BRIEF-Fannie Mae announces third front-end credit insurance risk transfer transaction

May 25 Federal National Mortgage Association

* Fannie Mae announces third front-end credit insurance risk
transfer transaction

* Has secured commitments for a new front-end credit
insurance risk transfer transaction

* Loan pool is expected to be filled over course of nine
months, beginning with Q2 2017 deliveries

* Fannie Mae will retain risk for first 50 basis points of
loss on an approximately $5.2 billion pool of loans

* CIRT will provide protection for any credit losses not
covered by underlying primary mortgage insurance

* All loans covered by new transaction will already have
primary mortgage insurance coverage

* Transaction to shift part of credit risk on pools of
single-family loans with combined upb of about $5.2 billion to a
group of reinsurers

* Fannie Mae will retain risk for first 50 basis points of
loss on an approximately $5.2 billion pool of loans
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Fannie Mae Announces Third Front-End Credit Insurance Risk Transfer Transaction

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Trump budget could have big news for Fannie and Freddie

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Office of Management and Budget Director Mick Mulvaney holds a briefing on President Trump's FY2018 proposed budget in the press briefing room at the White House in Washington, May 23, 2017.

President Donald Trump’s budget proposal this week has some potentially major implications for the housing market.

Within the details of the $4.1 trillion spending plan is a change in language regarding government-sponsored enterprises. Specifically, the budget calls for improvements in the housing finance system, but not for the elimination of Fannie Mae or its sister agency Freddie Mac.

That’s an important position shift from Trump and deviates from the course former President Barack Obama wanted to follow, according to banking analyst Dick Bove.

“There are significantly different wording changes in the 2017 budget proposal submitted by President Obama and the 2018 proposal submitted by President Trump related to Fannie Mae. President Obama clearly states his desire to get rid of this company. President Trump makes no such statement,” Bove, vice president of equity research at Rafferty Capital Markets, said in a research note this week. “This is a major change in policy.”

Fannie and Freddie had served as the cornerstone of U.S. mortgage finance before the financial crisis. The agencies bought mortgages on the secondary market and provided a vital backstop for banks by assuming the risks associated with home loans.

However, the financial crisis changed that. The agencies ran into financial trouble when loans to less-qualified buyers defaulted, requiring a government bailout that triggered public outrage.

Fannie and Freddie then were effectively nationalized during the crisis and have been pushed to tighten mortgage quality.

In an interview with CNBC last week, Bank of America CEO Brian Moynihan lamented that he would like to see down payment requirements for mortgages at 10 percent rather than 20 percent. However, unless the secondary market is willing to take on loans with a higher loan-to-value level than 80 percent, that is unlikely to happen.

BofA CEO on millennials and housing

Bove, though, believes language in the Trump budget statement points to changes ahead. Specifically:

The Administration has publicly expressed its desire to work with members of Congress to facilitate a more sustainable housing finance system. Any reform of the housing system likely will impact the cash flows attributable to the GSEs in the 2018 Budget projections in ways that cannot be estimated at this time.

The 2018 statement differs from language in the Obama 2017 budget message that states “the housing finance system must be reformed, and Fannie Mae and Freddie Mac should be wound down.”

Bove believes the difference means that “there will not be any elimination of Fannie Mae.”

As an investing matter, Bove sees a continued risk to holders of common stocks, though some preferred stock owners could see some return. Fannie and Freddie shares eventually were delisted from the major exchanges after the government placed them into conservatorship and now trade over the counter.

Ramifications for the housing finance industry are that Fannie and Freddie could become one entity that will focus solely on mortgages, Bove said. He envisions that new agency paying a fee to the government as a guarantee for mortgages the agency purchases, which would be securitized and sold back into the market.

“Clearly at this point no one knows what the outcome will be. However, it seems likely that a comprehensive housing finance reform package will be presented to Congress possibly by year-end,” Bove said. “What is very clear is that the outlook for this company has changed. It will be there to guarantee your great grandson/daughter’s 30-year fixed-rate mortgage.”

Watch: Mnuchin says we need to fix Fannie Freddie

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US Looks To Get Mortgage Giants Fannie And Freddie Out Of Conservatorship


It’s been nearly nine years since Fannie Mae and Freddie Mac got into financial trouble and had to be placed in conservatorship. The mortgage giants needed a cash infusion of $188 billion, and they got it from the U.S. Treasury. The bailout worked. In fact, the government has so far netted $81 billion on top of what it originally spent. But Fannie and Freddie are still in conservatorship, and it’s not clear how they’ll get out and become independent again. Charles Lane from member station WSHU reports.

