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Home / Supervision & Regulation / Federal Register / Uniform Mortgage-Backed Security Final Rule
Uniform Mortgage-Backed Security Final Rule
Open Date:
Type:
Final Rule
Number:
RIN-2590-AA94
Group:
Fannie Mae; Freddie Mac
CFR:
12 CFR Part 1248
CFR Description:
UNIFORM MORTGAGE-BACKED SECURITIES
Federal Register Publish Date:
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Uniform Mortgage-Backed Security Final Rule
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?FOR FURTHER INFORMATION CONTACT: Robert Fishman, Deputy Director, Division of Conservatorship, (202) 649-3527, Robert.Fishman@fhfa.gov, or James P. Jordan, Associate General Counsel, Office of General Counsel, (202) 649-3075, James.Jordan@fhfa.gov. These are not toll-free numbers. The telephone number for the Telecommunications Device for the Hearing Impaired is (800) 877-8339.
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?SUMMARY: The Federal Housing Finance Agency (FHFA or Agency) is issuing a final rule to improve the liquidity of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) (collectively, the Enterprises) To-Be-Announced (TBA) eligible mortgage-backed securities (MBS) by requiring the Enterprises to maintain policies that promote aligned investor cash flows for both current TBA-eligible MBS, and, upon its implementation, for the Uniform Mortgage-Backed Security (UMBS) – a common, fungible MBS that will be eligible for trading in the TBA market for fixed-rate mortgage loans backed by one-to-four unit (single-family) properties. The final rule codifies alignment requirements that FHFA implemented under the Fannie Mae and Freddie Mac conservatorships. The rule is integral to the successful transition to and ongoing fungibility of the UMBS. FHFA has announced that the Enterprises will begin issuing UMBS in place of their current TBA-eligible securities on June 3, 2019.
DATES: This rule is effective: [INSERT DATE 60 DAYS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER].
https://www.fhfa.gov/SupervisionRegulation/Rules/Pages/Uniform-Mortgage-Backed-Security-Final-Rule.aspx
With UMBS Looming, FHFA Issues Final Rule Aligning GSEs’ Practices
February 28, 2019
With housing GSEs Fannie Mae and Freddie Mac set to issue a single security — the Uniform Mortgage-Backed Security — starting in June, the Federal Housing Finance Agency today issued a final rule intended to ensure predictable cash flow to MBS investors. The rule directs the GSEs to harmonize their programs, policies and practices that affect the prepayment rates of to-be-announced-eligible MBS.
The new requirements, which take effect 60 days after publication in the Federal Register, apply both to the GSEs’ current offerings and to the new UMBS. FHFA made certain changes from the rule as proposed last fall to ensure the GSEs maintain consistent cash flows, make explicit the consequences of misalignment and direct the GSEs to lower the maximum mortgage note rate eligible for MBS inclusion.
The American Bankers Association has been engaged with FHFA and other industry stakeholders as FHFA’s single security initiative has advanced. For more information, contact ABA’s Joe Pigg.
https://bankingjournal.aba.com/2019/02/with-umbs-looming-fhfa-issues-final-rule-aligning-gses-practices/
He also noted three legal cases involving the GSEs which are pending in our nation’s courts. The cases are finally nearing decisions following “years of wrangling.” In all three cases, Bove feels the judges’ language suggests they will favor the plaintiffs over the government. This is pressuring the government to “reach some accommodation prior to potentially hostile decisions.”
"Shadow Banks” Dominate Mortgage Lending by Piling on Risks. Federal Housing Administration (FHA) on the Hook
by Wolf Richter • Feb 27, 2019 • 47 Comments • Email to a friend
But deposit-taking banks have pulled back.
Lovingly known as “shadow banks,” nonbanks have come to dominate the mortgage market. And they originate the riskiest mortgages. The government — mostly the Federal Housing Administration (FHA) — is on the hook. Nonbanks do not take deposits and are not regulated by banking regulators (Federal Reserve, FDIC, and OCC). Their funding is derived mostly from selling the mortgages they originate, but also from bank loans and other sources. During the mortgage crisis, a slew of them got in trouble and, because they did not hold deposits, were allowed to collapse unceremoniously.
Today, there’s a new generation of shadow banks dominating mortgage lending. According to a February 2019 report by the Mortgage Bankers Association, the share of mortgage originations by nonbank lenders has surged from 24% in 2008 to 54% in 2017, while the share of large banks has plunged:
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The largest nonbank mortgage lender, Quicken Loans, originated an estimated $86 billion in mortgages in 2017, according to the MBA’s February 2019 report, giving it a market share of just under 5% of all mortgages written during the year.
These shadow banks are unlikely to get bailed out in a crisis, and investors will take the loss. From that perspective, taxpayers are off the hook. But their counterparties are also at risk of losses – with the government by far the most exposed. These counterparties fall into two groups:
Large banks extending “warehouse financing” (short-term credit lines secured by mortgages) to nonbanks to fund the mortgages temporarily until they’re sold into the secondary market.
The US government, through government agencies such as the FHA which specializes in riskier mortgages that it insures and guarantees but does not buy, or Ginnie Mae which buys and guarantees mortgages; and government sponsored enterprises Fannie Mae and Freddie Mac which buy and guarantee mortgages.
