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Sure TII! I have an answer to your other question. I guess I was second ordering party on that last transcript. It says original ordered by D. Ormond, Discovery Capital Management. Hope that helps! :)
Yes full steam ahead!!! Let's go Fannie!!!
JOINT MOTION TO MODIFY DISCOVERY SCHEDULE
In accordance with Rule 6(b) of the Rules of the United States Court of Federal Claims and this Court’s order dated September 8, 2014, the parties respectfully request a three-month exten- sion of time to complete discovery in this case. Jurisdictional discovery is currently scheduled to be completed by March 27, 2015. The requested extension of time, if granted, would extend this period to June 29, 2015.
There is good cause for the parties’ request. On September 5, 2014, the parties informed the Court that “it is likely that discovery can be completed by March 27, 2015.” Joint Status Re- port at 1, Sept. 5, 2014 (ECF No. 90). This proposed discovery completion date was based, in part, on defendant’s estimate that it would complete the production of non-privileged, responsive documents by mid-January 2015. Id. On September 8, 2014, the Court issued an order directing that jurisdictional discovery be completed by March 27, 2015, and that, if the parties needed addi- tional time to complete discovery, they should file an appropriate motion. Order at 1, Sept. 8, 2014 (ECF No. 92).
Given a number of circumstances, at least some of which were explained at recent status conferences, defendant now estimates that its document production will be completed by April
?No. 13-465C
) (Judge Sweeney)
??
Case 1:13-cv-00465-MMS Document 136 Filed 03/06/15 Page 2 of 2
2015. In light of this new estimate, the parties have discussed the discovery schedule, and have agreed that the discovery deadline should be extended until late June.
The parties have agreed that, if the extension of time is granted, defendant will produce to Fairholme every two weeks (or more frequently): (1) any responsive non-privileged documents the Government has reviewed and has not previously produced; and (2) a revised privilege log containing responsive documents that the Government has identified as privileged.
For these reasons, the parties respectfully request that the Court grant an extension of time
of three months, from March 27 to June 29, 2015, for the parties to complete the discovery permit-
ted by the Court in this case.
Date: March 6, 2015
They added a part that they would like to see documents at least every 2 weeks. :)
03/06/2015 Joint MOTION for Extension of Time,until June 29, 2015, to Complete Discovery , filed by USA.Response due by 3/23/2015.(Schwind, Gregg)
Lew to Congress: US hits debt limit on March 16, needs to be raised ASAP
Everett Rosenfeld | @Ev_Rosenfeld
1 Hour Ago
Breaking News
Jack Lew
David A. Grogan | CNBC
Jack Lew
Unless Congress takes action, the U.S. will hit its debt limit on Mar. 16, but will begin taking "extraordinary measures" on Mar. 13 to finance the government on a temporary basis, according to the U.S. Treasury.
In a Friday morning letter to House Speaker John Boehner and other House and Senate leaders, Treasury Secretary Jack Lew said that his office will be forced to suspend the issuance of State and Local Government Series securities on Mar. 13 unless the debt limit is decreased.
"Accordingly, I respectfully ask Congress to raise the debt limit as soon as possible," Lew wrote in his letter.
Read MoreDebt ceiling: CNBC explains
The Treasury secretary emphasized that "increasing the debt limit does not authorize new spending commitments," but rather "simply allows the government to pay for expenditures Congress has already approved."
Congress passed the Temporary Debt Limit Extension Act in February 2014, which suspended the statutory debt limit through Mar. 15 of this year.
Everett Rosenfeld
Staff Writer
http://www.cnbc.com/id/102459024
He's probably taking notes and will put out another book. I don't mind, his last book was great!!
Does the real Tim Howard have any comment about it?
Mel can end conservatorship, but some Treasury agreements can still be in effect after conservatorship. Incredible!!
I agree!!!
Treasury has a say in that they constructed the illegal 3rd ammendment, and it is written that they may end it under certain circumstances.
AIG responses due mid March, closing arguments mid April.
That headline is from Stegman's remarks today which is the same stuff the Treasury had had on their website under initiatives, housing reform since 2011. Just like house financials website, Hensarling still has up his Path stuff from long ago, or Sen. Isakson introduced his same ridiculous bill that he did years ago, like, it's new news. It's all of their same positions.
The last 2 hours or all day?
On your head, just kidding mrfence! It could bounce any day. I'm not selling my shares. We're the only ones holding these guys accountable. The shareholders were left behind for a reason. We're the only ones that will hold them accountable for anything.
It is written very clearly!!! By themselves in their own agreement!! ;
The USTreasury can stop this TODAY!!!
Crazy day, isn't it? Congress needs to have the Treasury department before them on the topic of Fannie, Freddie. They asked Mel Watt some questions, had Lew before them about the budget, time to grill
the Treasury, right? Hurry up before they accept more wining and dining activities from other parties!!!!
Where is this from?
I don't think you wanted mine, but here is how I feel about the Treasury right now, good work out song :)
https://search.yahoo.com/search?p=nickelback+revolution+video&fr=iphone&.tsrc=apple&pcarrier=Verizon&pmcc=311&pmnc=480
And......,..I believe it said in the FNMA SEC filing that it is predicted that certain FNMA executives would not receive certain bonuses according to the FHFA conservatorship "scorecard?" Can anyone elaborate on that?
Stegman's remarks...punt back to congress, stall..... take more Fannie, Freddie profits, while this administration implements what they see fit. He says PSPA, conservatorship,etc. can only be solved by congress. I believe the PSPA, then 3rd ammendment, says that it can be ended by Treasury in certain circumstances. (If I'm wrong, someone please jump in.) Conservatorship can be ended by Watt, in the right circumstances. We all understand that it is extremely complicated, and there are many factors to address, and that is why it is important for each department to take responsibility and stop punting the ball! IMHO
I'll just print today's news, and I won't shred it. :)
A lot of references today to 2nd quarter 2015.
From Watt's remarks today
"We heard these concerns, and we will provide more details in an update report that we expect to release in the second quarter of 2015. While the Single Security remains a multi-year initiative, we believe this update report will be a significant milestone in defining the structure and processes necessary to successfully transition to a Single Security in the future."