CHARLES LANE, BYLINE: When Fannie and Freddie started earning profits again, the government started taking them. Richard Bove is a bank analyst for Rafferty Capital.

RICHARD BOVE: The government made the decision that, hey, we put all this money into these companies; we took all the risk of turning them around, so we’re going to take everything, and the shareholder’s going to get nothing.

LANE: He says the government took such extraordinary actions to preserve something very sacred to Americans – the 30-year fixed-rate mortgage.

BOVE: You get rid of the 30-year fixed-rate mortgage. The price of housing in the United States goes down. The equity of the typical homeowner could be wiped out.

LANE: Not just homeowners either – real estate brokers, mortgage banks, construction companies. Some 15 percent of the U.S. economy hinges on the 30-year fixed-rate mortgage. It’s popular, and it’s existed for a long time because Fannie, Freddie and the U.S. government have been backstopping it.

Tax dollars haven’t been needed recently because housing prices are up, and Fannie and Freddie still have capital reserves. But that safety net runs out at the end of the year. So if the economy were to fall into recession and home prices dropped, the government could end up cutting checks to Fannie and Freddie again. David Stevens, president of the Mortgage Bankers Association, says this could have a psychological impact on Congress.

DAVID STEVENS: These are very large issues at play, so I understand the tension on all sides here. Our goal is to make sure that we don’t disrupt the housing system.

LANE: Fannie and Freddie make up half of the mortgage market, so any changes to them will affect the interest rates for all new mortgages. Stevens says the conundrum that lawmakers are trying to solve is how to keep home prices affordable by keeping the 30-year mortgage but to do it without having taxpayers take all the risk.

Several plans have been floated. Jim Parrott authored one for the Urban Institute. He says all of them are variations on private investors taking the first losses when homeowners default with the government overseeing.

JIM PARROTT: Where they differ is in how much the government is going to manage versus how much is going to be pushed out into the private market.

LANE: One plan would turn Fannie and Freddie into something like a public utility closely regulated by the government. Another plan would turn them into a government corporation with a board of directors appointed by the president and shareholders who earn regular dividends. Parrott says his plan would mean fewer rules to write, but all of them could in theory allow lawmakers to tinker with policy goals like expanding homeownership.

PARROTT: There’s some question of exactly how you impose the obligations, how you set up the incentives among private actors. It’s certainly more complex to do it that way than it is just to have the government do it.

LANE: The Trump administration considers fixing Fannie and Freddie a top priority. Treasury Secretary Steve Mnuchin recently told senators that he’s committed to preserving the 30-year mortgage even if it means the creation of a special fund.


STEVE MNUCHIN: I would expect that it would be paid for, and I would expect that it would hopefully never be hit – no different than there’s an FDIC insurance fund or an FHA insurance fund.


LANE: So far, the Senate has taken the lead in crafting the future of housing finance, and they’ve done so in what observers say is an impressively bipartisan way. This helps put the housing industry and Wall Street at ease. They are urging a gradual, multi-year transition in order to avoid shocking this $10 trillion system. For NPR News, I’m Charles Lane.

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Freddie Mac May 2017 Outlook

The FINANCIAL — Freddie Mac on May 24 released its monthly Outlook for May, which analyzes why the U.S. housing market is on track to eclipse last year despite weak economic growth.

Outlook Highlights

Since March, mortgage rates have declined about a quarter of a percentage point to about four percent with little change. Expect rates to head only slightly higher by the end of the year.

Existing home sales in March were the highest since 2007 and new home sales beat expectations as well. Total home sales for the first quarter were the highest since 2007. Based on recent data and our revised outlook for mortgage rates, expect a slight increase in home sales in 2017 to just above 6 million home sales.

Recent data indicate first quarter mortgage originations were about $60 billion higher than expected primarily due to resilience in refinances. Expect 2017 mortgage originations to increase over $200 billion.

In the first quarter of 2017, 49 percent of refinance borrowers took cash out, up from 44 percent in the fourth quarter of 2016.This is the highest share since the fourth quarter of 2008, but still below the peak of 89 percent in the third quarter of 2006.

Quote: Attributed to Sean Becketti, Chief Economist, Freddie Mac.

“Despite weak economic growth, housing got off to a good start in 2017 because low mortgage rates have given the spring homebuying season a pleasant surprise. Mortgage rates started March just above four percent and have mostly drifted lower since then, even falling below 4 percent. With home sales, housing starts and home values up, 2017 is shaping up to be the best year for housing in over a decade.”