In its wide-ranging report and briefing materials (February 25, 184 page PDF) on the housing market and government involvement in it, the American Enterprise Institute (AEI) outlines how surging home prices push lenders to take ever greater risks. And as deposit-taking banks have pulled back from those risks, shadow banks have plowed ever deeper into them.
I will focus on a small aspect of the report: The increasing role of shadow banks in the mortgage business and the exploding role of the FHA in insuring and guaranteeing their mortgages that are becoming riskier and riskier.
FHA insures mortgages on single-family and multifamily homes to high-risk borrowers. It operates on the revenues it receives from the mortgage insurance premiums that borrowers pay upfront and monthly. To qualify for FHA insurance, mortgages must meet certain requirements. When homeowners default on their mortgages, the FHA covers 100% of the lender’s loss. It currently insures nearly 8 million single-family mortgages and about 14,500 apartment buildings.
The chart below by the AEI shows how nonbanks completely dominate FHA-guaranteed “purchase mortgages” (we’ll get to “refinance mortgages” in a moment). The chart excludes mortgages by State Housing Finance Agencies and Credit Unions, accounting for 4% of the FHA purchase-mortgage market. In November, the share of originations by nonbanks of FHA-insured mortgages surged to 85%:
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In terms of FHA-insured refinance mortgages, the shift to nonbanks is even more striking. In 2012, nonbanks and banks originated about the same volume. By November 2018, nonbanks originated 94% of all FHA-insured refi mortgages:
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“Migration to nonbanks has boosted overall risk levels, as nonbanks are willing to originate riskier FHA loans than large banks,” the AEI says. This is shown by two risk measures.
The first is the Mortgage Risk Index (MRI), a stress test that measures how the mortgages that were originated in a given month would perform if subjected to the same stress situation as mortgages originated in 2007, which experienced the highest default rates as a result of the Great Recession.
The AEI’s chart shows how risks of FHA-insured purchase mortgages, as measured by the MRI, have risen across the board, but much less at large banks than at nonbanks:
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The second risk measure the AEI uses is the National Mortgage Risk Index (NMRI), a standardized quantitative index for mortgage default risk based on the performance of the 2007 vintage loans with similar characteristics. NMRI is expressed in a percentage, the “stressed default rate”:
A higher rate means increasing leverage and looser lending standards and therefore higher risk of default;
A lower rate means decreasing leverage and tighter lending and therefore lower risk of default.
The composite NMRI (black line in the chart below) has been trending up since mid-2013, with all agencies except the RHS drifting higher. While Fannie and Freddie guaranteed mortgages are at the bottom with stressed default rates of 8% and 6%, the stressed default rate for FHA-insured mortgages have surged, including a 7.6-percentage-point jump over the past 12 months, to 28.5% (click to enlarge):
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Since nonbanks originated most of the FHA-insured mortgages over the past few years – in November, 94% of all FHA refi mortgages and 85% of all FHA purchase mortgages – the “stressed default rate” for the FHA reflects mostly the risks of mortgages originated by nonbanks.
The debt-to-income (DTI) ratio shows a similar scenario. It gauges the ability of a borrower to repay a mortgage by measuring the income consumed by servicing all outstanding debts of that borrower.
The upper limit of the DTI ratio for “qualified mortgages” (QM) under the Dodd-Frank Act is 43%. A mortgage that meets the QM requirements provides legal protection for lenders against a claim that the mortgage was made without due consideration of the borrower’s ability to repay. But Fannie Mae, Freddie Mac, FHA, VA, and RHS are exempt mostly from the QM requirements, and so here we go:
In November, a record 60% of FHA-insured purchase mortgages exceeded the QM limit for DTI.
50% of VA mortgages exceeded the QM limit.
But Fannie and Freddie mortgages are well below the limit, at around 30% (click to enlarge):
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So there are two dynamics that would be needed for future support of the housing market, according to the AEI:
Accelerating household incomes
“Further increases in leverage from an already high level.”
The first has been arriving too slowly and has been outpaced by home price inflation; and the second – increased leverage – would have to happen at the low end of the household-income scale where the FHA and shadow banks are most active, and where the risks are already the highest, and the borrowers the most vulnerable.
https://wolfstreet.com/2019/02/27/shadow-banks-take-on-largest-mortgage-risks-federal-housing-administration-fha-on-the-hook/
Bove Sees More Gains For Fannie Mae 8.25 Preferred Shares
? Michelle Jones
February 28, 2019 1:01 pm
As talks about Fannie Mae and Freddie Mac exiting conservatorship continue to swirl, investors and analysts are paying especially close attention to the government-sponsored entities’ stocks, especially their preferred shares. Several big hedge funds are banking on a big-time payday from Fannie’s and Freddie’s preferred shares when the GSEs finally do leave conservatorship, where they’ve been languishing for the last decade.
??By User:AgnosticPreachersKid (Own work) [CC BY-SA 3.0], via Wikimedia CommonsNow well-known bank analyst Dick Bove of Odeon Capital says he does see further upside ahead for Fannie’s preferred shares – specifically, the 8.25 Junior Preferred shares.
