Supreme Court to Hear Case Involving Where Fannie Can Be Sued

The Supreme Court agreed Tuesday to hear a case regarding a clause in Fannie Mae’s corporate charter that awards jurisdiction over every case involving the government-sponsored enterprise to federal courts.

The case, Lightfoot v. Cendant Mortgage Corp., addresses a specific clause in Fannie Mae’s charter, which says that the GSE can “sue and be sued, and to complain and defend, in any court of competent jurisdiction, state or federal.” The case was initially brought forth by two California women, Beverly Ann Hollis-Arrington and Crystal Monique Lightfoot, after Fannie Mae initiated foreclosure proceedings against Hollis-Arrington’s home.

The plaintiffs in the case had originally filed their complaint in California state court, but the case was then shifted to federal court by Fannie Mae. The district court then dismissed all claims.

A divided Ninth U.S. Circuit Court of Appeals decision from October 2014 came down in Fannie Mae’s favor, saying that Fannie Mae’s charter did grant jurisdiction to federal district courts by citing the decision made in the 1992 case of American Red Cross v. S.G.

The plaintiff’s lawyers argue that the appeals court judges have misinterpreted the ruling in the Red Cross case.

“The cert grant suggests skepticism of the Ninth Circuit’s standard,” said Josh Rosenkranz, a partner at Orrick, the law firm representing Lightfoot and Hollis-Arrington in the case, in a news release. Rosenkranz is leading the firm’s appellate team along with Orrick partner Robert Loeb.

“The Ninth Circuit reasoning was that if you hold the statute sideways, put it under certain lighting and squint your eyes a little, then maybe it looks like it confers jurisdiction,” Rosenkranz said.

“But this sue-and-be-sued clause is straightforward. Far from conferring jurisdiction, it refers to courts ‘of competent jurisdiction,’ which means that there must be some outside basis of jurisdictional authority to begin with.”

Fannie Mae did not immediately return a request for comment. The Supreme Court will be briefed on the case through the fall, with arguments likely to come either later this year or in early 2017.

Fannie Mae’s Mortgage Portfolio Value Tumbles

Rates drop BHHaving fallen below its 2016 cap of $339.3 billion in March, Fannie Mae’s gross mortgage portfolio contracted further in both April and May, shrinking at an annual rate of 32.0 percent in May, according to Fannie Mae‘s May 2016 Monthly Volume Summary.

The 32 percent rate of contraction in May was more than double the rate of shrinkage in April (15.4 percent). With May’s contraction, the aggregate unpaid principal balance (UPB) of Fannie Mae’s gross mortgage portfolio was $317.65 billion at the end of the month—down by about $10.5 billion from April, according to Fannie Mae. The portfolio has declined at an annual rate of 18 percent over the first five months of 2016.

According to the June 2016 Chartbook from Urban Institute, “(The GSEs) are shrinking their less liquid assets (mortgage loans and non-agency MBS) at close to the same pace that they are shrinking their entire portfolio.” For Fannie Mae, the gross mortgage portfolio shrank year-over-year at the rate of 19 percent in April, compared to a 13.5 percent shrinkage rate in less liquid assets, Fannie Mae reported.

Fannie Mae’s total book of business, which includes the gross mortgage portfolio plus total Fannie Mae mortgage-backed securities and other guarantees minus Fannie Mae MBS in the portfolio, increased at a compound annualized rate of 0.1 percent in May up to a value of about $3.100 trillion, according to Fannie Mae.

In January 2016, Fannie Mae’s gross mortgage portfolio experienced a rare expansion, increasing at an annual rate of 5 percent. With May’s contraction, the portfolio has now contracted in all but four months out of the last 70 months (since June 2010). The four months in which the portfolio expanded were January 2016, March 2015, January 2015, and December 2012. At the beginning of that stretch in June 2010, the amount of unpaid principal balance (UPB) of the loans in the portfolio was $818 billion.