Watt's prepared remarks for today
It is a pleasure to be here with you this afternoon. Thank you for the opportunity to discuss the work underway at the Federal Housing Finance Agency (FHFA) to fulfill our statutory mandates, which include ensuring the safety and soundness of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks and ensuring liquidity in the housing finance markets.
It feels to me like I’ve been on the job as Director of the Federal Housing Finance Agency for a lot longer than one year. It probably feels that way to me because we’ve been really busy this past year, and I believe our work is moving things in the right direction. But, I also know we have a lot more to do. My remarks today focus on Fannie Mae and Freddie Mac (the Enterprises) and on some of the challenges in the housing finance market, how we’ve approached confronting some of those challenges in my first year on the job, and how we plan to approach them going forward.
The annual Conservatorship Scorecard is FHFA’s mechanism for laying out our priorities and expectations for the Enterprises and our means of providing transparency to the public about what we expect. While it took us a lot longer to release the 2014 Scorecard, FHFA released the 2015 Scorecard early in January of this year. The 2015 Scorecard continues to be structured around the same general goals we had in 2014: Maintain, Reduce, and Build.
***
Under our first major goal, Maintain, there are no surprises in 2015. On the single-family side, we simply want to continue two objectives:
• Maintaining, promoting and expanding access to credit in a safe and sound manner; and
• Continuing to improve the Enterprises’ loss mitigation and foreclosure prevention activities.
On the first objective, FHFA and the Enterprises made a lot of progress last year on improving access to credit. We did this by updating and clarifying the Representation and Warranty Framework used by the Enterprises to ensure that the loans they purchase meet their underwriting guidelines. We also updated the foreclosure timeline and compensatory fee methodology under which mortgage servicers are held accountable for meeting loss mitigation and foreclosure process standards. We believe that providing lenders greater certainty about when and under what circumstances they would be required to repurchase or take loans back onto their books and providing servicers updated guidelines about when they would be required to pay compensatory fees has moved the availability of mortgage credit in the right direction. We expect the Enterprises to continue these efforts in 2015.
We’ve also turned our attention to another important effort, updating and enhancing the Enterprises’ counterparty standards for mortgage servicers. Changes in the servicing industry have resulted in the growth of nonbank servicers and increased levels of mortgage servicing transfers. While FHFA and the Enterprises do not regulate servicers, it is extremely important for the Enterprises to clearly define and communicate their Seller/Servicer eligibility requirements.
To this end, FHFA recently released proposed minimum financial eligibility standards the Enterprises will require servicers to meet. The standards set minimum net worth requirements for all servicers who work with the Enterprises, as well as capital and liquidity requirements targeted specifically for nonbank servicers.
Strengthened Enterprise servicer counterparty standards will help improve access to credit by reducing market uncertainty about Enterprise expectations for mortgage servicer counterparties. Consistent with our normal process, FHFA is collecting extensive stakeholder feedback on the proposed guidelines, and we expect to be able to finalize these requirements in the second quarter of this year and have them become effective six months after they are finalized.
Under the Maintain portion of the Scorecard, we also want the Enterprises to continue to improve their loss mitigation and foreclosure prevention activities in 2015. Again, we made progress in 2014, and – in a number of ways – the housing and foreclosure crisis has evolved. However, meeting mortgage obligations and staying one-step ahead of foreclosure continues at crisis levels for many individuals and families across the country and in many neighborhoods. There are still many borrowers who have been delinquent on their loans for extended periods of time – sometimes more than two or three years. In fact, over half of all delinquent loans held or guaranteed by the Enterprises are at least one-year delinquent. As of the third quarter of last year, this subset of delinquent loans totaled almost 300,000 loans with an unpaid principal balance of approximately $54 billion.
Consequently, we have directed the Enterprises to make significant efforts in 2015 to reduce the number of severely delinquent loans they hold and to do so in a responsible way. The sale of non-performing loans (NPLs) is one of the key tools we believe the Enterprises can use to meet this Scorecard priority. By engaging in NPL sales, the Enterprises are able to transfer pools of severely delinquent loans to new buyers and servicers. When done in a responsible way, these new buyers and servicers will have the capacity, self-interest and track records to successfully provide foreclosure alternatives to borrowers who are seriously delinquent. While NPL sales will not prevent foreclosures in every instance, we do expect NPL sales to produce better outcomes for borrowers, on the whole, than the status quo.
In recent months, FHFA has been vigorously working to define and test requirements for future NPL sales that will set the right balance of supporting positive outcomes for borrowers and neighborhoods while also supporting positive financial outcomes for the Enterprises. Standards that encourage successful foreclosure alternatives – including loan modifications, short sales and deeds in lieu of foreclosure – will not only be better for borrowers but will also yield better economic outcomes for the Enterprises and for taxpayers compared to keeping seriously delinquent and non-performing loans on the Enterprises’ books.
Earlier this week, FHFA released new requirements for future NPL sales by Freddie Mac and Fannie Mae. These requirements build on FHFA’s review of two pilot NPL transactions conducted by Freddie Mac in recent months. These transactions involved approximately $1 billion in loans with average delinquency rates of more than two and a half years.
The new requirements will necessitate substantial outreach by the Enterprises to identify bidders who are willing and able to meet established modification and loss mitigation standards, which include evaluating borrowers who have pre-2009 loans for the alternatives to foreclosure offered through the U.S. Department of the Treasury’s Making Home Affordable program and having foreclosure as the last alternative in the loss mitigation waterfall. We are also requiring winning bidders to track and report what happens with borrowers so FHFA and the Enterprises can monitor and document the success of the program.
***
Our second 2015 Scorecard objective is to continue to Reduce risks to the taxpayers by increasing the role of private capital in the mortgage market. 2014 was a breakthrough year for the Enterprises’ single-family credit risk transfer program. What began as a handful of transactions during the second half of 2013 has evolved into programs of regular debt issuances that have gained broad market acceptance. These programs are known as STACR for Freddie Mac and CAS for Fannie Mae. The ability and willingness of the Enterprises to provide historical loan performance data has greatly enhanced the ability of the market to achieve pricing that both serves the interests of investors and allows the Enterprises to meet their financial objectives.