[REITs]
Q4 hedge fund letters, conference, scoops etc
Why Fannie is sure to exit conservatorship
In a note this week, Bove explained why he sees “a high probability” that both Fannie and Freddie will exit conservatorship at some point this year. He cited economic reasons related to housing, legal pressures, and ongoing activities within the Trump administration. If the GSEsdo finally leave the government’s oversight as he expects, then he thinks there could be “substantial capital gains” for investors who hold preferred shares.
One reason Bove expects the GSEs to exit conservatory ship is due to economic necessity. He pointed out that the economy does seem to be slowing, and he cited housing as “a critical factor in changing this trajectory.” Of course, housing depends on mortgage financing, and Fannie and Freddie play important roles in the market. Bove describes the current mortgage industry as “a mess at both the primary and secondary levels,” so he feels change is absolutely necessary.
Legal and political reasons
He also noted three legal cases involving the GSEs which are pending in our nation’s courts. The cases are finally nearing decisions following “years of wrangling.” In all three cases, Bove feels the judges’ language suggests they will favor the plaintiffs over the government. This is pressuring the government to “reach some accommodation prior to potentially hostile decisions.”
Finally, he noted that Congress is starting to lose its ability to have any impact on what happens to Fannie and Freddie. Trump’s pick to head the federal agency which oversees the GSEs appears highly motivated to move, and multiple reports have suggested the president may even sidestep Congress on Fannie and Freddie and make decisions without lawmakers’ involvement.
Bove said that even though the Trump administration doesn’t appear to have any real plan for the GSEs yet, the fact that they’re “intimating they have one” suggests they will in the very near future. Trump‘s team is working to get Mike Calabria in as the new head of the Federal Housing Finance Agency, and Bove believes his plan is to have “the GSEs recapitalized and restructured as banks.”
Upside for Fannie Mae 8.25 Junior Preferred
The analyst noted that Fannie’s 8.25 Junior Preferred shares have been highly volatile since 2014. They hit $10 in September of that year but then plunged to $2.80 in January 2016. A year after that, the stock soared to $10.88 before sliding back to $5.45 in May 2018. On Wednesday, the stock reached $10.17 per share a new 52-week high, he added.
He now predicts that the stock’s next “major move” will be higher rather than another plunge based on his reasoning that Fannie will exit conservatorship this year.
“One never knows if the pressure to free the GSEs from their conservatorship will end but it would appear that there are [sic] a very strong set of forces moving to make that happen at present,” Bove wrote. “Further capital gains for investors seem likely.”
Hedge funds are betting on Fannie preferred shares
Several big hedge funds have been betting on Fannie’s preferred shares for years. One fund we’ve been following is Gator Capital, which has enjoyed significant gains from the stock over the last few months. Fannie’s preferred shares were one of the fund’s best-performing stocks in the fourth quarter. The Gator team also believes this will be the year the GSEs finally exit conservatorship, which is the key part of their thesis for Fannie’s preferred shares.
Gator’s January returns sheet showed that it was up 17.76% for January. Although the fund didn’t include any commentary, there’s little doubt that the GSE played a role in that gain. GSE preferred shares were Gator’s third-largest position in January, after only Zions Bancorporation and Syncora Holdings.
Other hedge funds which have reported positions in GSE preferred shares include Bill Ackman‘s Pershing Square and John Paulson’s fund.
https://www.valuewalk.com/2019/02/bove-fannies-preferred-shares/amp/
I think that the general public knows less about the situation than you. The public is waiting to be told what to do. With gasparino making so many negative comments the lemmings/public need a push to slap the ask button.
Go FnF!
Home Appreciation Is Slowing (And That's A Good Thing)
Brad HunterContributor
Real Estate
I am an economist specializing in housing supply/demand trends.
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House building plan blueprint buy moneyGETTY
Two of the most important indicators of home appreciation came out this morning, and they both showed the same thing: home price increases are slowing rapidly. Economists are forecasting continued slowdowns in appreciation, according to polls by Reuters, Zillow and others.
The S&P CoreLogic Case-Shiller U.S. National Home Price NSA Index, covering all nine U.S. census divisions, reported a 4.7% annual gain in December, down from 5.1% in the previous month, and down from the six-percent-plus rates of increase reported one year ago. The 10-City Composite annual increase came in at 3.8%, down from 4.2% in the previous month. The 20-City Composite posted a 4.2% year-over-year gain, down from 4.6% in the previous month. These rates of appreciation are far lower than they were just one or two years ago. The slowdown was inevitable due to an unsustainable and widening gap between incomes and home prices.
The low supply of for-sale listings, combined with strong demand, has led to weak home sales data lately. It has also contributed to fast appreciation and record home prices. The shortage of homes for sale relative to demand has led to competitive bidding among prospective buyers. This is driving prices out of reach for many, particularly first-time home buyers.
Las Vegas’ Double-Digit Appreciation
Las Vegas, Phoenix and Atlanta reported the highest year-over-year gains in December, among the markets in the Case Shiller 20-city index. Las Vegas, a market that got positively devastated by the housing crash, led the way with an 11.4% year-over-year price increase, followed by Phoenix (a “bubble market” like Vegas) with an 8.0% increase, and Atlanta with a more modest but still impressive 5.9% increase.