Fannie Mae’s serious delinquency rate, or the share of loans backed by Fannie Mae that were seriously delinquent, declined by two basis points from April to May down to 1.38 percent. Fannie Mae completed 6,552 loan modifications in May, down from 7,097 in April.

Click here to view the complete Monthly Volume Summary for May.

6-30 Fannie Mae graph

Fannie Mae, Freddie Mac resolve just 24% of non-performing loans

The first nonperforming loan report from the Federal Housing Finance Agency, released today, shows Fannie Mae and Freddie Mac ”resolved” just 24% of its total inventory of non-performing loans.

Further, the total government-sponsored enterprise NPL portfolio is just under 9,000 properties.

Of the 24% of NPLs sold, 12% were resolved without foreclosure and the other 12% with foreclosure.

The companies sold $8.5 billion in non-performing loans, the report states.

The Enterprise Non-Performing Loans Sales Report shows NPL sales data through May 31, 2016 and preliminary outcomes for borrowers through December 31, 2015.

The sale of NPL reduces the number of severely delinquent loans in the enterprises’ portfolios.

“This report reflects the first available results since the Enterprises started to sell NPLs and since we put in place enhanced requirements for servicing these loans,” FHFA Director Melvin Watt said.

“Because the program is new, we have only preliminary data about outcomes to share, but we will continue to provide regular reports as we gain new outcome information,” Watt said.

As of the end of May of this year, the Enterprises sold over 41,600 NPLs with a total unpaid principal balance of $8.5 billion.

The NPL’s average delinquency was 3.4 years and the average current loan-to-value ratio was 98%, according to the report.

Compared to similarly delinquent Enterprise NPLs that were not sold, which have foreclosure rates at 21%, the foreclosures for NPLs sold trended lower at 14%.

These outcomes are based only on the 8,849 NPLs that were sold by June 30, 2015 and reflect outcomes only through December 31, 2015.

The report points out that owner-occupied homes had a lower rate of foreclosure with 13% of foreclosures avoided than vacant homes, where 6.2% of foreclosures were avoided.

Recently, Ohio passed legislation that seeks to prevent zombie homes, or vacant or abandoned residential property, by enacting a fast-track process for mortgage foreclosures.

In addition, New York Gov. Andrew Cuomo signed “sweeping” legislation to reform the state’s foreclosure process and address the state’s issues with zombie homes.

The Judicial states of New Jersey, Florida and New York accounted for nearly half of the NPLs sold.

“About two-thirds of the 20 states with foreclosure inventory rates above the national average were judicial states,” said Marina Walsh, Mortgage Bankers Association vice president of industry analysis in the company’s National Delinquency Survey that came out in May.

Community Loan Fund of New Jersey, a nonprofit organization, won the bid on five of six small, geographically concentrated pools sold through May 2016, and is a service provider for the sixth pool.

Aon assists Freddie Mac to reach $5bn risk transfer milestone for US mortgage credit business

CHICAGO, June 30, 2016 /PRNewswire/ – Aon Risk Solutions and Aon Benfield, the global risk management businesses of Aon plc (AON), have assisted U.S. mortgage guarantor Freddie Mac to reach an important issuance milestone in credit risk transfer. 

The USD5bn milestone comes with the inception of three new re/insurance policies under Freddie Mac’s successful Agency Credit Insurance Structure (ACIS®) program, representing the largest aggregate transaction to date.

Together, these three policies provide up to a combined maximum limit of approximately USD788m of losses on single-family loans and transfer much of the remaining credit risk associated with three of the Structured Agency Credit Risk (STACR®) debt issuances this year, STACR 2016-DNA2, STACR 2016-HQA2, and STACR 2016-DNA3. These transactions are transferring a significant portion of mortgage credit risk on approximately USD75bn of unpaid principal balance (UPB) on single-family mortgages.