FHFA tripled the credit risk transfer requirement in the 2014 Scorecard compared to 2013, requiring each Enterprise to transfer a portion of credit risk on single-family mortgages with an unpaid principal balance of $90 billion compared to the $30 billion requirement in 2013. Both Fannie Mae and Freddie Mac significantly surpassed last year’s benchmark by executing credit risk transfer transactions on mortgages with a combined UPB of over $300 billion.
The Enterprises also made significant progress last year in refining their risk transfer transactions. In May 2014, Fannie Mae completed the first transaction providing credit protection on mortgages with loan-to-value ratios from 80 percent to 97 percent, and Freddie Mac completed its first transaction with LTVs between 80 to 95 percent in August 2014. Prior to that, both Enterprises had conducted transactions only for loans with LTVs between 60 to 80 percent.
In 2014, the Enterprises also offered transactions that targeted private capital in the insurance and reinsurance markets. Freddie Mac completed three reinsurance deals, and Fannie Mae completed one.
Building on this success, FHFA again increased the credit risk transfer requirement in the Enterprises’ 2015 Scorecard. Subject to market conditions, we expect Fannie Mae to complete transactions on single-family mortgages with an overall UPB of $150 billion, and Freddie Mac to complete transactions with an overall UPB of $120 billion. The 2015 Scorecard also imposes some different obligations in the risk transfer space:
• First, we also want the Enterprises to continue to refine and innovate in their existing credit risk transfer structures. For example, Freddie Mac completed a STACR transaction earlier this year that transferred the first loss piece of credit risk to investors. This differs from other structured debt issuances where the Enterprises have held on to the first loss while transferring intermediate layers of credit risk to investors.
• Second, we want the Enterprises to continue to develop methods of conducting credit risk transfers that involve working with different kinds of market participants. We think there is significant value in exploring different approaches and investors, because it could provide the Enterprises with a greater ability to transfer credit risk during changing market conditions.
• Finally, we also want the Enterprises to increase their attention to diversity and inclusion in risk transfer transactions by engaging with minority-, women-, and disabled-owned businesses.
You can see that there should be multiple opportunities for private sector involvement in the risk transfer space in 2015. So, I hope I can count on many of you and the companies and investors you represent to take advantage of these opportunities to put more private capital to work. We welcome your input on how we can continue to make this happen and be mutually beneficial to you, the Enterprises and taxpayers.
***
Finally, let me spend the balance of my time talking about the Build component of the Enterprises’ 2015 Scorecard in which our objective is to continue to make progress on building a new securitization infrastructure for the Enterprises that is adaptable for use by other secondary market participants in the future. This means continuing our progress on the Common Securitization Platform (CSP) and on moving toward a Single Security. Both of these multi-year initiatives are highly interrelated. While we are making significant strides on both the CSP and the Single Security, I’d like to focus my comments today on the Single Security.
Last year was the first time that FHFA included the development of a Single Security as part of our conservatorship priorities for the Enterprises. Our objective in adding this multi-year project to the agenda is to improve overall liquidity in the market, which will not only be beneficial to the Enterprises and other market participants, but will also benefit borrowers. It would also benefit taxpayers by reducing Freddie Mac’s costs that result from the trading disparity between Freddie and Fannie’s securities.
During the past year, FHFA and the Enterprises have been engaged in a transparent process about a Single Security structure. To get feedback from stakeholders, FHFA released a Request for Input in August of 2014 in which we proposed certain features, disclosures, and processes to define how a Single Security could operate and how the transition to this new structure could take place. Since August, FHFA has been reviewing the responses we received and continuing conversations with stakeholders – including investors, trade associations, lenders, and regulators – about FHFA’s proposal and related issues.
As we move the process forward in 2015, a high priority will be to provide increasing levels of detail about the Single Security. In the feedback we received in response to our Request for Input and in our conversations with stakeholders, we heard the strong message that additional information and greater clarity is needed about security features and disclosure standards, about transitioning legacy securities to the Single Security, about the counterparty status of commingled re-securitizations, and about a range of other potential issues.
We heard these concerns, and we will provide more details in an update report that we expect to release in the second quarter of 2015. While the Single Security remains a multi-year initiative, we believe this update report will be a significant milestone in defining the structure and processes necessary to successfully transition to a Single Security in the future.
FHFA has also required the Enterprises to develop preliminary plans about how to implement the Single Security in the market. We expect this to be a particular focus for the Enterprises during the second half of the year. Just as we have approached the rest of our efforts on the Single Security, these implementation plans will not be developed in a vacuum. Instead, FHFA and the Enterprises will gather feedback and input from market participants as these plans develop and evolve.
***
What I have tried to do today is to provide some highlights just about the priorities included in the 2015 Scorecard. Of course, this just "scratches the surface" of the work we are doing at FHFA as regulator and conservator of Fannie Mae and Freddie Mac and as regulator of the 12 (soon to be 11) Federal Home Loan Banks. I’d be happy to take questions or comments about the things I have spoken about or about the other work we are doing. Thank you for the invitation to be with you today, and I look forward to your questions.
###
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???Corinne Russell (202) 649-303??2 / ??Stefanie Johnson (202) 649-3030
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Yes, I was checking to see if his prepared remarks were out. :)
Travel5, the stock will continue to go up, IMO, nice bullish trend. I'm not sure what it will do day to day. I don't think Stegman's comments will hurt the price. For all of us in it for the long run and following the court cases, like yourself, it seems like he just provided a little more kindling to add to the fire. I hope Pershing Square holds another conference call sometime soon. I'd like to hear what they think.
Must Read the whole thing!!!
Remarks by Counselor to the Secretary for Housing Finance Policy Dr. Michael Stegman Before the Goldman Sachs Third Annual Housing Finance Conference
3/5/2015 ?