Freddie Mac: Cash-out refinance activity highest since the bust

This years is shaping up to outpace expectations thanks to a resilience in refinance demand, especially when it comes to cash-out transactions.

According to Freddie Mac’s May Economic and Housing Research Outlook report, 2017 is performing so well that its increased its 2017 forecast for mortgage originations by just over $200 billion and added $100 billion to our 2018 forecast.

The year started out with a surprise uptick in refinance borrowers took cash out, increasing to 49% in the first quarter of 2017, which is up from 44% in the fourth quarter of 2016.

Freddie noted that this is the highest share since the fourth quarter of 2008.

However, it cautioned that the data is still below the peak of 89% in the third quarter of 2006.

The data doesn’t come as a shock though given that home prices have long been on the rise. The Federal Housing Finance Agency’s latest home price report showed that seasonally adjusted monthly index for March was up 0.6% from February.

Looking at it from a different perspective though, even though the percentage of refinance borrowers taking cash out increased in the first quarter, the total dollar amount cashed out decreased. In the first quarter of this year, an estimated $14 billion in net home equity was cashed out, down from $19.1 billion in the fourth quarter of 2016.

But despite volume increasing in recent quarters, it is still below the peak of $84 billion in the second quarter of 2006.

Plus, continually low interest rates are majorly contributing the strength in the housing market. Mortgage rates for the 30-year fixed-rate mortgage reached as high as 4.3% in March.

Since then, rates have declined about a quarter of a percentage point to right around 4% where they have been holding in recent weeks. This won’t stick around forever though, as mortgage rates are likely to head higher later this year.

“Despite weak economic growth, housing got off to a good start in 2017 because low mortgage rates have given the spring homebuying season a pleasant surprise,” said Sean Becketti, chief economist with Freddie Mac.

“Mortgage rates started March just above 4% and have mostly drifted lower since then, even falling below 4%. With home sales, housing starts and home values up, 2017 is shaping up to be the best year for housing in over a decade,” said Becketti.

The chart below is an updated version on Freddie’s forecasts for the year, which includes real GDP, mortgage rates, housing starts and home sales. 

Click to enlarge

(Source: Freddie Mac)

National Association of Realtors: Existing-home sales (and days on market) dropped in April

The March 2017 existing-home sales numbers from the National Association of Realtors (NAR) contained some hope that maybe (maybe!) inventory was about to normalize, with sales reaching their fastest seasonally adjusted annualized growth pace since February 2007.

That hope was dashed with the release of NAR’s April numbers. Sales fell 2.3 percent from March’s rate, although they showed an improvement (by 1.6 percentage points) over April 2016’s sales metrics.

And the median number of days that a home is on the market dropped to a new low in April — just 29 days. That’s down from 34 days in March and 39 days in April 2016; 52 percent of homes sold in April were on the market for less than a month.

Inventory woes aren’t letting up

“Last month’s dip in closings was somewhat expected given that there was such a strong sales increase in March at 4.2 percent, and new and existing inventory is not keeping up with the fast pace homes are coming off the market,” said Lawrence Yun, NAR’s chief economist, in a statement. “Demand is easily outstripping supply in most of the country and it’s stymieing many prospective buyers from finding a home to purchase.”

The median price for existing-home sales for all housing types reached $244,800 in April, up 6.0 percentage points year-over-year. “April’s price increase marks the 62nd straight month of year-over-year gains,” noted NAR in its release.

Total housing inventory at the end of the month showed 1.93 million existing homes available for sale — that’s down 9.0 percent from a year ago, when 2.12 million homes were on the market. This is the 23rd consecutive month that housing inventory has dropped (year over year). A “healthy” level of inventory is about six months; right now, we’re looking at 4.2 months’ worth of unsold inventory, down from 4.6 months in April 2016.

“Realtors continue to voice the frustration their clients are experiencing because of the insufficient number of homes for sale,” said Yun. “Homes in the lower- and mid-market price range are hard to find in most markets, and when one is listed for sale, interest is immediate and multiple offers are nudging the eventual sales prices higher.”

Listings were on the market for the shortest amount of time in:

  • San Jose-Sunnyvale-Santa Clara, California — 23 days
  • San Francisco-Oakland-Hayward, California — 25 days
  • Denver-Aurora-Lakewood, Colorado — 27 days
  • Seattle-Tacoma-Bellevue, Washington — 28 days

Sales breakdown

Distressed sales, which include foreclosures and short sales, comprised 5 percent of sales in April, down from 6 percent in March and 7 percent a year ago. All-cash sales represented 21 percent of transactions in April, down from 23 percent in March and 24 percent in April 2016.

