Secondary Market

For four months, the Department of the Treasury, GSEs, and Federal Housing Finance Agency have been in disagreement with Fannie and Freddie investors on where profits should be directed. Though the D.C. Circuit affirmed a lower court’s ruling that actions taken under the FHFA’s conservatorship of the GSEs cannot be challenged in court, the shareholders are now taking matters to the full D.C. Circuit for a rehearing. The FHFA and Treasury are now urging the D.C. Circuit not to modify its original ruling.

The Federal Housing Finance Agency on Thursday released its third Enterprise Non-Performing Loan Sales Report, which lists all the sales of all non-performing loans from Freddie Mac and Fannie Mae to the private sector through December 31, 2016. The report tracks total loan sales, total number delinquent assents unloaded, and time of delinquency. It also strives to track borrower outcomes and measure how many properties were foreclosed on, how many avoided foreclosure, and the difference between homes that were sold to third parties and benchmark NPLs.

Fannie Mae's April monthly summary was recently released showing slight growth for the month. Though temporarily, their Gross Mortgage portfolio increased at a compound annualized rate of 52.5 percent. Conversely, the Conventional Single-Family Serious Delinquency Rate decreased five basis points.

Semper Capital, a independent investment management firm, believes that the Credit Risk Transfer market continues to be a compelling investment vehicle. Following the mortgage crisis, the Federal Housing Finance Agency has mandated a number of changes affecting the government-sponsored enterprises (GSEs), reducing the risk of losses that the GSEs may pose to taxpayers. Semper believes that the CRT market remains well supported and the collateral and structural benefits are high.

Fannie Mae announced that it secured commitments for a front-end Credit Insurance Risk Transfer (CIRT) transaction. The risk transfer will have been committed prior to Fannie Mae’s acquisition of the covered loans, so the insurance coverage will be effective as soon as loans are acquired. This will begin in the 2017 second-quarter deliveries and is expected to be filled over the course of nine months.

Credit risk transfer (CRT) or sharing is the process in which the government-sponsored enterprises bundle up the mortgages they buy from lenders and sell a portion of the risk to private investors. Instead of the GSEs shouldering the loan risk alone, selected investors help offset any potential risk from loan defaults. CRT began as a test in 2012 and is now quickly ramping up as investor interest and governmental oversight grows. Governmental oversight makes sense—we don’t want another 2007. But why are more investors becoming so interested in CRT?

The status quo for Fannie Mae and Freddie Mac will be changing according to Treasury Secretary Steven Mnuchin. He and FHFA Director Melvin Watt separately addressed the state of the GSEs Thursday. Watt explained that reforms during conservatorship need to be kept in mind when addressing housing finance reform.

On Wednesday, Freddie Mac announced its first re-performing structured sale of 2017, a $292 million sale of a pool of seasoned loans from its mortgage investments portfolio. The pool of loans, currently being serviced by Select Portfolio Servicing Inc., includes loans with step-rate modifications and GSE loans modified under GSE proprietary modifications.

Financial Freedom, a division of OneWest Bank agreed to a settlement of over $89 million on Tuesday, resolving allegations from the Department of Justice that the accusing the company of violating the False Claims Act and the Financial Institutions Reform, Recovery, and Enforcement Act of 1989 in connection with its participation in a federally insured Home Equity Conversion Mortgages or ‘reverse mortgage’ program.

Fannie Mae predicts a steady growth in the economy, driven mainly by consumer spending in Q2. The GSE’s projections for a more robust Q2 are following a familiar path. This year looks to be the fourth one in a row in which Q2 rebounded after a droopy Q1.