A massive windfall for $FMCC $FNMA ...?

FHFA Sues 17 Banks Over Massive Mortgage Losses At Fannie and Freddie

1. Ally Financial Inc. f/k/a GMAC, LLC ($6 billion)
2. Bank of America Corporation ($5 billion)
3. Barclays Bank PLC ($4.9 billion)
4. Citigroup, Inc ($3.5 billion)
5. Countrywide Financial Corporation ($26.6 billion, Countrywide was bought by Bank of America)
6. Credit Suisse Holdings (USA), Inc
7. Deutsche Bank AG ($14.2 billion)
8. First Horizon National Corporation ($883 million)
9. General Electric Company ($549 million)
10. Goldman Sachs & Co. ($11.1 billion)
11. HSBC North America Holdings, Inc. ($6.2 billion)
12. JPMorgan Chase & Co. ($33 billion)
13. Merrill Lynch & Co. / First Franklin Financial Corp. ($24.8 billion)
14. Morgan Stanley
15. Nomura Holding America Inc. ($2 billion)
16. The Royal Bank of Scotland Group PLC ($30.4 billion)
17. Société Générale ($1.3 billion)

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$FMCC FREDDIE MAC (OTC BB: FMCC.OB )


$FNMA FANNIE MAE (OTC BB: FNMA.OB ) Federal National Mortgage Association



Edward DeMarco: "Maintaining Housing Finance in a World of Uncertainty" 

Uploaded by VanderbiltUniversity on May 12, 2011


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Description
Federal Home Loan Mortgage Corp is a Government-sponsored enterprise (GSE), which conducts business in the United States residential mortgage market and the global securities market under the direction of its Conservator, Federal Housing Finance Agency (FHFA). The Company conducts its operations solely in the United States and its territories, and do not generate any revenue from or have assets in geographic locations outside of the United States and its territories. The Company provides liquidity, stability and affordability to the United States housing market primarily by providing its credit guarantee for residential mortgages originated by mortgage lenders and investing in mortgage loans and mortgage-related securities. It uses mortgage securitization as an integral part of its activities. The primary Freddie Mac guaranteed mortgage-related security is the single-class PC. Its operations consist of three segments: Single-family Guarantee, Investments and Multifamily.

Description
Federal National Mortgage Association (Fannie Mae) is a government-sponsored enterprise (GSE) chartered by the United States Congress to support liquidity and stability in the secondary mortgage market, where mortgage-related assets are purchased and sold. Its activities include providing market liquidity by securitizing mortgage loans originated by lenders in the primary mortgage market into Fannie Mae mortgage-backed securities (Fannie Mae MBS), and purchasing mortgage loans and mortgage-related securities in the secondary market for its mortgage portfolio. Fannie Mae operates in three business segments: Single-Family business, Multifamily Business (formerly Housing and Community Development (HCD)) and Capital Markets group. Its Single-Family and Multifamily businesses work with its lender customers to purchase and securitize mortgage loans customers deliver to the Company into Fannie Mae MBS.

Edward J. DeMarco Acting Director Federal Housing Finance Agency

MBA’s National Mortgage Servicing Conference & Expo Dallas, Texas

February 23, 2011 http://www.fhfa.gov/webfiles/19761/MBASpeech22311.pdf

The Federal Housing Finance Agency’s Efforts Related to Mortgage Servicing

I would like to thank the Mortgage Bankers Association for inviting me to speak here

today.

As we all know, a few weeks ago the Administration issued a report on reforming the

housing finance market. In that report the Administration set forth some options to

consider for the long-term structure of housing finance. In the near-term the

Administration also set forth a number of recommendations to reduce the overall

presence of the government in the mortgage market, which would provide opportunities

for private capital to return to the market.

As debate over the future of the housing finance system progresses, the Federal Housing

Finance Agency (FHFA) will remain focused on meeting the goals of the

conservatorships, which include retaining value in the business operations of Fannie Mae

and Freddie Mac (Enterprises) and maintaining their support for the housing market. We

look forward to considering the near-term options discussed in the Administration’s

report consistent with our responsibilities as conservator and regulator.

As the Enterprises continue operating in conservatorship, FHFA has directed them to

undertake some joint initiatives to strengthen certain business operations. In our view,

these initiatives have value not only for the Enterprises’ operations, but also for the

broader mortgage market, regardless of the ultimate outcome of housing finance reform.

In other words if certain changes can be made that better the overall functioning of the

mortgage finance system, we should try to move forward on those changes now.

