Watt Sworn In

As FHFA Director

Rep. Mel Watt, D-N.C., has been officially sworn in as the first Senate-confirmed director of the Federal Housing Finance Agency (FHFA).

During a ceremony held Jan. 6 on the White House grounds and presided over by Vice President Joe Biden, Watt was sworn in as the new director of the FHFA, conservator of government-sponsored enterprises Fannie Mae and Freddie Mac, as well as the 12 Federal Home Loan Banks. Watt will replace interim director Edward DeMarco as the top government dog overseeing the $5.5 trillion mortgage finance market.

“Today’s housing finance system is one of the keys to our economic recovery, and I am grateful for the opportunity to help develop a strong foundation for moving this system forward for the benefit of all Americans at this critical point in our nation’s history,” Watt said following his swearing-in, as per an AP report.

Watt was confirmed on Dec. 10 after significant delays. In November, Senate Republicans blocked a vote on Watt’s confirmation, thus delivering a blow to President Barack Obama’s efforts to install his own nominee as director of the agency.

Senate Democrats, so incensed by the blocked vote, then resorted to what is known as the “Nuclear Option” - a rare parliamentary action to change the rules so that federal judicial nominees and executive-office appointments can be confirmed by a simple majority vote, rather than the 60-vote supermajority that has been standard for nearly four decades. This paved the way for confirmation of Watt and several other presidential appointees.

Senate Republicans had previously cited concerns over Watt’s qualifications for the job, which is viewed as critical to the future housing finance reform, as it will likely include the development of a solid plan to take Fannie Mae and Freddie Mac out of government conservatorship.

One of the main concerns among Republicans is Watt’s inclination to support principal reductions for homeowners who are underwater on their mortgages. Such a measure, they assert, could harm taxpayers who backstop the mortgage insurance provided through the Federal Housing Administration, as well as the investors who hold the mortgage bonds.

DeMarco, who was the Republicans’ preferred choice to head the FHFA, has previously expressed opposition to the concept of offering forbearance to underwater homeowners.

Meanwhile, home prices have risen considerably in recent months, bringing many homeowners who were previously underwater on their mortgages into positive equity.

Watt has not said definitively whether he will support measures providing forbearance to underwater homeowners - however, he has made it clear that he is an avid supporter of housing relief for struggling Americans, without being specific as to what form it takes.


Watt to postpone G-fee hike

Watt caught many industry experts by surprise in late December when he announced that he intends to delay the increase in the guarantee fees (G-fees) charged by Fannie Mae and Freddie Mac, previously announced by DeMarco on Dec. 9.

In an email statement, Watt said he would delay implementation of the new fee structure “until such time as I have had the opportunity to evaluate fully the rationale for the plan and the plan’s likely impact on the [GSEs’] risk exposure, the cost and availability of credit, and how the plan would interface with the qualified mortgage standards.”

“I do not expect to elaborate further on this statement until after I have been sworn in as director of the FHFA in January,” he added. “However, I felt that it was important to announce my intentions now because of the prospect that some lenders could start to price the announced changes into the market well before the effective dates of the changes outlined.”

The proposed G-fee hikes ruffled the feathers of most mortgage industry players because the G-fees would sharply increase the upfront fees for borrowers with less-than-perfect credit scores or who cannot make significant down payments.

As per the FHFA, the first of the G-fee increases was to take effect in March, with the remainder spread throughout the year.

Specifically, the base G-fee (or ongoing G-fee) for all mortgages was to increase by 10 basis points; the upfront G-fee grid was to be updated to better align pricing with the credit risk characteristics of the borrower; and the upfront 25-basis-point adverse market fee that has been assessed on all mortgages purchased by the GSEs since 2008 was to be eliminated, except in the four states (Connecticut, Florida, New Jersey and New York) whose foreclosure carrying costs are more than two standard deviations greater than the national average.

