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FHFA lacks staff to effectively monitor GSEs, report says

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The Federal Housing Finance Agency lacks the staff to properly monitor the mortgage giants it has in conservatorship, according to a report by the Office of the Inspector General.

The report said the agency also failed to provide adequate oversight over default services legal issues.

The Office of the Inspector General for the federal regulator said the FHFA "has far too few examiners" to properly handle its examination system to monitor Fannie Mae,Freddie Mac and the Federal Home Loan Banks

The inspector general report also "identified shortfalls in the agency’s examination coverage, particularly in the areas of real estate owned and default-related legal services," which it blames on the staffing shortages.

In another report, the inspector general said the FHFA over the past five years "repeatedly found Fannie Mae had not established an acceptable and effective operational risk management program despite outstanding requirements to do so." The auditor said the regulator hasn’t exercised its power as conservator to force the company to do as much, and recommends the FHFA compel Fannie to establish stronger controls.

"Fannie Mae’s lack of an acceptable and effective operational risk management program may have resulted in missed opportunities to strengthen the oversight of law firms it contracts with to process foreclosures," according to the auditor’s report.

"Given Fannie Mae’s history of noncompliance, (the Office of the Inspector General) believes that the agency must exercise maximum diligence and take forceful action to ensure that Fannie Mae meets the agency’s expectations in this regard. Otherwise, FHFA’s safety and soundness examination program, as well as its delegated approach to conservatorship management, may be adversely affected."

Fannie Mae declined comment.

Edward DeMarco, acting director of the FHFA, has said the agency is having trouble hiring experienced examiners because many don’t want to move to Washington and there’s the perception the government-sponsored enterprises will ultimately go away.

The FHFA has 120 examiners and plans to hire another 26, but "has expressed concern that its current hiring initiative will neither enable it to overcome its examination capacity shortfalls nor ensure the effectiveness of its 2011 reorganization," according to the inspector general report.

The agency wanted all the new examiners on board by the end of September, but now expects to have them all working by the end of the year.

The agency wants to assign 20 to 25 examiners to each examination team, yet is only staffing them with 13. The FHFA indicated only 34% of the 120 nonexecutive examiners are accredited federal financial examiners, and there is no accreditation program currently in place.

The federal auditor recommends the FHFA further study its staffing problems, implement an examiner accreditation program and use contractors to mitigate the shortage.

"Moreover, FHFA has not reported upon its examination capacity shortfalls in a systematic manner," according to the report. "Given FHFA’s critical responsibilities, it is essential that it keeps Congress, the executive branch and the public fully and currently informed about its examination capacity."

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Written by appraisalmanagementnews

September 26, 2011 at 3:23 pm

Posted in Government, GSE

Former Ginnie Mae execs submit GSE reform plans

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Former Ginnie Mae presidents Robert Couch and Joseph Murin said the future structure of Fannie Mae and Freddie Mac should be based on the agency they used to lead, according to a letter they sent to Republican lawmakers last week.

In the letter sent to Sen. Richard Shelby (R-Ala.), and Reps. Spencer Bachus (R-Ala.) and Scott Garrett (R-N.J.), the former Ginnie chiefs expressed concern over the health of the secondary mortgage market and its weight on the economic recovery.

"Any effort to replace Fannie Mae and Freddie Mac with a new framework must be designed to provide a steady flow of mortgage finance to consumers in all economic cycles while protecting taxpayers from undue risk," Couch and Murin wrote. "We believe the Ginnie Mae guarantee program provides an effective model to achieve these objectives."

Outside of fringe and sometimes duplicitous reforms, Congress has yet to take up meaningful legislation to revamp the future housing finance system. Even though the Obama administration submitted three options for winding down Fannie and Freddie in February, news reports surfaced last week that some within the administration may be opting to maintain a large government role.

The Treasury Department maintains its commitment to the original options.

Regardless, it grows increasingly unlikely that Congress will pass GSE reform before 2013, leaving plenty of time for proposed plans.

Couch and Murin said an ideal solution would be remove the federal government altogether but the current financial market could not fill the void and support long-held features of the housing finance system such as the 30-year, fixed-rate mortgage.

"Until financial markets settle down, federal credit backing is required," they write. "In the meantime, based upon our experience, we believe that it is possible to design a guarantee that sustains the long-term mortgage market while protecting taxpayers from undue risk."