Through ACIS, Freddie Mac obtains policies that transfer to insurance and reinsurance companies around the globe a portion of the credit risk associated with its STACR debt note reference pools. Freddie Mac has placed over USD5bn in re/insurance coverage through 20 ACIS transactions since the program’s inception in 2013. 

In a long-standing and successful partnership with Freddie Mac, Aon Risk Solutions and Aon Benfield have played a key role in generating ongoing re/insurance market capacity for the transactions, as well as in the educational process necessary for re/insurers to begin writing this line of business.

Kevin Palmer, senior vice president of single-family credit risk transfer for Freddie Mac, said: “We could not have achieved this USD5bn ACIS milestone without the support of Aon.  Their work to educate reinsurers about this evolving market is helping to bring new sources of capital into the credit risk transfer arena – that’s good news for U.S. taxpayers and investors worldwide.”

Eric Andersen, CEO of Aon Benfield, added: “We are excited that our strong and long-standing relationship with Freddie Mac has allowed us to reach this important milestone. After initially generating awareness and understanding of U.S. mortgage credit business across the re/insurance industry, we continue to work with re/insurers across the globe to assist them to develop the skills and capabilities necessary to underwrite this type of risk. We believe that this sector represents a key opportunity for re/insurers, especially given that growth in many traditional business lines is becoming more difficult to achieve. Those re/insurers that have made investments in the requisite talent and technology to participate have reaped the benefits of a diversified business line, and we look forward to bringing even more markets into this area in the coming months and years.”

Further information

For further information please contact the Aon Benfield PR team: Andrew Wragg (+44 207 522 8183 / 07595 217168) David Bogg or Alexandra Lewis.

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US 30-year mortgage rates hit lowest in three years: Freddie Mac

NEW YORK Interest rates on U.S. 30-year mortgages declined to their lowest levels in over three years as benchmark Treasury yields tumbled in response to Britain’s vote to leave the European Union, mortgage finance agency Freddie Mac FMCC.OB said on Thursday.

The average 30-year mortgage rate fell to 3.48 percent in the week ended June 30, down from 3.56 percent the prior week, Freddie Mac said in its latest mortgage rate survey.

The latest 30-year home loan rate was the lowest since May 2013 and only 17 basis points above the all-time low recorded in November 2012, the mortgage agency said.

“This extremely low mortgage rate should support solid home sales and refinancing volume this summer,” Freddie Mac’s chief economist Sean Becketti said in a statement.

A week ago prior to the surprise Brexit result, benchmark 10-year Treasury yield US10YT=RR was 1.739 percent. In early Thursday trading, it last traded at 1.487 percent, according to Reuters data.

(Reporting by Richard Leong; Editing by Chizu Nomiyama)

Fannie Mae TBAs Rise with the Bond Market

Fannie Mae TBAs Rise with the Bond Market

Fannie Mae and the TBA market

When the Fed talks about buying MBS (mortgage-backed securities), it’s referring to the TBA (to-be-announced) market. The TBA market allows loan originators to take individual loans and turn them into a homogeneous product they can trade. TBAs settle once a month.

Fannie Mae TBAs Rise with the Bond Market

Fannie Mae loans go into Fannie Mae securities. Also, TBAs are broken down by coupon rate and settlement date. In the above graph, you can see Fannie Mae’s 3.5% coupon for July delivery.

Fannie Mae TBAs rise with the bond market

For the week ending June 24, 2016, Fannie Mae TBAs ended at 105 7/32—up four ticks for the week. The ten-year bond yield, tradable through the iShares 20+ Year Treasury Bond ETF (TLT), fell by 5 basis points to 1.6%. Fannie Mae TBAs were calm on Friday amid volatility in the bond markets.

Implications for mortgage REITs

Mortgage REITs and ETFs like Annaly Capital Management (NLY), American Capital Agency (AGNC), and MFA Financial (MFA) are the biggest non-central bank holders of TBAs. They use the TBA market as a vehicle to quickly increase and decrease exposure to MBS.