As prepared for delivery
Good morning, and thank you, Carsten, for that kind introduction. It’s a pleasure to be with you today to engage on a very important issue for our country and our economy.
This morning, I want to discuss the state of housing finance reform and the path we see to a more sustainable mortgage finance system that meets President Obama’s principles and creates a housing finance system that will promote stability in the housing market and the broader economy, and therefore, benefits the American people. First, I’d like to briefly explain why Treasury is devoting significant resources to helping market participants create a robust and responsible non-government-guaranteed securitization market and then discuss our thinking about how to move forward on GSE reform.
Private Label Securities Initiative
The Administration believes that private capital should be at the center of the housing finance system. To that end, Treasury has been working with the industry to develop the structural reforms necessary to help bring the private label securities, or PLS, market back, and get investors off the sidelines. A key component of this effort is rebuilding trust among market participants, and to this end, Treasury published the results of an exercise last month that would provide greater transparency around credit rating agency loss expectations for newly originated mortgage collateral. The goal of this exercise and the broader PLS initiative is to improve confidence in post-crisis practices and encourage investors to return to a reformed PLS market.
Treasury views a diverse housing finance system that features multiple execution channels as essential to promoting competition, market efficiency, and consumer choice. We see the development of a healthy and responsible PLS market as an important component of a sustainable housing finance system and a complement to a reformed government-supported channel, an objective I will discuss in the remainder of my speech.
GSE Reform
With that in mind, let me turn my attention to the GSEs. We are now well into the seventh year of Fannie Mae and Freddie Mac’s conservatorship. We cannot forget that the actions taken in the wake of the financial crisis to backstop the GSEs stabilized the housing market, protected the capital markets, and supported the broader economy. But as I have said many times, the status quo is unsustainable. Taxpayers remain at risk, market participants are uncertain about the government’s longer-term footprint in the mortgage market, and mortgage access and pricing decisions are not in the hands of market participants. The American people deserve better.
They deserve an efficient, sustainable, housing finance system that serves borrowers effectively and efficiently without leaving taxpayers on the hook for potential future bailouts. The critical flaws in the legacy system that allowed private shareholders and senior employees of the GSEs to reap substantial profits while leaving taxpayers to shoulder enormous losses cannot be fixed by a regulator or conservator because they are intrinsic to the GSEs’ congressional charters. And these charters can only be changed by law. That is why we continue to believe that comprehensive housing finance reform is the only effective way forward, not narrowly crafted ad-hoc fixes.
We cannot forget about the important progress made in the Senate during the last Congress and hope that the new Congress will afford the opportunity to again advance bipartisan legislation meeting our principles, even if it is too soon to tell what the ultimate prospects will be. The Administration remains ready, willing, and able to work in good faith with members of both parties to complete this important but unfinished piece of financial reform. As memories of the financial crisis fade, we cannot become complacent. The best time to act is when the housing market is well along the path to recovery and credit markets are normalizing, not on the precipice of a new economic shock when there is little time to be thoughtful.
We do recognize the myriad of challenges to achieving a bipartisan legislative consensus. But as I will explain shortly, we believe that significant progress can be, and is being made, prior to legislation, to help move the housing finance system towards a more sustainable future. While this progress is not a substitute for legislative reform, it can, over time, reduce the challenges to achieving a desired legislative outcome that puts in place a durable and fair housing finance system by advancing us down the path of transition.
Progress under Conservatorship
To that end, I’d like to highlight the steps forward that have been made under the conservatorship – progress that needs to be built upon. Important gains have been and continue to be made in de-risking and preparing the Enterprises for transition. The GSEs’ critical housing finance infrastructure and technology – which was allowed to obsolesce in the years preceding the financial crisis – is being renewed and enhanced.
Furthermore, their business practices are being reformed. Between 1995 and 2008, management grew the GSEs’ retained investment portfolios, which are financed at government-subsidized borrowing costs, fourfold to a combined total of $1.6 trillion. Since entering conservatorship, those portfolios have been nearly halved, and they are required to shrink further to less than $500 billion in total by year-end 2018.
In addition to being a major source of GSE earnings, these portfolios remain a significant source of financial volatility and potential taxpayer risk. These portfolios, the pursuit of maximum earnings, and the drive to recapture market share through greater risk-taking left taxpayers holding the bag when the bets went wrong. In conservatorship, these practices have been replaced with a recommitment to more effective risk management, prudent underwriting, more appropriate pricing, and a greater emphasis on sustainable mortgage finance.
The Federal Housing Finance Agency (FHFA), as the independent regulator and conservator of the GSEs, is laying the groundwork for a future housing finance system based upon private capital taking the majority of credit risk in front of a government guarantee with greater taxpayer protections, broader access to credit for responsible borrowers, and improved transparency and efficiency. These measures include, among others, expanding and diversifying risk-taking among private actors, further focusing GSE businesses on meeting the mortgage finance needs of middle class households and those aspiring to join the middle class, and developing a securitization infrastructure that can serve as the backbone for the broader mortgage market over time. All of these initiatives are consistent with the long-term vision of providing secure homeownership opportunities for responsible middle-class families.
After the failure of both GSEs, FHFA’s ability to stand in the shoes of their respective boards and senior management as conservator in order to set appropriate, statutorily-guided priorities and ensure follow-through has been good for the Enterprises and good for the American people. Preserving FHFA’s role in the future housing finance system merits serious consideration.
Administrative Vision
With that history in mind, I want to expand upon our vision for reforms that would transition the GSEs further along a path toward a future housing finance system while they still benefit from Treasury’s capital support. In turn, the progress we make today could serve both as a framework for, and reduce certain challenges associated with, achieving bipartisan legislative reform. Within the context of a continuing backstop, further de-risking the Enterprises is common-sense, prudent policy. Other actions that improve market efficiency and liquidity and develop infrastructure that would promote competition are consistent with the Administration’s interest in a durable and fair housing finance system.