All this they said can be borrowed from Ginnie Mae, which guarantees the timely payment on securities backed by Federal Housing Administration and Department of Veterans Affairs loans.

They suggested placing a guarantee only on securities backed by the safest loans. They said shareholders and credits in the private replacements of Fannie and Freddie should be wiped out before the guarantee is triggered.

The guarantee pricing would also be increased to protect against a possible 20% to 25% drop in home prices as opposed to what Fannie and Freddie charged, which covered a 10% decline.

In many areas, the housing downturn cut prices in half since 2007.

Couch and Murin suggested also including a "recoupment" provision requiring other firms to step in and repay taxpayers should catastrophe strike.

"Without properly protected private investors, we would not have a reliable market for long-term financing of mortgages," Couch and Murin write. "As the Ginnie Mae example continues to show, a limited federal guarantee would ensure a steady flow of mortgage finance and can be designed and priced to shield taxpayers from undue risk."

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Written by appraisalmanagementnews

August 24, 2011 at 8:13 pm

Posted in GSE

GSEs suspend Republic Mortgage Insurance

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Freddie Mac and Fannie Mae will no longer purchase for securitization most mortgages insured by Republic Mortgage Insurance and its affiliate RMIC of North Carolina.

RMIC, a subsidiary of Old Republic International (ORI: 9.95 -2.26%), a Chicago-based insurance underwriting company with a market capitalization of $2.6 billion, had been showing signs of financial stress since at least last fall.

The company breached its regulatory risk-to-capital limits as of Sept. 30, 2010, said Fannie Mae in its statement announcing the company’s suspension as an approved mortgage insurer.

While North Carolina regulators had temporarily allowed the company to keep selling insurance, the state’s waivers were due to expire Aug. 31 and there was no sign they would be renewed, said Fannie in explaining its move. Calls to Fannie Mae and Old Republic for comment were not immediately returned.

Fitch Ratings shined a spotlight on the insurer’s financial woes earlier this year, putting the company on a negative ratings watch in March and then downgrading it from a double B rating to double B- with a negative outlook a month later.

The downgrade "is driven primarily by RMIC’s comparatively weak capital levels, continued operating losses and uncertain business prospects," said Fitch in a statement. "At year-end 2010, RMIC’s total capital resources represented just 78% of its delinquent risk-in-force, the lowest ratio among the six active U.S. mortgage insurers."

Fitch also cited Old Republic’s failure to inject more capital into its subsidiary as a negative sign for the company’s financial health. "Although RMIC’s delinquencies have started to show positive trends, Fitch expects the company to experience operating losses for the foreseeable future," said analyst Ilya Ivashkov in his report on the downgrade.

RMIC was the fifth-largest U.S. mortgage insurer as of year-end, said Fitch, with $18 billion of risk-in-force.

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Written by appraisalmanagementnews

August 4, 2011 at 4:00 pm

Posted in GSE

Senate steps toward new mortgage servicing standard

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The Senate Banking Committee will hold a hearing Tuesday to develop a new national mortgage servicing standard.

In January, federal regulators announced a new initiative to develop a set of servicing standards following weaknesses in the process that arose last year.

The industry immediately began pushing for a unified approach, and regulators are at work with the 50 state AGs to align new requirements, especially for servicing nonperforming loans.

Already, Congress is hearing from those who would like to be exempted from guidelines they see as too burdensome, especially for smaller institutions.

B. Dan Berger, the executive vice preside of the National Association of Credit Unions, sent a letter to Senate committee leaders Monday asking for an exemption.

"In short, credit unions have not participated in the practices that have led to discussions about the worthiness of national mortgage servicing standards and should not be unjustly punished for the shortcomings of institutions that have," Berger said. "While it is important that the bad actors who failed thousands of their borrowers are held accountable, we would oppose extending any new compliance burden stemming from national mortgage servicing standards onto good actors such as credit unions."

A review of more roughly 2,800 foreclosure files at the 14 largest mortgage servicers last year led regulators to conclude that although the issues were indeed widespread, the largest institutions showed the most signs of activities such as robo-signing, dual-track foreclosures and unnecessarily delayed modifications.

Sen. Olympia Snow (R-Maine) and Sen. Jeff Merkley (D-Ore.) introduced legislation in May that would establish federal standards for mortgage servicers, but it was attached as an amendment to another bill and has yet to make it out of committee.