Last year San Francisco and Seattle were rising right behind Las Vegas, with double-digit rates of appreciation, but they have since cooled off. Now Las Vegas is the only market in this list with a double-digit rate of increase.
As of December, these cities saw the following year-to-year increases.
Las Vegas – 11.4%
Phoenix – 8.0%
Atlanta – 5.9%
Back to “Bubble-Peak” Prices in Half of the Large Cities
It is startling at first to realize that home prices are back above their bubble peaks in more than half of the largest markets in the nation. In inflation-adjusted terms, however, only three cities, Dallas, Denver, and Seattle — are above their 2006 peak.
Las Vegas’ housing prices are still nearly 50% below peak when you adjust for inflation, so the recent increase there does not represent as serious of an affordability problem as exists in Seattle or San Francisco. That explains why Las Vegas has been able to continue to record increases on the order of 11%, although even this market will slow to single-digit appreciation soon.
The S&P CoreLogic Case-Shiller Home Price Index is based upon the changes in the value of homes involved in two or more sales transactions across twenty major metropolitan areas throughout the country. Because this index actually looks at the same house at two different times, it provides a more accurate picture of appreciation than does a median home price.
https://www.forbes.com/sites/bradhunter/2019/02/26/home-prices/amp/
Golf clap
Go FnF!
Obstructionism! No other reason!
Go FnF!
U.S. Senate committee votes 13-12 to advance Trump's pick to head Federal Housing Finance agency
Katanga Johnson
WASHINGTON Feb 26 (Reuters) - The U.S. Senate Banking Committee voted on Tuesday to advance President Donald Trump's pick to head the Federal Housing Finance Agency, which oversees Fannie Mae and Freddie Mac, despite Democratic opposition.
Mark Calabria, chief economist for Vice President Mike Pence, was advanced by the panel on a party-line vote of 13-12. If confirmed, he would replace acting director Joseph Otting, who currently serves as the Comptroller of the Currency.
Calabria's nomination now advances to the full Senate, which has yet to schedule a final confirmation vote. (Reporting by Katanga Johnson Editing by Chizu Nomiyama)
https://mobile.reuters.com/article/amp/idUSL1N20L0SV
Senate panel advances critic of Fannie and Freddie to be their regulator
by Colin Wilhelm
| February 26, 2019 09:53 AM
The Senate Banking Committee on Tuesday advanced the nomination of a prominent critic of the bailed-out mortgage giants Fannie Mae and Freddie Mac to be their regulator.
They approved Mark Calabria, currently the chief economist for Vice President Mike Pence and a longtime advocate of paring back the government's role in housing markets, to oversee the Federal Housing Finance Agency and lead an administration effort to reform the multi-trillion dollar housing finance system. The vote was 13-12.
Before joining Pence's office, Calabria was a scholar at the libertarian Cato Institute, where he wrote prolifically and testified before Congress on the government-sponsored enterprises and mortgage markets.
In his nomination hearings, Calabria said that, if he were confirmed, he would set his own views aside and follow the law in serving as Fannie and Freddie's government caretaker.
The White House said last month that it aims to work with Congress to overhaul Fannie and Freddie, which have remained in government hands since failing in 2008.
Calabria was favorably recommended to the broader Senate along with a slate of other Trump nominees, including candidates to lead the Export-Import Bank, a governmental entity created to help finance international trade deals for U.S. companies. Those nominees were approved by voice vote.
https://www.washingtonexaminer.com/policy/economy/senate-panel-advances-critic-of-fannie-and-freddie-to-be-their-regulator?_amp=true
President Trump Could Save Home Buyers A Ton Of Money On Title Insurance
Jack GuttentagContributor
Retirement
I write about consumer finance with micro and macro perspectives.
Lenders should pay for title insurance
This article and the several that follow identify some simple changes in financial regulation that will pay huge dividends to homebuyers or retirees. Unlike building a wall at the border, the proposed changes can be implemented by executive actions that do not require funding by the Government or the concurrence of Congress.
The first proposal applies to title insurance, which every mortgage borrower has to purchase. A simple executive order from the President to the Federal Housing Finance Agency (FHFA), when fully implemented and digested, would save borrowers at least $7 billion a year.
The Executive Order
It would direct FHFA to instruct Fannie Mae and Freddie Mac to require lenders originating loans for sale to the agencies to pay for title insurance that protects themselves. This would end the practice of requiring borrowers to pay for the insurance that protects the lender. Borrowers would continue to have the option of buying insurance that protects themselves.
While the new rule would apply only to conforming loans, which are those eligible for sale to Fannie and Freddie, it would spread quickly to the smaller market for non-conforming loans.
Inanity of the Current Practice
To appreciate the inanity of having a buyer pay a seller’s cost, consider what would happen if that practice were used in a more familiar market—such as the automobile market. Suppose that industry adopted the practice of pricing cars without tires, requiring that tires had to be purchased by the buyer in a separate transaction, from a tire seller approved by the dealer. Then the cost of the tires, instead of being embedded in the price of the car, would be paid for separately by the car buyer. This would mirror exactly the way that title insurance is transacted..