TBAs are highly liquid and much easier to trade than a portfolio of older MBS. Non-agency REITs such as Two Harbors Investment (TWO) are less likely to trade TBAs. Investors interested in exposure to the mortgage REIT sector through an ETF can look at the iShares Mortgage Real Estate Capped ETF (REM).

In general, you can consider mortgage REITs among the biggest lenders in the mortgage market. When TBAs rise, mortgage REITs see capital gains. These gains raise TBAs’ returns, especially when added to their interest income.

In the final part of our series, we’ll look at Ginnie Mae TBAs.

Federal Jurisdiction—Fannie Mae

Lightfoot v. Cendant Mortgage Corp., No. 14-1055

The Federal National Mortgage Association—better known as “Fannie Mae”—is a quasi-governmental enterprise that operates under a federal charter but that has private owners. Fannie Mae’s charter authorizes the entity to sue and be sued “in any court of competent jurisdiction, State or Federal.” 12 U.S.C. § 1723a(a). The Supreme Court has agreed to decide whether that provision confers original jurisdiction on the federal courts for any case in which Fannie Mae is a party.

Such sue-and-be-sued clauses arise in a variety of federal statutes, involving individuals and entities such as the Secretary of the Department of Housing and Urban Development and the Federal Home Loan Bank of Boston. The United States filed a certiorari-stage brief taking the position that Fannie Mae’s charter does not provide district courts with original jurisdiction of suits brought by or against Fannie Mae.

Fannie Mae, Freddie Mac look for more ways to share credit risk

The federal government is looking for additional methods and mechanisms that it can use to transfer credit risk currently borne by Fannie Mae and Freddie Mac, and therefore the American taxpayers, to private investors.

On Wednesday, the Federal Housing Finance Agency published details of the credit risk-sharing histories of Fannie and Freddie, and issued a request for input on ways that the government-sponsored enterprises can shift more risk to the private market.

According to the FHFA report on the risk-sharing deals, the GSEs executed a total of 43 risk-sharing deals in 2015, moving a portion of the risk on $417.1 billion in unpaid principal balance to private investors.

The FHFA report states that in total, the GSEs have transferred a portion of the risk on $837.9 billion in UPB since 2013.

According to the FHFA report, the corresponding amount of credit risk transferred on these loans is $30.6 billion, which represents, on average, about 3.6% of the UPB of credit loss protection for those loans.

The risk-sharing deals are significant because they provide further protection against credit loss for the GSEs beyond primary mortgage insurance, which is currently the “dominant method” for sharing risk on higher loan-to-value mortgage acquisitions.

But, as the FHFA cautions, mortgage insurance isn’t necessarily enough to cover for loan losses, especially in a “stress event” like the housing crisis.

“During stress events such as the recent financial crisis, for example, loan-level losses can exceed mortgage insurance coverage, leaving the Enterprises with the remaining credit risk,” the FHFA said in its report.

“For example, Enterprise loans with LTV ratios above 80% that were originated in 2006 and 2007 experienced average loss severities ranging from 29.4% to 33.2% after giving credit to any mortgage insurance benefit or lender indemnification,” the FHFA continued. “For many of these loans, loss severities exceeded the applicable mortgage insurance coverage level, which caused the Enterprises to absorb additional losses.”

And with the GSEs capital buffer on its way to zero, increasing the need for more robust risk-sharing programs from the GSEs moving forward.

Per the Preferred Stock Purchase Agreements, which went into effect when the government took Fannie and Freddie and require the government-sponsored enterprises send dividends to the Department of the Treasury each quarter that they are profitable.

Currently, under the PSPAs, the GSEs are prohibited from rebuilding capital and each of the GSEs’ capital base is required to be reduced, with their capital reserves scheduled to be drawn down to $0 in 2018.

To that end, the FHFA also put out a request for input for improving its current risk-sharing offerings and developing new risk-sharing structures.

Part of that request for input centers on possible, additional “front-end” credit risk transfer structures.