Testifying before the committee Tuesday will be representatives from the Hope Now alliance of industry servicers, investors and counselors and a member of the Independent Community Bankers of America.

No one from the major mortgage servicers will be taking questions at the hearing, however.

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Written by appraisalmanagementnews

August 2, 2011 at 3:41 pm

Posted in GSE, Mortgage News

Fed’s Massive Stimulus Had Little Impact: Greenspan

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The Federal Reserve’s massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan told CNBC Thursday.

In a blunt critique of his successor, Fed Chairman Ben Bernanke, Greenspan said the $2 trillion in quantitative easing over the past two years had done little to loosen credit and boost the economy.

"There is no evidence that huge inflow of money into the system basically worked," Greenspan said in a live interview.

"It obviously had some effect on the exchange rate and the exchange rate was a critical issue in export expansion," he said. "Aside from that, I am ill-aware of anything that really worked. Not only QE2 but QE1."

Greenspan’s comments came as the Fed ended the second installment of its bond-buying program, known as QE2, after spending $600 billion. There were no hints of any more monetary easing—or QE3—to come.

Greenspan said he "would be surprised if there was a QE3"  because it would "continue erosion of the dollar."

The former Fed chairman himself has been widely criticized for the low-interest rate policy in the early and mid 2000s that many believe led to the 2008 credit crisis.

Bernanke, who took over for Greenspan in 2006, began implementing the quantitative easing program in 2009 in an attempt to unfreeze credit and prevent a collapse of the US financial system. The strategy has gotten mixed reviews so far.

On Greece, Greenspan said a default is likely and will  "affect the whole structure of profitability in the U.S." because of this country’s large economic commitments to Europe, which holds Greek debt. Europe is also where "half the foreign [U.S.] affiliate earnings" are generated, he added.

"We can’t afford a significant drop in foreign affiliate earnings," Greenspan said.

Greenspan was also pessimistic about the U.S. deficit talks, saying he didn’t think Congress would reach an agreement on raising the debt ceiling by the Aug 2 deadline.
“We’re going to get up to Aug 2 and I think on that night, we are not going to have the issue solved,” he said.
If that happens, he said, the U.S. would have to continue paying debt holders or risk major damage in global financial markets. As a result, “we will default on everything else.”
He added: “At that point, I think we’ll all come to our senses.”

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Written by appraisalmanagementnews

July 13, 2011 at 7:01 pm

Posted in Economy, GSE

Fed’s new money policy: ‘Wait and see’

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After pumping more than a trillion dollars into the financial system, forcing interest to near zero and buying back hundreds of billions of dollars of bad mortgage bonds, the Federal Reserve has adopted a new monetary policy.

Call it "wait and see."

Fed Chairman Ben Bernanke was on Capitol Hill Wednesday testifying on the central bank’s latest strategies for getting the economy back on a stronger footing. The hearing comes a day after minutes of the Fed’s latest Open Market Committee meeting in June showed the group divided over what to do next.

Some members want to consider resuming the pump-priming policy of buying up bonds. The majority, including Bernanke, argue that the recent "soft patch" in growth resulted from a temporary surge in oil prices and the supply bottlenecks from the Japanese earthquake.

"Once the temporary shocks that have been holding down economic activity pass, we expect to see again the effects of (recent Fed policy) reflected in stronger economic activity and job creation," Bernanke told the House Financial Services Committee.

After a convincing pickup in growth last year, the economy slowed sharply in the first quarter and has been limping along since. First quarter gross domestic product edged up just 1.9 percent. The latest monthly data, especially the surprising collapse in job growth in May and June, have raised concerns that the recovery may be stalling out.

For now, central bankers don’t see that happening. Bernanke said that while they’ve trimmed their growth forecasts, Fed forecasters believe growth will rise in the second half of the year to between 2.7 percent and 2.9 percent for the full year. The Fed forecast sees the economy gathering more steam next year, expanding at a rate of 3.3 to 3.7 percent.

So until the data from the second half starts rolling in, Bernanke and most of his colleagues think the best course is to do nothing.

"The Fed has thrown the kitchen sink at the markets with massive liquidity," said Paul Ballew, a former Federal Reserve economist and now chief economist at Nationwide. "So I expect in the second half they stay on the sidelines, they try get a read for the overall health of the economy and then make their decisions from there."

