- The Federal Housing Administration (FHA) has announced relaxed requirements, effective immediately, for condominium project approval. The move is intended to increase options for affordable housing for 1st time and low income homebuyers. Among the changes are streamlining project recertification, expanding the definition of owner occupancy, and expansion of the eligible condominium project insurance coverage.
- The Federal Housing Finance Agency (FHFA) has released its 2015 Annual Performance and Accountability Report which describes its regulatory activities with regard to the Federal Home Loan Bank and as conservator of Fannie Mae and Freddie Mac
Tag Archives: Freddie Mac
Friday’s Government Reports Roundup
- HUD’s Office of Policy Development & Research released its most recent issue of Cityscape, featuring research from a symposium about affordable housing and neighborhood qualities.
- The HOME Coalition released “Building HOME: The HOME Investment Partnerships Program’s Impact on America’s Families and Communities”, analyzing the program’s impact. The report analyzes the economic impact on leveraged investments, jobs supported, and local income generated.
- The FHFA released its Annual Housing Report for 2014 Fannie Mae and Freddie Mac.
Monday’s Adjudication Roundup
- New York federal judge dismisses suit against Bank of America Corp. over “hustle” high-speed mortgage approval process for allegedly defrauding Fannie Mae and Freddie Mac.
- Midtown TDR Ventures LLC and Midtown GCT Ventures LLC, real estate developers that currently own Grand Central Terminal, file a complaint against the City of New York and SL Green, another developer, claiming that they were robbed of potential profits from air rights when the City and SL Green worked to rezone the area in which Grand Central sits and devalued the property.
Friday’s Government Reports Roundup
- The FHFA releases it 2015-2017 Housing Goals for Fannie Mae & Freddie Mac.
- The US Department of Agriculture released its 20th Annual Food Security Report. The reports shows that 1 in 7 people live in food insecure households, but there has been a slight decline over the past few years.
Credit Risk Transfer Deals
The Federal Housing Finance Agency released an Overview of Fannie Mae and Freddie Mac Credit Risk Transfer Transactions. It opens,
In 2012, the Federal Housing Finance Agency (FHFA) initiated a strategic plan to develop a program of credit risk transfer intended to reduce Fannie Mae’s and Freddie Mac’s (the Enterprises’) overall risk and, therefore, the risk they pose to taxpayers. In just three years, the Enterprises have made significant progress in developing a market for credit risk transfer securities, evidenced by the fact that they have already transferred significant credit risk on loans with over $667 billion of unpaid principal balance (UPB).
Credit risk transfer is now a regular part of the Enterprises’ business. The Enterprises are currently transferring a significant amount of the credit risk on almost 90% of the loans that account for the vast majority of their underlying credit risk. These loans constitute about half of all Enterprise loan acquisitions. Going forward, FHFA will continue to encourage the Enterprises to engage in large volumes of meaningful credit risk transfer through specific goals in the annual conservatorship scorecard and by working closely with Enterprise staff to develop and evaluate credit risk transfer structures. (2)
This is indeed good news for taxpayers and should reduce their exposure to future losses at Fannie and Freddie. There is still a lot of work to do, though, to get that risk level as low as possible. The report notes that these transactions have not yet been done for adjustable-rate mortgages or 15 year mortgages. Most importantly, the report cautions that
Because the programs have not been implemented through an entire housing price cycle, it is too soon to say whether the credit risk transfer transactions currently ongoing will make economic sense in all stages of the cycle. Specifically, we cannot know the extent to which investors will continue to participate through a housing downturn. Additionally, the investor base and pricing for these transactions could be affected by a higher interest rate environment in which other fixed-income securities may be more attractive alternatives. (22)
Taxpayers are exposed to many heightened risks during Fannie and Freddie’s conservatorship, such as operational risk. These risk transfer transactions are thus particularly important while the two companies linger on in that state.
Bank Settlements and the Arc of Justice
MLK Memorial in DC
Martin Luther King, Jr. said that the “arc of the moral universe is long, but it bends towards justice.” A recent report by SNL Financial (available here, but requires a lot of sign-up info) offers us a chance to evaluate that claim in the context of the financial crisis.
SNL reports that the six largest bank holding companies have paid over $132 billion to settle credit crisis and mortgage-related lawsuits brought by governments, investors and other financial institutions.
In the context of the litigation over the Fannie and Freddie conservatorships, I had considered whether it is efficient to respond to financial crises by allowing the government to do what it needs to do during the crisis and then “use litigation to make an accounting to all of the stakeholders once the situation has stabilized.” (121)
Given that the biggest bank settlements are now in the rear view window, we can now say that the accounting for the financial crisis comes in at around $132 billion give or take. Does that number do justice for the wrongs of the boom times? I don’t think I have my own answer to that question yet, but it is certainly worth considering.
On the one hand, we should acknowledge that it is a humongous number, a number so big that that no one would have considered it a likely one at the beginning of the financial crisis. This crisis made nine and ten digit settlement numbers a routine event.
On the other hand, wrongdoing (along with good old-fashioned boom mentality) during the financial crisis almost sent the global economy into a depression. It also wreaked havoc on so many individuals, directly and indirectly.
I look forward to seeing metrics that can make sense of this (ratio of settlement amounts to annual profits of Wall Street firms; ratio to bonus pools; ratio to home equity lost), but I will say that I am struck by the lack of individual accountability that has come out of all of this litigation.
Individuals who made six, seven and eight figure paychecks from this wrongdoing were able to move on relatively unscathed. We should think about how to avoid that result the next time around. Otherwise the arc of justice will bend in the wrong direction.
Wednesday’s Academic Roundup
- Housing Markets and Unconventional Monetary Policy, Charles Rahal.
- The Effect of Housing Wealth Shocks on Work and Retirement Decisions, Jaclene Begley & Sewin Chan.
- Millennials, Baby Boomers, and Rebounding Multifamily Home Construction, Jordan Rappaport, Federal Reserve Bank of Kansas City Working Paper.
- House Money and Entrepreneurship, Sari Pekkala Kerr, William R. Kerr & Ramana Nanda, Harvard Business School Entrepreneurial Management Working Paper No. 15-069.
- The Rescue of Fannie Mae and Freddie Mac, W. Scott Frame, Andreas Fuster, Joseph S. Tracy, & James I. Vickery, FRB Atlanta Working Paper No. FEDAWP2015-02.
- Second Homes: Households’ Life Dream or (Wrong) Investment?, Marianna Brunetti & Costanza Torricelli, CEIS Working Paper No. 351.
- Holding Deposit Agreements: Pre-Tenancy Obligations and Rights, Samuel Beswick, Landlord & Tenant Review, vol. 19(4), pp. 143-147, 2015.
- Housing Tenure and Unemployment, Richard K. Green & Bingbing Wang.