The adjustments were expected to produce an overall average G-fee increase of approximately 11 basis points, based on GSE loan purchases in the third quarter of 2013. This represents an average increase of 14 basis points on typical 30-year mortgages and four basis points on 15-year mortgages.

The last time the FHFA directed increases was in December 2011 and August 2012.

The goal of increasing the G-fees, the FHFA said, was to infuse the market with more private capital by opening up more credit risk sharing to investors, as well as to reduce the GSEs’ dominance in the marketplace in preparation for their inevitable transition out of government conservatorship. Currently, there are several housing finance reform bills before Congress that call for the GSEs to be either returned to the private sector, partially dismantled and/or replaced with a government backstop, or completely dissolved.

“The new pricing continues the gradual progression towards more market-based prices, closer to the pricing one might expect to see if mortgage credit risk was borne solely by private capital,” DeMarco said in a statement, at the time the increases were announced. “The price changes provide better protection of and return to taxpayers, who are providing the capital support that keeps these companies operating.”

The FHFA has already more than doubled the G-fees Fannie and Freddie charge since they were placed into conservatorship in 2008.

David Stevens, CEO of the Mortgage Bankers Association, who is in support of Watt’s decision to postpone the fee hikes, told the Wall Street Journal, “If these [policies] had been implemented, it would have increased borrowing costs dramatically.”


FHFA Recouped

Nearly $8B In 2013

The FHFA reports that it recovered nearly $8 billion on behalf of taxpayers in 2013 through settlements with financial institutions that sold “faulty” mortgages to the companies between 2005 and 2007.

The FHFA sued 18 financial institutions in 2011, alleging securities law violations and, in some cases, fraud. So far, it has reached settlements with six of those institutions.

Institutions which the FHFA has filed complaints against include the following:

The series of lawsuits kicked off in 2011 when the FHFA sued UBS Americas Inc. in connection with $4.5 billion in faulty mortgages. The lawsuit was settled for $885 million.

In addition, Fannie Mae recently announced that it had reached a settlement agreement with Wells Fargo in which the bank would pay $591 million to resolve repurchase requests on certain loans originated prior to 2009.

Timothy J. Mayopoulos, president and CEO of Fannie Mae, says the settlement marks the end of Fannie Mae’s legacy repurchase reviews related to faulty mortgages purchased in the run-up to the financial crisis.

The FHFA, however, did not sue Wells Fargo - rather, the bank reached a settlement with the agency and GSEs in order to avoid legal proceedings.

As per comments made by various industry analysts, the remaining complaints are expected to be settled later this year.


FHFA Seeks Input

On Loan Limits

How gradually should maximum loan limits for government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac be reduced?

The FHFA, conservator of the GSEs, is currently considering reducing the maximum loan limit for one-unit properties, currently $417,000 in most areas, to $400,000 - about a 4% reduction - and from $625,000 to $600,000 for other “higher cost” areas.

But based on current market conditions, is this enough of a reduction - or not enough?

And what about the timing? When should these reductions take place - and how much advanced notice should the FHFA provide to the industry when lowering the GSEs’ maximum loan limits?

During a speech he made in October 2013 during the Mortgage Bankers Association’s 100th Annual Conference & Expo in Washington, D.C., Edward DeMarco, former director of the FHFA, said, moving forward, the agency would provide all market participants with at least six months’ notice before making any adjustments to the GSEs’ maximum loan limits. This was in response to concerns raised by industry groups that argued that reducing loan limits at this time could potentially harm both home buyers and lenders by creating undue complexity, thus disrupting the housing market recovery.

The FHFA, however, is now seeking input on the implementation of the proposed limits - including whether six months’ advance notice is adequate, or whether industry players would rather see the agency announce a multi-year schedule of decreases, including the dates to which any future loan purchase limit reductions would be tied.