The first of these areas is in the shedding of GSE legacy risk, both in their retained portfolios and their guarantee book. Given the strengthened underwriting practices and high credit quality of their new guarantee book, this legacy risk represents the overwhelming majority of taxpayer risk exposure to the GSEs today. Despite asset sales and natural run-off, their retained portfolios remain substantial at over $400 billion each and still constitute a significant line of business. The size and complexity of the retained portfolios also necessitate active hedging, introducing considerable basis risk and earnings volatility and making the GSEs susceptible to potentially relying on a future draw of PSPA capital support.
In light of the strong demand for mortgage credit risk in the market today and the market success of Freddie Mac’s first nonperforming loan (NPL) sale in July of last year, it would be both feasible and beneficial to taxpayers to responsibly accelerate the reduction of the most illiquid assets in the GSE portfolios. In particular, Treasury sees value in cultivating programmatic NPL sales at both Enterprises with a focus on market transparency, improving borrower outcomes, and community stabilization.
Similarly, in light of the GSEs’ expertise in transferring credit risk on their new books of business and recognizing that the bulk of credit risk exposure on their guarantee books is tied to their pre-2009 legacy commitments, the potential for transferring credit risk on their legacy guarantee books also merits consideration despite the unique challenges it may entail.
Continuing with the theme of reducing taxpayer exposure to mortgage credit risk, the second area where we see room for progress is in transferring credit risk on new originations. As I said before, the Administration believes that a sustainable housing finance system must have private capital at its core, and in conservatorship, the GSEs have started down a path of transferring greater mortgage credit risk to private market participants.
As you are aware, beginning in 2013, the GSEs have cultivated their respective credit risk transfer programs. These programs and their effectiveness in transferring credit risk have grown substantially in under two years. The GSEs have also engaged in other innovative forms of risk transfers including reinsurance contracts and recourse agreements.
Although the GSEs are directionally on the right path, there is more to be done on this front. Despite issuing 16 credit risk transfer transactions since 2013 referencing $530 billion notional balance, this amounts to approximately 20 percent of the GSEs’ combined guarantees over this time period and roughly 12 percent of the GSEs’ combined books of business. And while recent transactions have made progress by selling first-loss exposure for the first time, these transactions still rely on a defined credit event and fixed severity schedule.
The closer the GSEs can come to transferring the majority of risk to private market participants, the better. Such credit risk transfer activities serve to field-test the role of government as a guarantor of catastrophic risk while private capital bears the risk of the majority of potential losses. We are also sensitive to existing constraints to rapidly expanding credit risk transfer activities today and are supportive of additional, measured efforts to foster this market sustainably over time.
This is why we support the conservator’s efforts to responsibly expand credit risk transfer efforts through continued structural innovation and counterparty strengthening in order to broaden and diversify the investor base and optimize pricing efficiency and stability. Credit risk transfer activities should not be concentrated in any one mechanism or entity. Rather, they should seek to develop a variety of mechanisms and entities in order to improve pricing efficiency and transparency, provide the lowest cost to borrowers, and ultimately, inform the framework of the future housing finance system. We see great value in leveraging the unique investment needs and competencies of the broad spectrum of market participants in shaping a sustainable model for putting first loss mortgage credit risk in private hands.
Finally, under the direction of FHFA, the GSEs have embarked upon a cutting-edge project to develop a Common Securitization Platform (CSP) and a fungible To-Be-Announced, or TBA, contract. We are broadly supportive of these efforts, which in the immediate future will modernize the GSEs’ collective securitization infrastructure and improve the liquidity and efficiency of the market.
However, given the CSP’s joint ownership by the GSEs and scope narrowly focused on their businesses, the near-term CSP initiative would not succeed at separating the industry’s critical securitization infrastructure from the GSEs’ credit risk-taking activities. This separation is necessary to enhance the stability of the housing finance system. Nor will it use its full potential to reshape the broader housing finance landscape by facilitating standardization, transparency, and competition, and serving as a market gateway for both guaranteed and non-guaranteed securities.
This is why we would support opening up the CSP as early as it can be responsibly done to accommodate non-GSE users, which should be reflected not just in the Platform’s functionality but also in its governance structure. Greater transparency, more concrete timelines, broader engagement with private stakeholders, and ultimately, expanded governance of the CSP joint venture to include non-GSE stakeholders are all in the interests of moving towards a more sustainable future housing finance system.
The nation’s housing finance system is too critical to remain in a state of limbo without a clear, legislated vision for the future. However, the activities I outlined today are representative of the progress that can be made without legislation. By pursuing these and other activities that de-risk the Enterprises, we can put the housing finance system on a course aligned with the Administration’s priorities that would promote greater stability for the housing market and broader economy.
Capital
With the recent release of the GSEs’ 2014 fourth quarter earnings, there seems to be increased interest in the subject of GSE capital. But before we discuss this, it is worth taking a step back to review the purpose of the Senior Preferred Stock Purchase Agreements, commonly referred to as the PSPAs. The PSPAs were put in place as both companies were placed into conservatorship. These agreements were established to protect the solvency of the two companies and to allow them to continue to operate. This was necessary to protect financial stability and to ensure the continued flow of mortgage credit. The PSPAs gave market participants confidence in the GSEs’ debt and MBS obligations through which they fund the majority of the mortgage credit in this country. Without this capital support, it is clear that both GSEs would have been insolvent and that mortgage credit would have dried up as a result.
With this as a backdrop, I want to frame for this group how we think about capital at the GSEs while they are in conservatorship and continue to rely on the PSPAs to support their activities.
Currently, the GSEs operate with a minimal amount of capital at each Enterprise. These capital reserve amounts were established in order to provide protection against unexpected losses related to their retained investment portfolios. This capital amount will amortize to zero by 2018 when we would expect the GSEs to have wound down their legacy investment business. And, from Treasury’s standpoint, we would like to see these retained portfolios wound down even faster to further reduce risk.
Despite having only minimal retained capital levels at the GSEs, investors continue to have confidence in their securities due to the ongoing backstop the PSPAs provide each company. The substantial remaining capital support left under the PSPAs gives market participants the confidence to buy 30-year GSE securities on a day-in and day-out basis. This is despite the fact that the companies remain in conservatorship and have minimal capital levels.