If this were to happen, the existing highly competitive market for tires would be replaced by a dysfunctional market, and the price of tires would soar.
In the existing market, car manufacturers negotiate the lowest tire prices possible because tires are one of their costs. Further, they have the knowledge and bargaining power to obtain the best competitive prices. But if car buyers had to purchase tires separately, competitive pricing would disappear.
Tires sold separately would become a separate source of profits to car dealers, who would be positioned to refer car buyers to favored tire dealers. The price of tires would rise to accommodate the marketing costs incurred by tire sellers in soliciting the favor of dealers, which would come to include explicit or disguised kickbacks.
Since kickbacks are viewed as odious, left-wing legislators might attempt to make them illegal. If they succeeded, right-wing legislators might attempt to authorize legal ways to accomplish the same objective, including joint ventures between automobile dealers and tire distributors.
Fortunately, this is all hypothetical as it applies to automobile tires, but it accurately describes the dysfunctional title insurance market, including the Federal Government’s response to date.
https://www.forbes.com/sites/jackguttentag/2019/02/23/president-trump-could-save-home-buyers-a-ton-of-money-on-title-insurance/amp/
Andrea Requier says that in order to enable a liquid and strong housing market we have to have something like Fannie and Freddie and FHA!
Go FnF!
Maxine Waters
Another Recession Around the Corner?
in Daily Dose, Featured, Market Studies, News, Servicing14 mins ago
?An article by Clare Trapasso, Senior News Editor at Realtor.com entitled, “ Recession Watch: Will Another Downturn Rock the Housing Market?” explored the possibility of another economic downtown and the consequences thereafter.
Quoting a Gallup Poll, Trapasso pointed out that about 39 percent of Americans think the economy is slowing down, while 17 percent think we're already in a recession or depression. She noted that the previous financial crisis was brought about by a deluge of bad mortgages. Now that the housing boom seen over the past decade is slowing their roll, some economists are concerned about a recession lurking around the corner.
Some believe that we will see a recession soon, however, it’s not a cause of concern as the financial factors that helped cause last decade's crash don't exist this time around. “We’re at a record-low level of unemployment. The economy can’t stay here," said Chief Economist Danielle Hale, Chief Economist at Realtor.com. She forecasts a recession beginning within the next two years. “This one will be mild," Hale added.
"We're just scared because of what happened last time. And that's not what's going to happen again," said Lisa Sturtevant, a housing consultant and Chief Economist at Virginia Realtors, the state's real estate association.
The article indicated that most economists believe it if a downturn does hit, it will be “brief and not nearly as painful as the last one.” Unemployment, currently at an extremely low rate at 4 percent is projected to rise. However, there will be no widespread layoffs leading to scores of foreclosures and plunging home prices, as was observed during the crisis in 2008. Addressing home prices in the wake of a possible recession, economists say prices aren't expected to plummet, although they may dip in more expensive markets. Overall, price appreciation will likely just continue to slow.
"If there is a recession, the people with stable jobs will see it as a second-chance opportunity to buy a home," says Lawrence Yun, Chief Economist of the National Association of Realtors. Yun does not anticipate a recession this year, or next. The article noted that the luxury market, which is the priciest 5 percent of homes in any area, will also probably be affected.
A cause of worry in the wake of a recession is the shortage of housing. The pace of single-family home construction growth has recorded a decline from 9 percent in 2017 to about 3 percent in 2018. This is projected to decline further by 2 percent in 2019. Rent price growth is likely to slow with the exception of the luxury market, where landlords will have the most trouble finding tenants.
https://dsnews.com/daily-dose/02-21-2019/another-recession-around-the-corner
Maybe a Bradford pear? No he is human.
Go FnF!
Investors Pile Into This Mortgage Backed Securities ETF
?By BRENTON GAREN February 20, 2019
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Amid a more sanguine outlook for U.S. interest rates this year, which is helping steady mortgage applications, investors are seeking lower risk, yield-driven strategies, including exchange traded funds with exposure to mortgage backed securities (MBS).
The iShares MBS ETF (NasdaqGM: MBB) is the largest MBS ETF in the U.S. MBB provides exposure to a broad range of U.S. mortgage-backed bonds, including those issued by government sponsored enterprises such as Ginnie Mae, Fannie Mae, and Freddie Mac. The strategy also gained increased coverage after Rob Kapito, BlackRock’s president and co-founder, highlighted the opportunity in mortgage-backed securities.
“The $15 billion iShares MBS ETF, or MBB, has taken in more than $3 billion this year, according to data compiled by Bloomberg. Buyers have added about $1.5 billion in February alone, putting it on track to be the largest month of inflows since the fund started in 2007,” reports Bloomberg.
Mulling MBB ETF
MBS are created when an entity acquires a bundle of mortgages and then sells the securities. Most MBS are seen as a “pass-through” security where the principal and interest payments are passed through the issuer to the investor.
MBB “seeks to track the investment results of an index composed of investment-grade mortgage-backed pass-through securities issued and/or guaranteed by U.S. government agencies,” according to iShares.
