan in the past decade…well, duh!
8-6-2010: So far, Fannie Mae & Freddie Mac have required $146 billion of taxpayer resources to cover losses … so far.
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