However, as a result of the ongoing capital support through the PSPAs, taxpayers remain exposed to potential future losses at the GSEs. Let me remind you, both recapitalization of the GSEs and draws against the existing Treasury backstop due to potential future losses would come at taxpayers’ expense.
Allowing the GSEs to exit conservatorship within the existing framework that includes their flawed charters, conflicting missions, and virtual monopolistic access to a government support through the PSPAs exposes taxpayers to great risk and is irresponsible. As we have said repeatedly, the only way to responsibly end the conservatorship of the GSEs is through legislation that puts in place a sustainable housing finance system with private capital at risk ahead of taxpayers, while preserving access to mortgage credit during severe downturns.
One final point for those who advocate a recapitalization of Fannie Mae and Freddie Mac while in conservatorship and subsequent privatization. If in the future the GSEs were to operate as they did prior to conservatorship, the GSEs’ size and significance would certainly attract broad regulatory attention due to the financial stability implications of their possible failure. Given this and the associated economic and regulatory ramifications, simply returning these entities to the way they were before is not practical nor is it a realistic consideration.
Conclusion
In closing, I want to return to the issue of timing and the urgency of enacting housing finance reform legislation. We know from experience that mortgage credit will be broadly accessible until it’s not; that capital markets will be liquid until they’re not. When the next crisis hits, it is unlikely that we will have the benefit of advance warning, and at that point, it will be too late for thoughtful reform. Our options will be limited, our hands will be tied, and we will be destined to relive the mistakes of the past.
Reforming a system as complex and as far-reaching as housing finance in a sensible and sustainable way takes time to get things right and to ensure a smooth transition from the existing system to the new, safer, fairer system. The point I want to make today is that there is an enormous amount of very good work underway to de-risk the enterprises, enhance liquidity, and protect taxpayers in a direction aligned with the Administration’s principles for long-term reform.
Nevertheless, institutionalizing these and other critical reforms in bipartisan legislation is by far the better course. Let’s be prudent; let’s have foresight; let’s find a bipartisan pathway to preventing another GSE bailout, which continuation of the status quo guarantees. We can do this, and we must do this.
Donotunderstand, here's his entire prepared remarks from today.
Remarks by Counselor to the Secretary for Housing Finance Policy Dr. Michael Stegman Before the Goldman Sachs Third Annual Housing Finance Conference
3/5/2015 ?
As prepared for delivery
Good morning, and thank you, Carsten, for that kind introduction. It’s a pleasure to be with you today to engage on a very important issue for our country and our economy.
This morning, I want to discuss the state of housing finance reform and the path we see to a more sustainable mortgage finance system that meets President Obama’s principles and creates a housing finance system that will promote stability in the housing market and the broader economy, and therefore, benefits the American people. First, I’d like to briefly explain why Treasury is devoting significant resources to helping market participants create a robust and responsible non-government-guaranteed securitization market and then discuss our thinking about how to move forward on GSE reform.
Private Label Securities Initiative
The Administration believes that private capital should be at the center of the housing finance system. To that end, Treasury has been working with the industry to develop the structural reforms necessary to help bring the private label securities, or PLS, market back, and get investors off the sidelines. A key component of this effort is rebuilding trust among market participants, and to this end, Treasury published the results of an exercise last month that would provide greater transparency around credit rating agency loss expectations for newly originated mortgage collateral. The goal of this exercise and the broader PLS initiative is to improve confidence in post-crisis practices and encourage investors to return to a reformed PLS market.
Treasury views a diverse housing finance system that features multiple execution channels as essential to promoting competition, market efficiency, and consumer choice. We see the development of a healthy and responsible PLS market as an important component of a sustainable housing finance system and a complement to a reformed government-supported channel, an objective I will discuss in the remainder of my speech.
GSE Reform
With that in mind, let me turn my attention to the GSEs. We are now well into the seventh year of Fannie Mae and Freddie Mac’s conservatorship. We cannot forget that the actions taken in the wake of the financial crisis to backstop the GSEs stabilized the housing market, protected the capital markets, and supported the broader economy. But as I have said many times, the status quo is unsustainable. Taxpayers remain at risk, market participants are uncertain about the government’s longer-term footprint in the mortgage market, and mortgage access and pricing decisions are not in the hands of market participants. The American people deserve better.
They deserve an efficient, sustainable, housing finance system that serves borrowers effectively and efficiently without leaving taxpayers on the hook for potential future bailouts. The critical flaws in the legacy system that allowed private shareholders and senior employees of the GSEs to reap substantial profits while leaving taxpayers to shoulder enormous losses cannot be fixed by a regulator or conservator because they are intrinsic to the GSEs’ congressional charters. And these charters can only be changed by law. That is why we continue to believe that comprehensive housing finance reform is the only effective way forward, not narrowly crafted ad-hoc fixes.
We cannot forget about the important progress made in the Senate during the last Congress and hope that the new Congress will afford the opportunity to again advance bipartisan legislation meeting our principles, even if it is too soon to tell what the ultimate prospects will be. The Administration remains ready, willing, and able to work in good faith with members of both parties to complete this important but unfinished piece of financial reform. As memories of the financial crisis fade, we cannot become complacent. The best time to act is when the housing market is well along the path to recovery and credit markets are normalizing, not on the precipice of a new economic shock when there is little time to be thoughtful.
We do recognize the myriad of challenges to achieving a bipartisan legislative consensus. But as I will explain shortly, we believe that significant progress can be, and is being made, prior to legislation, to help move the housing finance system towards a more sustainable future. While this progress is not a substitute for legislative reform, it can, over time, reduce the challenges to achieving a desired legislative outcome that puts in place a durable and fair housing finance system by advancing us down the path of transition.
Progress under Conservatorship
To that end, I’d like to highlight the steps forward that have been made under the conservatorship – progress that needs to be built upon. Important gains have been and continue to be made in de-risking and preparing the Enterprises for transition. The GSEs’ critical housing finance infrastructure and technology – which was allowed to obsolesce in the years preceding the financial crisis – is being renewed and enhanced.