In November, the FHFA announced that the maximum conforming loan limits for mortgages acquired or guaranteed by the GSEs would remain at $417,000 for single-unit properties until the end of 2014. In addition, the special maximum loan limit for “higher cost” areas of the country would remain at $625,000.

Loan limits are typically changed each year according to a formula that takes into account median prices in local areas; however, they have been unchanged for several years because of regulations put in place in response to the housing crisis.

“[The] FHFA has concluded that inviting public input on potential operational and technical issues associated with the planned decrease in loan purchase limits would benefit any final decision,” the agency states in a release. “Therefore, before deciding to undertake any modifications, FHFA is seeking public input that will inform its decision-making and ensure any change minimizes market disruptions.”

Input must be received no later than March 20, and should be submitted to the FHFA’s Office of Policy Analysis and Research, 400 7th St., SW, Ninth Floor, Washington, DC 20024, or via email to loanlimitinput@FHFA.gov.


HARP Volume

Continues Decline

Rising interest rates resulted in a significant decrease in refinancing volume during the third quarter of last year, according to the FHFA’s Third Quarter 2013 Refinance Report.

A total of about 900,000 refinancings were approved during the quarter, about 200,000 of which were through the Home Affordable Refinance Program (HARP), according to the report.

As of the end of the third quarter, a total of 778,000 HARP refinancings had been approved for the year. As of December 2013, more than 2.9 million homeowners had refinanced through HARP since the program began in April 2009, according to the report.

HARP volume represented approximately 23% of total refinance volume in the third quarter, the report states. Borrowers with loan-to-value (LTV) ratios greater than 105% accounted for 36% of the volume of HARP loans.

The number of completed HARP refinances for deeply underwater borrowers - those with LTV ratios greater than 125% - continued to represent a significant portion of total HARP volume, the report states. Sixteen percent of the loans refinanced through HARP in the third quarter had higher LTV ratios.

HARP continued to account for a substantial portion of total refinance volume in certain states. Through the third quarter, HARP refinances represented 57% of total refinances in Nevada and 49% of total refinances in Florida - more than double the 22% of total refinances nationwide over the same period.

HARP was originally set to expire on Dec. 31, 2013, but was extended to expire on Dec. 31, 2015.

In September 2013, the FHFA launched a new website and hired HGTV personality and Power Broker star Mike Aubrey to help raise awareness about HARP, which has been less popular with borrowers than was initially expected. The new website, www.harp.gov, and celebrity endorsement are part of a nationwide campaign to boost HARP participation rates.

Launched in 2009 as a joint project of the FHFA and the Treasury Department, HARP was designed to assist borrowers with existing mortgages owned or guaranteed by government-sponsored enterprises (GSEs) Freddie Mac or Fannie Mae with refinancing, even if they had little or no equity, or were underwater.

Initially, the FHFA had forecast that 4 million to 5 million borrowers would take advantage of the program, but by September 2011, the participation rate was fewer than 1 million. In response, the FHFA, along with the GSEs and other industry stakeholders, identified several issues that were deterring homeowners from using the program, including the fact that loans with LTV ratios greater than 125% were not eligible for HARP refinances and that the program’s short duration (approximately 15 months) was discouraging lenders from participating.

After soliciting feedback from stakeholders, many of the problems with HARP were addressed, compromises were made and in October 2011, a re-branded program, “HARP 2.0,” was launched. Changes included removing the 125% LTV ceiling and extending the duration of the program by 18 months.

Since that last round of changes, however, participation has continued to decelerate. According to the FHFA, HARP refinancing volume continued to drop during the second quarter of 2013 - although volume remains at above-average levels prior to program changes implemented in 2012.

Meanwhile, the Office of the Inspector General has identified additional barriers to HARP participation, and a new round of modifications to the program has been proposed; however, the so-called “HARP 3.0” program is yet to be approved and codified.


Staff Changes


Due to the retirement of Jeffrey Spohn, deputy director of the office of conservatorship operations for the FHFA, the agency will be combining two offices managing conservatorship-related matters into a new Division of Conservatorship.