Individual investors purchased 15 percent of homes for sale in April, the same level as March and up from 13 percent in April 2016. Most investors (57 percent) paid cash in April 2017.

Existing-home sales are based on transaction closings from MLSs and include single-family homes, townhomes, condominiums and co-ops. Seasonally adjusted annual rates are used in reporting monthly data to help accommodate for seasonal variation; the annual rate for any given month represents what the total number of actual sales for a year would be if the pace for that month were maintained for a whole year.

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Fannie Mae Prices $1 Billion Connecticut Avenue Securities Risk …

The reference pool for CAS Series 2017-C04 consists of more than 125,000 single-family mortgage loans with an outstanding unpaid principal balance of approximately $30.2 billion. The loans in this reference pool have original loan-to-value ratios between 80 and 97 percent and were acquired from October 2016 through December 2016. The loans included in this transaction are fixed-rate, generally 30-year term, fully amortizing mortgages and were underwritten using rigorous credit standards and enhanced risk controls.

Fannie Mae will retain a portion of the 2M-1, 2M-2, and 2B-1 tranches in order to align its interests with investors throughout the life of the deal. Fannie Mae will retain the full 2B-2 tranche.

J.P. Morgan Securities LLC (“JP Morgan”) is the lead structuring manager and joint bookrunner and Citigroup Global Markets Inc. (“Citi”) is the co-lead manager and joint bookrunner. Co-managers are Barclays Capital Inc. (“Barclays”), BNP Paribas Securities Corp. (“BNP Paribas”), Merrill Lynch, Pierce, Fenner Smith (“BofA Merrill”), and Wells Fargo Securities, LLC (“Wells Fargo Securities”). Selling group members are Academy Securities Inc. and Ramirez Co., Inc.

Fannie Mae’s credit risk sharing program has been recognized by leading industry publication, GlobalCapital, for successfully navigating the securitization market in 2016. GlobalCapital named Fannie Mae as the “Best Overall Issuer” for both single-family and multifamily products, and “Best RMBS Issuer” for the CAS program. Fannie Mae’s Connecticut Avenue Securities, Series 2016-C01, transaction was named “Best RMBS Deal of the Year” and GlobalCapital recognized Fannie Mae’s single-family loan performance dataset as “RMBS Data Provider of the Year.”

Through this transaction and other credit risk sharing programs, Fannie Mae increases the role of private capital in the mortgage market and reduces taxpayer risk. With the completion of this transaction, Fannie Mae will have brought 20 CAS deals to market and issued $24.9 billion in notes since the program began.

Fannie Mae’s deliberate issuer strategy works to build the CAS program in a sustainable way to promote liquidity and to build a broad and diverse investor base. To promote transparency and to help investors evaluate our program, Fannie Mae provides ongoing robust disclosure data to help credit investors evaluate the program, as well as access to news, resources, and analytics through its credit risk sharing webpages. This includes Fannie Mae’s innovative Data Dynamics tool, which enables market participants to analyze CAS deals that are currently outstanding.

In addition to the flagship CAS program, Fannie Mae continues to reduce risk to taxpayers through its Credit Insurance Risk Transfer (CIRT) reinsurance program and other forms of risk transfer.

About Connecticut Avenue Securities
CAS notes are bonds issued by Fannie Mae. The amount of periodic principal and ultimate principal paid by Fannie Mae is determined by the performance of a large and diverse reference pool. For more information on individual CAS transactions and Fannie Mae’s approach to credit risk transfer, visit our credit risk sharing website. To view the periods in 2017 during which Fannie Mae may issue Connecticut Avenue Securities (CAS), please view our 2017 CAS Issuance Calendar.

Statements in this release regarding the company’s future CAS transactions are forward-looking. Actual results may be materially different as a result of market conditions or other factors listed in “Risk Factors” or “Forward-Looking Statements” in the company’s annual report on Form 10-K for the year ended December 31, 2016. This release does not constitute an offer or sale of any security. Before investing in any Fannie Mae issued security, potential investors should review the disclosure for such security and consult their own investment advisors.

Fannie Mae helps make the 30-year fixed-rate mortgage and affordable rental housing possible for millions of Americans. We partner with lenders to create housing opportunities for families across the country. We are driving positive changes in housing finance to make the home buying process easier, while reducing costs and risk. To learn more, visit and follow us on

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