Furthermore, their business practices are being reformed. Between 1995 and 2008, management grew the GSEs’ retained investment portfolios, which are financed at government-subsidized borrowing costs, fourfold to a combined total of $1.6 trillion. Since entering conservatorship, those portfolios have been nearly halved, and they are required to shrink further to less than $500 billion in total by year-end 2018.
In addition to being a major source of GSE earnings, these portfolios remain a significant source of financial volatility and potential taxpayer risk. These portfolios, the pursuit of maximum earnings, and the drive to recapture market share through greater risk-taking left taxpayers holding the bag when the bets went wrong. In conservatorship, these practices have been replaced with a recommitment to more effective risk management, prudent underwriting, more appropriate pricing, and a greater emphasis on sustainable mortgage finance.
The Federal Housing Finance Agency (FHFA), as the independent regulator and conservator of the GSEs, is laying the groundwork for a future housing finance system based upon private capital taking the majority of credit risk in front of a government guarantee with greater taxpayer protections, broader access to credit for responsible borrowers, and improved transparency and efficiency. These measures include, among others, expanding and diversifying risk-taking among private actors, further focusing GSE businesses on meeting the mortgage finance needs of middle class households and those aspiring to join the middle class, and developing a securitization infrastructure that can serve as the backbone for the broader mortgage market over time. All of these initiatives are consistent with the long-term vision of providing secure homeownership opportunities for responsible middle-class families.
After the failure of both GSEs, FHFA’s ability to stand in the shoes of their respective boards and senior management as conservator in order to set appropriate, statutorily-guided priorities and ensure follow-through has been good for the Enterprises and good for the American people. Preserving FHFA’s role in the future housing finance system merits serious consideration.
Administrative Vision
With that history in mind, I want to expand upon our vision for reforms that would transition the GSEs further along a path toward a future housing finance system while they still benefit from Treasury’s capital support. In turn, the progress we make today could serve both as a framework for, and reduce certain challenges associated with, achieving bipartisan legislative reform. Within the context of a continuing backstop, further de-risking the Enterprises is common-sense, prudent policy. Other actions that improve market efficiency and liquidity and develop infrastructure that would promote competition are consistent with the Administration’s interest in a durable and fair housing finance system.
The first of these areas is in the shedding of GSE legacy risk, both in their retained portfolios and their guarantee book. Given the strengthened underwriting practices and high credit quality of their new guarantee book, this legacy risk represents the overwhelming majority of taxpayer risk exposure to the GSEs today. Despite asset sales and natural run-off, their retained portfolios remain substantial at over $400 billion each and still constitute a significant line of business. The size and complexity of the retained portfolios also necessitate active hedging, introducing considerable basis risk and earnings volatility and making the GSEs susceptible to potentially relying on a future draw of PSPA capital support.
In light of the strong demand for mortgage credit risk in the market today and the market success of Freddie Mac’s first nonperforming loan (NPL) sale in July of last year, it would be both feasible and beneficial to taxpayers to responsibly accelerate the reduction of the most illiquid assets in the GSE portfolios. In particular, Treasury sees value in cultivating programmatic NPL sales at both Enterprises with a focus on market transparency, improving borrower outcomes, and community stabilization.
Similarly, in light of the GSEs’ expertise in transferring credit risk on their new books of business and recognizing that the bulk of credit risk exposure on their guarantee books is tied to their pre-2009 legacy commitments, the potential for transferring credit risk on their legacy guarantee books also merits consideration despite the unique challenges it may entail.
Continuing with the theme of reducing taxpayer exposure to mortgage credit risk, the second area where we see room for progress is in transferring credit risk on new originations. As I said before, the Administration believes that a sustainable housing finance system must have private capital at its core, and in conservatorship, the GSEs have started down a path of transferring greater mortgage credit risk to private market participants.
As you are aware, beginning in 2013, the GSEs have cultivated their respective credit risk transfer programs. These programs and their effectiveness in transferring credit risk have grown substantially in under two years. The GSEs have also engaged in other innovative forms of risk transfers including reinsurance contracts and recourse agreements.
Although the GSEs are directionally on the right path, there is more to be done on this front. Despite issuing 16 credit risk transfer transactions since 2013 referencing $530 billion notional balance, this amounts to approximately 20 percent of the GSEs’ combined guarantees over this time period and roughly 12 percent of the GSEs’ combined books of business. And while recent transactions have made progress by selling first-loss exposure for the first time, these transactions still rely on a defined credit event and fixed severity schedule.
The closer the GSEs can come to transferring the majority of risk to private market participants, the better. Such credit risk transfer activities serve to field-test the role of government as a guarantor of catastrophic risk while private capital bears the risk of the majority of potential losses. We are also sensitive to existing constraints to rapidly expanding credit risk transfer activities today and are supportive of additional, measured efforts to foster this market sustainably over time.
This is why we support the conservator’s efforts to responsibly expand credit risk transfer efforts through continued structural innovation and counterparty strengthening in order to broaden and diversify the investor base and optimize pricing efficiency and stability. Credit risk transfer activities should not be concentrated in any one mechanism or entity. Rather, they should seek to develop a variety of mechanisms and entities in order to improve pricing efficiency and transparency, provide the lowest cost to borrowers, and ultimately, inform the framework of the future housing finance system. We see great value in leveraging the unique investment needs and competencies of the broad spectrum of market participants in shaping a sustainable model for putting first loss mortgage credit risk in private hands.
Finally, under the direction of FHFA, the GSEs have embarked upon a cutting-edge project to develop a Common Securitization Platform (CSP) and a fungible To-Be-Announced, or TBA, contract. We are broadly supportive of these efforts, which in the immediate future will modernize the GSEs’ collective securitization infrastructure and improve the liquidity and efficiency of the market.
However, given the CSP’s joint ownership by the GSEs and scope narrowly focused on their businesses, the near-term CSP initiative would not succeed at separating the industry’s critical securitization infrastructure from the GSEs’ credit risk-taking activities. This separation is necessary to enhance the stability of the housing finance system. Nor will it use its full potential to reshape the broader housing finance landscape by facilitating standardization, transparency, and competition, and serving as a market gateway for both guaranteed and non-guaranteed securities.