The new division will be headed by Wanda DeLeo, who currently serves as deputy director in the office of strategic initiatives, the FHFA states in a press release.

Spohn has led the FHFA’s Office of Conservatorship Operations (OCO) since its creation in September 2008. In that capacity, he worked with executives at FHFA, Freddie Mac and Fannie Mae, as well as their boards of directors on all matters relating to the conservatorships, including the management of business settlements on pre-conservatorship matters such as representations and warranties.

Prior to that, Spohn was an examiner-in-charge at the Office of Federal Housing Enterprise Oversight and spent more than 25 years with the Office of the Comptroller of the Currency, serving as a national bank examiner.

Edward DeMarco, acting director of the FHFA, says Spohn’s “unique contributions to the stability achieved with the two conservatorships cannot be overstated.”

“He has personally and substantially contributed to billions of dollars of recoveries on behalf of taxpayers at Fannie Mae and Freddie Mac, and he has earned widespread respect for his strong communication and problem-solving skills during these five-plus years of conservatorship,” DeMarco says in the release. “He had previously deferred his retirement plans to help resolve legacy business issues, and every taxpayer in the country should be grateful for his efforts on their behalf.”

As deputy director of the office of strategic initiatives - created in 2012 to prepare a foundation for the future of housing finance by overseeing implementation of FHFA’s “Strategic Plan for Enterprise Conservatorships” - DeLeo has overseen the development of the common securitization platform, periodic progress reports and annual conservatorship scorecards.

In her new role, DeLeo will serve as FHFA’s central point of contact for all matters related the conservatorships of Fannie Mae and Freddie Mac.

“Combining OCO and OSI into a new division will enhance the already-existing coordination between these two offices,” DeMarco says. “I am pleased to have an executive with Wanda’s experience to manage this new division and am grateful to her for her willingness to take on this added responsibility.”




Wells Settles With

Fannie For $591M

Wells Fargo will pay $591 million to government-sponsored enterprise (GSE) Fannie Mae to resolve repurchase requests on certain loans originated prior to 2009.

After adjustments for prior repurchases, Wells Fargo will pay Fannie Mae $541 million to resolve the claims. What’s more, the bank will be released from repurchase liability for the loans, with certain exceptions.

“We have closed out our legacy repurchase reviews with this agreement with Wells Fargo,” says Timothy J. Mayopoulos, president and CEO of Fannie Mae, in a release. “This agreement represents a fitting conclusion to our year of hard work to put legacy issues in the rearview mirror and begin 2014 focused on improving the future of housing finance.”

Wells Fargo will remain obligated for certain other contractual responsibilities under the resolution agreement.

Fannie Mae reached resolutions with a number of lenders on repurchase issues and other matters during 2013:

In January, it announced a $10.3 billion agreement with Bank of America, including resolution of repurchase issues on certain loans, transfer of servicing rights on 941,000 loans and repurchase of 30,000 loans. Additionally, the agreement included a $1.3 billion compensatory fee payment for servicing obligations.

In July, it announced a $968 million agreement with CitiMortgage to resolve repurchase issues on certain loans.

In October, it reached a $373 million settlement with SunTrust to resolve repurchase issues on certain loans.

Also in October, the GSE announced resolution of a $670 million agreement with JPMorgan Chase to resolve repurchase issues on certain loans.

In November, Fannie Mae announced a $121.5 million agreement with mortgage servicer Flagstar to resolve repurchase issues on certain loans.

In December, the GSE reached a $140 million settlement deal with PNC Bank to resolve similar claims, as well as an $83 million settlement with HSBC Bank to resolve similar claims.

Fannie Mae reports that as of September 2013, it had completed reviews on approximately 94% of the loans delivered from 2005-2008 for underwriting defects that would trigger potential repurchase requests.

Agency Reports

Watt Sworn In As FHFA Director











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