While MBS may offer modestly higher yields relative to U.S. Treasuries, the mortgage-backed bonds are exposed to prepayment risk – if rates dip before the security’s maturity, a homeowner can refinance debt, causing an investor to get back the principal early and reinvest it in a security with a lower yield.
MBB has 30-day SEC yield of 2.83% and an effective duration of just over four years.
“Agency mortgages are a sweet spot for investors willing to take on just a little bit more risk than offered by Treasuries, getting more yield than the government debt without the credit risk that goes alongside corporate bonds,” according to Bloomberg. “Securities backed by home loans have also benefited from the Federal Reserve’s decision to hold off on interest-rate increases, as higher borrowing costs discourage refinancing and increase the duration of these securities.”
Other MBS ETFs include the Vanguard Mortgage-Backed Securities Index ETF (NYSEArca: VMBS), SPDR Barclays Mortgage Backed Bond ETF (NYSEArca: MBG), iShares CMBS ETF (NYSEArca: CMBS), iShares Core GNMA Bond ETF (NYSEArca: GNMA), FlexShares Disciplined Duration MBS Index Fund (NasdaqGM: MBSD) and First Trust Low Duration Mortgage Opportunities ETF (NasdaqGM: LMBS).
For more information on the fixed-income space, visit our bond ETFs category.
https://www.etftrends.com/fixed-income-channel/investors-pile-into-mortage-backed-securities-etf/amp/
Multifamily Takes Up More GSE Focus, Bandwidth
By Natalie Dolce | February 21, 2019 at 04:00 AM
SAN DIEGO—Fannie Mae and Freddie Mac have been in conservatorship for a decade, all the while continuing to play an important role in the financing of multifamily and single-family real estate. Leaders of each agency as well as their regulator talked about the bigger picture at MBA CREF last week and changes in the landscape ahead.
When Brian Stoffers, 2019 MBA chairman-elect and global president of debt & structured finance at CBRE asked about multifamily being a bigger part of the housing market today than it was 10 years ago, David Brickman, president of Freddie Mac, said that the landscape has changed and is continuing to change, noting that it is “taking on a bigger role.”
Stoffers explained that rental is becoming a bigger thing. “Originations are up and multifamily is likely to continue growing at a faster rate,” he explained. “It is taking up more of the focus and bandwidth than it used to and is contributing to the underlying economics of the business… it occupies a more strategic place in our planning.”
According to Hugh Frater, interim CEO at Fannie Mae, his agency views multifamily as an essential part of the portfolio, but notes that singlefamily housing is also important. “We don’t believe that the propensity to consume housing has changed. The millennial generation eventually will be exactly like their parents and will still want to consume housing. So singlefamily and multifamily are both super important to us.” But he added that the economics don’t look favorable to building starter homes.
https://www.globest.com/2019/02/21/multifamily-takes-up-more-gse-focus-bandwidth/
That's right Kip he is the billionaire whisperer. He reads hedge fund owners minds.
Go FnF!
Ok I will give you some of the attention that you crave because that was FUNNY! Good job giving me a morning chuckle to start my day off in a good mood.
Pepperdine is informative and and raises the spirits but you are as funny as Zride and you also raise the spirits.
Go FnF!
$2.86.... we are on the way.
Gasbag now says/tweets he will be on again at 3:45 p.m.
White House is making hard job of GSE reform even harder
By Victoria Finkle
Published February 19 2019, 1:46pm EST
For the first time in a long time, there have been signs pointing to real reform of the housing finance market.
Treasury Secretary Steven Mnuchin has repeatedly hinted that he’d like to move forward with overhauling Fannie Mae and Freddie Mac.
And acting Federal Housing Finance Agency Director Joseph Otting recently indicated that a plan is in motion, telling staffers in a meeting last month that the White House and Treasury would soon be communicating about the “direction for what the future of housing will be” with the intention of making progress on reforms over the next six to 18 months.
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Otting told FHFA staff last month that the administration was moving forward with plans to overhaul the GSEs, despite more recent statements downplaying the effort.Bloomberg News
Yet days later, after a recording of Otting’s remarks had been leaked to the press, the Trump administration threw cold water on that vision.
“The White House expects to announce a framework for the development of a policy for comprehensive housing finance reform shortly,” a spokeswoman for the president said in a statement. “At this time, no decisions have been made on any reform plan.”
Last week, Mark Calabria, who has been tapped to head the FHFA, further raised doubts about how far along any policy might actually be. Asked at his nomination hearing about Otting’s remarks, including a suggestion by Otting that Calabria had “signed off” on a White House plan, Calabria downplayed the comments, referring to them as a “pep talk” for staff designed to “convey a sense of urgency.”
So where exactly does that leave us?
It’s understandable and even expected that an administration wouldn’t be entirely forthcoming while it’s developing a policy for overhauling something as large as the mortgage finance market, given the potential impact to so many facets of the economy.
But that doesn’t explain away the competing narratives of the last few weeks — narratives that actually seem to contradict each other.
“It is the administration of mixed messages,” said Edward Mills, a policy analyst at FBR Capital Markets, noting that this is a strategy this White House has employed before.