This is why we would support opening up the CSP as early as it can be responsibly done to accommodate non-GSE users, which should be reflected not just in the Platform’s functionality but also in its governance structure. Greater transparency, more concrete timelines, broader engagement with private stakeholders, and ultimately, expanded governance of the CSP joint venture to include non-GSE stakeholders are all in the interests of moving towards a more sustainable future housing finance system.
The nation’s housing finance system is too critical to remain in a state of limbo without a clear, legislated vision for the future. However, the activities I outlined today are representative of the progress that can be made without legislation. By pursuing these and other activities that de-risk the Enterprises, we can put the housing finance system on a course aligned with the Administration’s priorities that would promote greater stability for the housing market and broader economy.
Capital
With the recent release of the GSEs’ 2014 fourth quarter earnings, there seems to be increased interest in the subject of GSE capital. But before we discuss this, it is worth taking a step back to review the purpose of the Senior Preferred Stock Purchase Agreements, commonly referred to as the PSPAs. The PSPAs were put in place as both companies were placed into conservatorship. These agreements were established to protect the solvency of the two companies and to allow them to continue to operate. This was necessary to protect financial stability and to ensure the continued flow of mortgage credit. The PSPAs gave market participants confidence in the GSEs’ debt and MBS obligations through which they fund the majority of the mortgage credit in this country. Without this capital support, it is clear that both GSEs would have been insolvent and that mortgage credit would have dried up as a result.
With this as a backdrop, I want to frame for this group how we think about capital at the GSEs while they are in conservatorship and continue to rely on the PSPAs to support their activities.
Currently, the GSEs operate with a minimal amount of capital at each Enterprise. These capital reserve amounts were established in order to provide protection against unexpected losses related to their retained investment portfolios. This capital amount will amortize to zero by 2018 when we would expect the GSEs to have wound down their legacy investment business. And, from Treasury’s standpoint, we would like to see these retained portfolios wound down even faster to further reduce risk.
Despite having only minimal retained capital levels at the GSEs, investors continue to have confidence in their securities due to the ongoing backstop the PSPAs provide each company. The substantial remaining capital support left under the PSPAs gives market participants the confidence to buy 30-year GSE securities on a day-in and day-out basis. This is despite the fact that the companies remain in conservatorship and have minimal capital levels.
However, as a result of the ongoing capital support through the PSPAs, taxpayers remain exposed to potential future losses at the GSEs. Let me remind you, both recapitalization of the GSEs and draws against the existing Treasury backstop due to potential future losses would come at taxpayers’ expense.
Allowing the GSEs to exit conservatorship within the existing framework that includes their flawed charters, conflicting missions, and virtual monopolistic access to a government support through the PSPAs exposes taxpayers to great risk and is irresponsible. As we have said repeatedly, the only way to responsibly end the conservatorship of the GSEs is through legislation that puts in place a sustainable housing finance system with private capital at risk ahead of taxpayers, while preserving access to mortgage credit during severe downturns.
One final point for those who advocate a recapitalization of Fannie Mae and Freddie Mac while in conservatorship and subsequent privatization. If in the future the GSEs were to operate as they did prior to conservatorship, the GSEs’ size and significance would certainly attract broad regulatory attention due to the financial stability implications of their possible failure. Given this and the associated economic and regulatory ramifications, simply returning these entities to the way they were before is not practical nor is it a realistic consideration.
Conclusion
In closing, I want to return to the issue of timing and the urgency of enacting housing finance reform legislation. We know from experience that mortgage credit will be broadly accessible until it’s not; that capital markets will be liquid until they’re not. When the next crisis hits, it is unlikely that we will have the benefit of advance warning, and at that point, it will be too late for thoughtful reform. Our options will be limited, our hands will be tied, and we will be destined to relive the mistakes of the past.
Reforming a system as complex and as far-reaching as housing finance in a sensible and sustainable way takes time to get things right and to ensure a smooth transition from the existing system to the new, safer, fairer system. The point I want to make today is that there is an enormous amount of very good work underway to de-risk the enterprises, enhance liquidity, and protect taxpayers in a direction aligned with the Administration’s principles for long-term reform.
Nevertheless, institutionalizing these and other critical reforms in bipartisan legislation is by far the better course. Let’s be prudent; let’s have foresight; let’s find a bipartisan pathway to preventing another GSE bailout, which continuation of the status quo guarantees. We can do this, and we must do this.
Exactly Letgoofmyfannie as Stegman is being wined and dined by the Goldman Sachs crowd. :) Doesn't he have some work to do back at the Treasury?
I think most people know that, but good reminder. It's probably someone from the other side that would like the case dismissed. Sweeney seems to be pretty good at giving stern orders to both sides, preventing anyone with ulterior motives from sabotaging the case.
Good info, Sweeney needs to know that. They are so arrogant over at the Treasury, no wonder most people would like to see this fully played out in court.
Watt will be there tomorrow also along with Stegman at the Goldman Sachs housing conference.
"Speakers include the co-head of the investment bank division of Goldman itself, along with mortgage banking representatives from Loandepot, PennyMac and Wells Fargo. Our friend Mel Watt, the director of the Federal Housing Finance Agency will also pop round to deliver the luncheon keynote."
http://www.housingwire.com/articles/33147
I guess we have to ask them to do a YouTube interview with us to get their attention. :). He was so off target in Phoenix, I didn't think his advisors would let him use those lines again!
"Because of these steps, big banks have paid back tens of billions of dollars to millions of consumers who were wronged."
That money went to the DOJ, right? not a check in those consumers' mailboxes?
Thanks!
Lol!!Thanks!
More Lew today :) at 2pm EST
http://appropriations.house.gov/calendar/EventSingle.aspx?EventID=394011
On another board, someone wrote that they were there, and they thought they heard the word, "production." That word then seems like it would make sense. I definitely agree with you about their stall tactics, incredible!