Though the Fed is on hold for now, Bernanke was quick to note that the central bank stands ready to take action if there are new shocks to the global economy or the financial system. Investors were cheered by just a mention that central bank might consider showering more money on the financial markets. Stocks and bonds rallied shortly after Bernanke’s prepared testimony was released.

There are plenty of potential sources for shocks that could throw the economy off kilter. The ongoing political fracas over the federal budget, for one, has the bond market on edge. Congressional dithering over raising the debt ceiling has raised the threat of a default on U.S. Treasury debt.

The spreading debt crisis in Europe, for another, threatens to spark a banking panic that could put pressure on U.S. banks.

Bernanke said the U.S. would continue to pay interest on its debt even if Congress failed to extend the debt ceiling by Aug. 2, when the government is scheduled to exceed its borrowing authority.

"The assumption is that as long as possible, the Treasury would want to try to make payments on the principal and interest to the government debt, because failure to do that would certainly throw the financial system into enormous disarray and have major impacts on the global economy," Bernanke said.

Nevertheless, any of these shocks could produce the Fed’s worst nightmare: a surge in market-driven interest rates that would severely test the central bank’s ability to keep interest rates low. In his testimony, Bernanke reminded the committee of the importance of holding rates down.

"We know from many decades of experience with monetary policy that when the economy is operating below its potential, easier financial conditions tend to promote more rapid economic growth," he said.

But the Fed doesn’t have many tools left to hold down rates if bond investors get spooked and demand higher interest payment to offset the risk of not getting their money back. Bernanke assured the committee that the Fed has "several options," and cited two. One would be to be more explicit about its plans to keep rates low for a very long time. The other would be to scale back the interest payments to banks that store cash in the Fed’s accounts.

"A lot of the options he put on the table were effectively worthless," said Drew Matus, a senior economist at UBS Investment Research. "So I think Bernanke really is just hoping for the best."

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Written by appraisalmanagementnews

July 13, 2011 at 6:56 pm

Posted in GSE

Big four top contenders to replace Fannie, Freddie

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As the government-sponsored enterprises slowly wind down their massive domination of the mortgage finance markets, the most likely parties to fill the capital hole left behind are the big four banks.

However, how well or how much the big four can cover remain up for discussion.

On Tuesday, speakers tossed ideas back and forth at a panel titled: "Housing Finance Reform Proposals." They gathered in Washington at the annual meeting of the American Securitization Forum, a trade group representing secondary market players.

One speaker wryly referred to the unofficial title of the panel as "life without the GSEs." The future may be murky, and the present is unlikely to change in the near-term, one panelist said.

The evolution of the mortgage finance markets away from government support will become clearer as financial reform under Dodd-Frank begins to take hold. Until then, according to Alfred Pollard, general counsel Federal Housing Finance Agency, the government will continue support Fannie Mae, Freddie Mac and the dozen Federal Home Loan Banks.

"If the enterprises are in conservatorship we are supposed to conserve their assets," Pollard said. "We made a decision that Fannie and Freddie, and home loan banks should stick to their core businesses."

Moderator Christopher DiAngelo, partner at Katten Muchin Rosenman, said Bank of America (BAC: 10.78-0.65%), Citigroup(C: 39.91 -0.20%), JPMorgan Chase(JPM: 39.45 -1.08%) and Wells Fargo(WFC: 27.40-0.18%) hold 70% of the private mortgage origination market. Therefore, they seem the likely option to take market share from the GSEs.

Others financing options, such as developing a covered bond market or a greater presence of private investor bases, such as from real estate investment trusts, are only going to handle a small portion of the financing, the panel said.

"A covered bond market does not solve a lot of problems," said Nancy Mueller Handal of MetLife Investments, a $45 billion investor in mortgage-backed securities, 80% of which are GSE bonds.

"There is not the investor base to fill the gap that people think. We would have very little room for covered bonds," she added.

Furthermore, investors want a stronger foundation for investments in private-label MBS. Those investors will want vertical risk retention, adequate access to representations and warranties and a third-party arbitrator assigned to deals.

"The pipes are not in place yet," Handal added.

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Written by appraisalmanagementnews

June 28, 2011 at 5:18 pm

Posted in GSE