There was big news early Thursday morning when Fannie Mae announced that it will be paying the Treasury a whopping $59.4bn dividend, just a day after Freddie Mac announced a more modest but still welcome $7bn payment.
The big payout is mainly a result of Fannie’s recognition that it will be profitable enough in the future to possibly using some $50bn in deferred tax assets — or as it writes in its earnings announcement: “Release of Valuation Allowance on Deferred Tax Assets “. Read more
It might just be us, but Fannie and Freddie’s makeover by the US Treasury last Friday seems not to have got much broader (political) play. It’s almost trite to observe that the GSEs have had almost no hearing in the 2012 election noise machine so far.
Odd when this could be a turning point in the mortgage agencies’ ties to the government. Read more
So farewell then, 10 per cent Fannie and Freddie senior pref dividends.
Total comprehensive income of $3.1bn (net income $2.7bn) vs dividend payments to Treasury of $2.8bn in 2012′s first quarter. Meaning – Fannie Mae hasn’t had to draw from the Treasury to pay back the Treasury for the first time… in a while.
When the godfather of mortgage securitisation speaks, you listen.
This week Lewis Ranieri devoted a not insignificant amount of time from his Milken conference panelist discussion to Harp 2.0 — the US government’s refinancing programme for underwater mortgages. Read more
The regulator for Fannie Mae and Freddie Mac told Congress that forcing the government-controlled mortgage firms to write down the principal on underwater home loans would require more than $100bn in fresh taxpayer funds, Reuters reports. In a letter sent on Friday to the Republican and Democratic leaders of a House of Representatives government oversight panel, the Federal Housing Finance Agency explained why it has long opposed principal reductions for borrowers who owe more than their homes are worth. In that situation, the mortgage is deemed “underwater.” About 22 per cent of US home mortgages have negative equity totaling about $750bn, according to CoreLogic. The FT says Mr DeMarco’s letter, made public on Monday, buttresses his long-held belief that cutting loan balances would cost taxpayers far more than the benefits conferred on Fannie Mae and Freddie Mac in the way of lower defaults. Read more
Fortress Investment Group’s CEO Daniel Mudd has announced that he is taking a leave of absence from the hedge fund, the WSJ reports. This comes after being named as a defendant in a civil securities-fraud lawsuit brought by the SEC last Friday, with respect to his prior role as the CEO of Fannie Mae. The suit alleges that risks that the firm was taking on, with respect to mortgage holdings, were not accurately disclosed to investors. While representatives of Fortress have stated that the suit doesn’t affect their business, there was concern among executives that it could alienate investors. Read more
On Tuesday, California’s attorney general filed suit against housing giants Fannie Mae and Freddie Mac, the WSJ reports. The suit seeks to force the firms to answer an extensive list of questions about the mortgages they purchased in the state, including details on which properties are vacant and those that have been foreclosed upon. The move is particularly contentious as the companies are under the conservatorship of the federal regulator, the Federal Housing Finance Agency, that has already rebuffed previous requests for information from the California attorney general’s office. The two housing agencies guarantee more than half of the $10.3 trillion of mortgages in the US. Read more
Fannie Mae, the US-controlled mortgage financier, will request an additional $7.8bn from taxpayers after soured derivatives bets caused the company to record a $5.1bn quarterly loss, reports the FT. The company’s loss nearly quadrupled from last year’s third-quarter shortfall of $1.3bn, despite fewer homeowners falling behind on their obligations and less money set aside to cover future loan losses. Fannie’s flood of red ink is largely due to bad bets on interest rates, which declined to historic lows during the three-month period ending in September. Derivatives and securities trading resulted in a $4.5bn loss for the quarter, versus a $500m gain in the same period last year. The company has recorded a quarterly operating profit only once in the past four years. Even then, it recorded a net loss due to required dividend payments to the US Treasury following its bail-out in 2008. Read more
A federal audit to be released on Tuesday will castigate Freddie Mac for possibly leaving taxpayers with billions of dollars in losses after failing to take a firm line with banks repurchasing bad loans, the FT reports. The company focused its review on loans which have gone bad in the last two years, missing the 2005-2007 period when many mortgages were originated, the inspector general of the Federal Housing Finance Agency said in the report. The audit is likely to increase pressure on the recent settlement on buybacks between Freddie Mac and Bank of America, the WSJ reports, although the FHFA has said that it still thinks the deal was “appropriate and reasonable.” Read more
Freddie Mac, the US government-controlled mortgage financier, used flawed procedures for determining how lenders repurchased soured loans, probably saddling taxpayers with billions of dollars in losses, according to a federal audit to be released Tuesday. The FT says the report found the company was ignoring foreclosure trends for loans it purchased from lenders during the housing boom. The revelation could lead to increased requests to put loans back to originators such as Bank of America, which is struggling under the weight of such demands from Freddie, its sister agency Fannie Mae, private investors and mortgage insurers. BofA told investors earlier this year it was mostly through claims from Freddie Mac and Fannie Mae. Read more