He added: “Sometimes it's about sniffing out potential opposition, sometimes it's about keeping opponents off balance, sometimes it's about internal actions within the administration and other times it's just a misunderstanding."
The situation has left many observers scratching their heads. Is the White House planning major administrative reforms to Fannie and Freddie in secret? Have Otting and Mnuchin excluded Calabria from those early efforts? Are there competing factions within the administration battling over what the future of the system might look like? Are the incongruities we’re seeing publicly more a matter of semantics — a sly differentiation, for instance, between something being a “framework” versus a “plan”? Is this a “secret plan to fight inflation” a la "The West Wing"? These questions immediately jump to mind.
Given the sheer enormity of effort needed to reform the GSEs — and the complexities of the debate — more public information is needed, and quickly. Otherwise, speculation and rumors will continue to run rampant, a trend that could hinder efforts at policy changes down the line.
“Both Congress and the American people have a right to know — what is the articulated policy, what objectives are they trying to reach?” said Jesse Van Tol, chief executive of the National Community Reinvestment Coalition. “To the extent even that's not clear, you sort of have to read between the lines.”
American Banker
News
GSEs see solid growth in annual income
Fannie Mae and Freddie Mac each recently released their fourth-quarter 2018 financial results, with the two government-sponsored enterprises (GSEs) reporting solid growth and increased annual income.
?Fannie reported a 2018 comprehensive income of $15.6 billion and a fourth-quarter income of $3.2 billion. Freddie, meanwhile, posted a comprehensive income of $8.6 billion and a fourth-quarter income of $1.5 billion.
Both GSEs raised their earnings significantly from the previous year. Fannie’s comprehensive income in 2017 was only $2.6 billion, chiefly due to the effects of that year’s Tax Cuts and Jobs Act. The legislation similarly affected Freddie’s bottom line in 2017, when its comprehensive income was $5.5 billion.
“Ten years after the financial crisis, Freddie Mac’s transformed business model continues to produce solid financial and business performance, with $8.6 billion of profits this year. … And we did it while transferring ever greater amounts of credit risk to the private capital markets and away from taxpayers,” said Donald H. Layton, CEO of Freddie Mac. “We’re serving our customers better every year and delivering good value to the taxpayers who support us during conservatorship. It’s a true success story.”
Although market-related losses pushed down Freddie’s fourth-quarter 2018 comprehensive income by $1.1 billion from the same period in 2017, Fannie’s past fourth quarter looked positively rosy compared to its 2017 counterpart. Again, an immediate impact from tax legislation led to a fourth-quarter 2017 net loss of $6.5 billion, so its positive fourth quarter this year marks a bounce back of sorts.
“We enjoyed a solid quarter based on a strong credit environment in a business that is driven by guarantee fee income rather than the retained mortgage investment portfolio, which continues to decline,” said Hugh R. Frater, CEO of Fannie Mae. “Looking ahead, we will continue working with our customers and other partners on critical challenges, such as increasing the supply of affordable housing and driving digital transformation of the mortgage industry.”
Fannie Mae expects to pay a $3.2 billion dividend to the U.S. Treasury by the end of March. Through fourth-quarter 2018, the company has paid a total of $175.8 billion in dividends to the Treasury since the start of its conservatorship.
Additionally, Fannie provided approximately $512 billion in liquidity to the mortgage market in 2018. The company was the largest issuer of single-family mortgage-related securities in the secondary market for the full year (39 percent market share) and fourth quarter (37 percent) of 2018.
Freddie Mac, on the other hand, projects a $1.5 billion dividend payment to the Treasury in March. Since the start of its conservatorship, the company’s cumulative total dividend payment through 2018 is $116.5 billion.
Freddie provided approximately $396 billion in liquidity to the mortgage market with, as Layton noted, “a strong focus on first-time buyers and affordable rentals.” First-time buyers represented nearly 46 percent of Freddie’s new purchase loans, and approximately 93 percent of the eligible multifamily rental units financed by the company were affordable for families earning at or below 120 percent of their area's median income.
Fannie had a net interest income of $5 billion in the past fourth quarter and $21 billion in 2018, while Freddie posted a net interest income of $2.7 billion during the same quarter and $12 billion for the year.
https://www.scotsmanguide.com/News/2019/02/GSEs-see-solid-growth-in-annual-income/
Sorry 1 p.m.ish. eastern
There appears to be two huge buys at noonish. Price didn't respond.
Go FnF!
Tweet him. Join all of us dogs piling on that rabbit! Gasbag says that If you are a stock owner you are either a hedge fund owner or living in your mother's basement. @CGasparino
Go FnF!
He said if RRR occurs Bernie wins election for Prez
How did Gasbag know that I live in Mom's basement?
On now!
What time will Gasbag inflate us today on Fox?
Go FnF!
Gasbag is blowing up Fannie. All that wind is good for us! Every time he blows hot air about a Trump release we go up like a hot air balloon!
Go FnF!
GSE Reform: Will 2019 Finally Mean an End to the...
? Pepperdine University
2011 Pennsylvania Ave NW, Washington, DC 20006, USA
Ten years since the housing market collapse and historic financial crisis,...