According to the FHFA, it distinguishes between “front-end” and “back-end” credit risk transfer transactions based on when the arrangement of the credit risk transfer occurs.

“Front-end” or “up-front” credit risk transfer transactions are those in which the arrangement of the risk transfer occurs prior to, or simultaneous with, the acquisition of residential mortgage loans by one of the GSEs, such as a collateralized recourse transaction.

“Back-end” credit risk transfer applies to transactions in which the arrangement of the risk transfer occurs after the acquisition of residential mortgage loans by the GSEs.

Much of the GSEs current risk-sharing is conducted via “back-end” transactions, including Freddie Mac’s Structured Agency Credit Risk or Fannie Mae’s Connecticut Avenue Securities debt transactions.

According to the FHFA, it is exploring more front-end risk-sharing moving forward.

One of those potential methods is developing a deeper mortgage insurance structure, which the FHFA said that it is currently evaluating with the GSEs.

Click here for the FHFA’s full risk-sharing report, and click here for the FHFA request for input on future risk-sharing.

“The Credit Risk Transfer Progress Report demonstrates transparency and documents that there has been a great deal of progress in the credit risk transfer market in a short period of time, even though the market is still relatively young,” said FHFA Director Mel Watt.

“The Request for Input demonstrates our commitment to build upon the progress and expand the array of credit risk transfer products,” Watt said. “Feedback from stakeholders is critical as we explore additional ways to enhance these programs and expand the investor base.”

BRIEF-Freddie Mac announces first structured sale of seasoned loans

June 29 Freddie Mac :

* Freddie Mac Says $199 Mln Pilot Structured Sale Of
Seasoned Loans It Currently Guarantees And Holds In Its
Mortgage-Related investments portfolio

* Transaction expands fully guaranteed re-performing loan
securitization program, non-performing loan sales program

* Freddie Mac says loans are currently serviced by JP
Morgan Chase Bank, N.A

Source text for Eikon:

(Bengaluru Newsroom: +1 646 223 8780)

Freddie Mac Starts Selling Reperforming Loans

Freddie Mac BHFreddie Mac will conduct its first-ever structured sale of seasoned loans from its mortgage-related investments portfolio, according to an announcement from Freddie Mac on Wednesday.

The pilot sale for Freddie Mac-guaranteed loans serviced by JPMorgan Chase is worth $199 million, and the majority of loans are less than six months current or are moderately delinquent, according to Freddie Mac. The collateral is comprised of Option Adjustable-Rate Mortgages (ARMs) and loans that were originated as Option ARMs but were later modified either through the government’s Home Affordable Modification Program (HAMP) or a proprietary modification.

The seasoned loan transaction includes two steps. The first step is a competitive bidding process; in the second step, the buyer of the loans will securitize the loans after the completion of collateral due diligence, according to Freddie Mac.

The transaction will expand Freddie Mac’s reperforming loan (RPL) securitization program, which has securitized approximately $24 billion to date, and consists of loans that were previously delinquent and are currently performing—many as a result of a modification. The transaction also expands Freddie Mac’s non-performing loan (NPL) sales program, which has sold and settled NPLs totaling $4.3 billion in aggregate unpaid principal balance through March 31, 2016. The NPL program sales feature loans that are deeply delinquent, sometimes by as many as three, four, or five years.

“The RPL securitization program and NPL sales program are a key part of Freddie Mac’s strategy to reduce less liquid assets in its mortgage-related investments portfolio, shed credit and market risk via economically reasonable and well-controlled transactions, potentially improve borrower outcomes in the event of a default and promote neighborhood stability,” Freddie Mac said in the announcement. “It is a key requirement of this transaction that the buyer of the subordinate tranche must be an investor with substantial experience managing ‘high-risk’ mortgage loans as well as substantial experience in securitizations.”

The servicing of the loans in the seasoned loan sale will be in accordance with requirements similar to those that apply in Freddie Mac’s sales of non-performing loans (NPLs).