The US Federal Reserve on Wednesday launched “Operation Twist”, announcing it would buy $400bn of long-dated Treasuries, financed by the sale of an equal amount of bonds with three years or less to run. However Asian stocks tracked Wall Street lower as investors took fright at the sentiment in the Fed’s statement, which referred “significant downside risks to the economic outlook”. The FT reports the Fed also sprung a surprise by pledging to reinvest any early repayments from mortgage securities back into debt issued by mortgage financiers such as Fannie Mae and with a strong focus on buying 30-year Treasuries. Such a big move suggests that Ben Bernanke, Fed chairman, is alarmed by the slowdown, and has decided to override opposition on the rate-setting Federal Open Market Committee and provide as much stimulus as easily practical. The purchases will run until June 2012. Market interest rates moved, but not enormously, suggesting that a large “twist” was already priced in. There are also continued doubts about how much households will respond to lower interest rates at a time when they are trying to pay down debts left behind by the financial crisis. Read more
Regulators are nearing a settlement with Fannie Mae and Freddie Mac after a three-year investigation into whether the mortgage finance giants adequately disclosed their exposure to risky subprime loans, NYT DealBook says. Citing several people briefed on the case, the website says proposed agreement with the Securities and Exchange Commission, under the terms being discussed, would include no monetary penalty or admission of fraud. However a settlement would be a significant acknowledgement by the mortgage companies that they played a central role in the housing boom and bust. Read more
US mortgage rates have plunged to a 50-year low, sparking a surge in refinancing that is helping growing numbers of homeowners reduce their borrowing costs, the FT reports. Freddie Mac, the quasi-government entity that buys and insures mortgages, said on Thursday that an average US 30-year fixed-rate mortgage had dropped to 4.15 per cent, down from 4.32 per cent last week. The average in effect mortgage rate is 5.3 per cent, according to the Bureau of Economic Analysis, suggesting more borrowers could benefit. Homeowners are looking to take advantage of ultra-low US Treasury yields, which are used to price mortgages, to apply for refinancing. Data from the Mortgage Bankers Association show a 4.1 per cent increase in applications last week, with the sharp upward trend starting at the end of July. “It’s spurring a lot of people who were really fence-sitting, people who refinanced last year at 4.85 per cent,” said Daniel Kramer, a mortgage broker at United Mortgage Services, servicing affluent areas of New Jersey, New York and Connecticut. Read more
Bank of America has agreed to sell part of its home-loan portfolio to Fannie Mae, the WSJ says, in a deal that will give the government-controlled mortgage giant the rights to process and collect payments on a pool of 400,000 loans with an unpaid principal balance of $73bn. Citing people familiar with the deal, the report says the price was more than $500m and the loans have a 13 per cent delinquency rate. BofA is under pressure on its exposure to mortgage losses, reports the FT, with chief executive Brian Moynihan facing a crucial conference call with Wall Street investors on Wednesday after a sharp decline in the bank’s share price. Mr Moynihan told CNBC he had no plans to step aside and BofA would not be putting Merrill Lynch units up for sale. Read more
Freddie Mac will seek another $1.5bn from the US taxpayer after registering a comprehensive loss of $1.1bn, Reuters reports. The mortgage agency’s deficit is partly dues to a $1.6bn dividend to the Treasury, which owns an 80 per cent stake from its 2008 rescue of Freddie Mac. Freddie has so far needed $66.2 billion from taxpayers, paying $13.2 billion in dividends, Bloomberg says. Both Freddie and Fannie were also caught on Monday in the ramifications of S&P downgrading the United States, losing their own AAA credit ratings, according to the WSJ. Read more
Standard & Poor’s on Monday cut the triple A credit rating of government-backed mortgage financiers Fannie Mae and Freddie Mac following a similar downgrade of the US government on Friday, reports the FT. The move, which was flagged by S&P on Friday when it cut the US rating from triple A to double A plus, highlights the extent to which the US mortgage finance industry is propped up by the US government. Fannie Mae and Freddie Mac were placed into conservatorship during the financial crisis and rely on the US government for funding. Read more
You’re looking at an excerpt from the 2008 Housing and Economic Recovery Act. That’s the thing which created the Federal Housing Finance Agency (FHFA), which is currently charged with regulating the US’s massive Government Sponsored Enterprises (GSEs), Fannie Mae and Freddie Mac. Read more
The Obama administration is ramping up talks on how to revive the housing market, which is weighing on the economic recovery — and possibly the president’s re-election in 2012, the Wall Street Journal reports. Last year, advisers considered several housing-policy prescriptions but rejected them in favor of letting the market sort things out. Since then, weak demand and a stream of foreclosed properties have put renewed pressure on home prices, prompting concern within the White House. Policy ideas include having taxpayer-owned mortgage giants Fannie Mae and Freddie Mac relax their rules for loans to investors, allowing those buyers to vacuum up excess housing inventory. Officials also could sweeten incentives for banks to reduce loan balances for borrowers who are underwater, or owe more than their homes are worth. Read more
Bank of America’s $8.5bn settlement with big investors in its mortgage-backed securities means tens of thousands of distressed mortgagees will be evicted, says the NYT. Borrowers who took out loans with Countrywide, which BofA bought in 2008, will have their loans transferred to smaller mortgage servicers. Although this could speed up modification requests, many borrowers who have been able to remain in their homes despite being in default may face quicker eviction. Meanwhile the WSJ reports the Obama administration is ramping up talks on how to revive the housing market. Ideas being canvassed include having Fannie Mae and Freddie Mac relax rules for investors in order to stoke demand, or allowing the two mortgage companies to rent out some foreclosed homes to keep them off the market. Read more
A housing milestone, of sorts.