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WATCH AGAIN
https://livestream.com/accounts/1028220/gse19
Summary
Mark Calabria did well in his Senate Banking Committee Confirmation Hearing. We are waiting for a vote there so his confirmation will move to the full Senate.
Current FHFA director Joseph Otting has said that we should expect a plan coming from the White House / Treasury, and that he expects he will take action.
Otting said that the GSEs need somewhere between $150 and $200 billion if they were to be adequately capitalized.
The next net worth sweep is scheduled for the end of March.
Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are two private companies that have been in conservatorship since 2008 that give all of their money to the government less a $3 billion capital buffer. An investment in the equity securities in Fannie Mae or Freddie Mac requires either a positive court ruling or action coming from the current administration that settles the lawsuits and recapitalizes the companies. This is where it looks like things are headed, but no major changes have been made yet since the new FHFA director started early January.
Investment Thesis
Fannie Mae and Freddie Mac are companies for which the Secretary of Treasury, Steven Mnuchin, has committed to ending the conservatorship. Some people like Charlie Gasparino would say this means that the companies should be nationalized or killed. I don't see how that is possible given what the current administration officials have said publicly. The administration appears to largely be pushing for the recapitalization and regulation of a utility-based model that would have so much capital that the companies wouldn't have needed to be placed into conservatorship in the first place.
Shareholders have lawsuits largely against the net worth sweep, and this would need to be resolved in order to raise new capital, which is what is needed if the two are to emerge from conservatorship. Commons are subject to dilution as part of any recapitalization, and preferred have contract rights and the right to vote to participate by converting to common as part of participating in any recapitalization. I only own preferred shares. My base case is commons are worth $4-7 at the IPO and preferred get around par.
Calabria Hearing
Calabria went before the Senate Banking Committee. He largely talked about making sure the GSEs had an adequate amount of capital so that they wouldn't have needed to be placed into conservatorship. He hadn't heard about any particular Treasury/White House plan. This particular point likely pushed back the release of any such plan. Calabria needs to get through the committee vote and into the Senate.
Calabria understands the law, and said that in his position as director of FHFA, he will look to the law that he helped write in determining which action to take. He's previously written a papersaying FHFA broke the law implementing the net worth sweep.
GSE Reform: Pepperdine University Talk
This is one of the most informed debates on GSE reform that I've seen in at least a year. Usually, it seems that these things get run by TBTF bank officials who just talk shop, but this is different. This is actual stakeholders holding a talk about what's actually happening and what they think is going to happen next.
At 1:14:40, Tom Vartanian, President, Center for Responsible Lending, says:
If you look at the people now on the administrative side from Steven Mnuchin, Joseph Otting, Craig Phillips, Mark Calabria; if those people don't do it with their knowledge of the mortgage markets and the GSEs, nobody's going to do it. So, I do think that they have the capacity to do it. I think they have the will to do it. We'll see how far the will goes and one of them said to me several weeks ago, "If we don't do it, nobody will," and I actually believe that because the Congress isn't going to do it.
The whole discussion is interesting - I suggest you watch it. Everyone largely agrees that no major legislation is likely. The Independent Community Bankers Association's Ron Haynie talks about the GSE business model suggesting that receivership doesn't make sense at this point:
They turn on the lights and money happens.
I couldn't agree more. I think receivership is off the table, although hypothetically, it remains one of the outcomes of any conservatorship - albeit a conservatorship that isn't successful. This one, however, is largely successful at least for its primary stakeholder, the federal government, that has taken out tens of billions more than it contributed.
ACG Analytics
Gabriella Heffesse did an interviewtalking about Fannie and Freddie. I will be passing this along anytime I get asked what's the difference between commons and preferreds because I think she nails it. It's probably the best one-on-one interview I've seen to date. She previously predicted the commons would go up over 100% and was right on target. Now, she predicts preferred will go up 100%. That's in line with my expectations.
Summary and Conclusion
I own 4050 FMCCH, 7562 FMCCI, 8426 FMCCL, 400 FMCCN, 12439 FMCCP, 1210 FMCCS, 3864 FMCCT, 8815 FMCKP, 200 FNMAM, 10014 FNMFN and 5 FNMFO. These are only preferred shares. Theoretically, I should have a small portion of this in common, but I don't. I figure that they are probably worth $4-7. If you look at the Moelis plan as a framework and assume that combined the companies make $15 billion on a normalized basis and use a lower earnings multiple, you end up with lower price estimates for the IPO. I figure an IPO will take place in Q4 of this year and the companies will be exiting conservatorship late 2020-mid 2021. I could be wrong - maybe my estimates are low and common is the place to be.
The way things look, things are about to get rolling in the next three weeks, starting with the release of a plan by the current administration.
Disclosure: I am/we are long FMCCH, FMCCI, FMCCL, FMCCN, FMCCP, FMCCS, FMCCT, FMCKP, FNMAM, FNMFN, FNMFO.
Navy do you know what time Gasbag will be on Fox today?
He is Gonna keep covering FnF because we like it!
Oh oh oh what just happened?
Go FnF!
Looks like Twitter is full of Twitter clowns and ass clowns.
Gasbag called him a Twitter clown on Fox.
Go FnF!
CC just needs some attention