Federally-backed loans already make up a majority of the mortgages classified as ‘seriously delinquent’ in the US financial system. In other words, there are more soured loans held or backed by the US’s giant GSEs — Fannie Mae and Freddie Mac — plus the Federal Housing Administration (FHA), than those held by banks and in private-label securitisations. Read more
Here’s something you might have missed during last week’s (UK) holiday.
Michael Cembalest has made a retraction. JPMorgan’s private banking chief investment officer (and reportedly the only JPM-er who refused to do business with Ponzi-schemer Bernard Madoff, according to Forbes) has a new view on the roots of the US subprime debacle. Read more
A glut of foreclosed homes pushed house values down 3 per cent in 2011′s first quarter from the previous three months, their biggest decline since late 2008, according to the WSJ. Home values fell 1.1 per cent from February to March alone, marking 57 consecutive months of decline. Fannie Mae and Freddie Mac sold 94,000 foreclosed homes in the first quarter, 23 per cent more than the previous quarter. In addition to foreclosure effects, tax credits have also now worked their way out of the system and further revealed poor underlying demand. According to Zillow.com, almost a third of home-owners are underwater. Read more
The former CEO of Freddie Mac has received a formal notice that the SEC plans to pursue civil claims against him over failures to appropriately disclose the company’s exposure to risky mortgage loans, said a person familiar with the situation, reports the FT. Richard Syron, who ran Freddie Mac from 2003 until the company was taken over by the government in 2008, is the latest executive to receive a letter known as a Wells Notice from the regulator informing him that it intends to commence enforcement proceedings. American Banking News says the government is ramping-up an investigation of disclosure practices at Freddie and Fannie Mae. Read more
Government reports don’t normally make for interesting eulogies, but this one is an exception.
The Treasury-HUD report to Congress on the future of the US housing market is out and generating qualified praise (though little surprise). Read more
A White House plan to scale back the government’s role in financing home purchases could be a big win for the large investment banks and may drive up the cost of mortgages, according to a report cited by the FT. The Obama administration is putting the finishing touches on a soon-to-be- released proposal to overhaul Fannie Mae and Freddie Mac. Calculated Risk, summing up a New York Times story, says the plans may be released as early as Friday. The government’s role in the mortgage market may be reduced to a “last line of defense for the mortgage market.” Read more
Fannie Mae and Freddie Mac have been quietly lobbying the US Treasury to cut the dividend the housing finance groups pay on preferred stock issued as part of their government bail-out, people familiar with the matter have told the FT. A dividend cut would allow $150bn of taxpayer bailout money to be repaid and reduce the amount of preferred stock held by the Treasury. This currently pays out a 10 per cent quarterly dividend, double the amount that is charged to banks given assistance under Tarp. While the sources said that the White House is keen to change the situation, the politics of restructuring Fannie and Freddie is difficult, with concerns that cutting the dividend will reward private investors in the companies before the taxpayer is repaid. Read more
Fannie Mae and Freddie Mac have been quietly lobbying the US Treasury to cut the dividend that the housing finance groups pay on preferred stock issued as part of their government bail-out, reports the FT, citing people familiar with the situation. A lower dividend would allow the two to begin repaying $150bn in taxpayer aid, and would also pave the way for a restructuring of the companies by cutting the amount of the Treasury’s outstanding preferred stock. As part of the 2008 government takeover of Fannie and Freddie, the Treasury injected capital into both firms in return for senior preferred stock that pays a 10% quarterly dividend. That dividend is double the amount charged to banks that received aid from the Tarp bail-out scheme, and more than what other rescued companies, such as AIG, paid for emergency funds. Were it not for the dividend, Fannie and Freddie argue, they would be close to breaking even. Read more