One of those initiatives is the Loan Quality Initiative (LQI). Under the LQI, FHFA

directed the Enterprises to undertake the development of standards to improve the

consistency, quality, and uniformity of data that are collected at the front end of the

mortgage process. By identifying potential defects at the front end of the mortgage

process, the Enterprises will improve the quality of mortgage purchases, which should

reduce repurchase risk for originators. The LQI is moving forward and will be phased in

over the course of this year and next.

More recently, FHFA announced the Joint Servicing Compensation Initiative. On

January 18

th, FHFA directed Fannie Mae and Freddie Mac, in coordination with FHFA

and the Department of Housing and Urban Development, to consider alternatives for

future mortgage servicing compensation for their single-family mortgage loans. The

goals of the joint initiative are to improve service for borrowers, reduce financial risk to

servicers, and provide flexibility for guarantors to better manage non-performing loans,

while promoting continued liquidity in the To Be Announced mortgage securities market.

To meet these goals, any change to mortgage servicing compensation must take account

of a number of factors. Among these factors are:

(1) Maintaining liquidity and consumer choice in the mortgage market.

Everybody from borrowers, to originators, to investors has an interest in ensuring

liquidity and consumer choice in the mortgage market. Maintaining liquidity in the

mortgage market allows originators to offer borrowers the best market rates. Investors

have often viewed the current mortgage compensation structure as providing some

protection against excessive refinancing solicitation, thereby helping to make prepayment

speeds more predictable. Whether or not that remains the case today, and the impact of

various alternative compensation structures, is an issue that the joint initiative will be

looking at closely.

(2) Ensuring that the servicing business model – for both performing and non-performing

loans – is profitable, and available for all sizes of servicers.

The servicing industry has become highly concentrated today, with 10 companies

responsible for over 70 percent of the servicing market. Some of this concentration is

related to economies of scale, but some may also be related to servicing compensation.

The current servicing compensation structure results in the creation of a mortgage

servicing right asset, which is difficult to manage and is separate from a servicer’s core

competency of servicing mortgage loans. In addition, capital requirements for mortgage

servicing rights will likely increase for many servicers under Basel III. The extent to

which the current servicing compensation structure and alternative structures impact the

economic choices of maintaining a servicing platform is an issue the joint initiative will

be evaluating.

(3) Ensuring that mortgage originators have flexible execution options.

In today’s mortgage market, origination and servicing are closely linked as the value

obtained from mortgage servicing under the current servicing compensation model often

serves as an offset for origination costs. For Enterprise mortgages, an originator has two

choices: retain the mortgage servicing right; or sell or release the mortgage servicing

right. As just discussed, retaining the mortgage servicing right may be problematic for

some institutions. And while selling or releasing the mortgage servicing right provides

an opportunity to monetize value, the value obtained is directly related to the level of

demand from organizations that can hold the mortgage servicing right asset, and

originators also relinquish their relationship with the borrower. The joint initiative will

consider ways to provide flexibility for originators to retain or release mortgage servicing

through other structures that do not mandate the holding of a mortgage servicing right

asset.

(4) Increasing flexibility for guarantors to manage non-performing loans.

The current servicing compensation system was not set up to handle increased volumes

of non-performing loans, which causes problems from both the guarantors’ and

borrowers’ perspectives. A minimum servicing fee that is part of the mortgage note rate

provides income when a loan is performing, but no income for non-performing loans – at

exactly the time that more funds need to be expended. This mis-alignment contributes to

less than optimal servicer performance in foreclosure prevention efforts and hinders the

Enterprises’ loss mitigation efforts. A key focus of the joint initiative will be considering

compensation structures that better align servicer incentives. Put another way, we are

seeking a structure that better aligns the cost of servicing to the servicing compensation

received.

These are only a few of the high level issues that the joint initiative will be considering.

Changes to servicing compensation are complicated and affect several aspects of the

mortgage financing process. Alternatives that the joint initiative may consider include a

fee for service compensation structure for non-performing loans as well as the possibility

of reducing or eliminating the minimum mortgage servicing fee for performing loans.

Many of these issues have been the subject of discussion within the mortgage industry for

years. Those are not the only alternatives, and the joint initiative would welcome the

consideration of others.

FHFA has created a new web page on the FHFA web site for information related to the

joint initiative, and we have posted a background document that compares the most

common alternatives that have been considered in the past. Going forward, FHFA will

coordinate efforts of the initiative over the next several months to gather feedback from

the industry, consumer groups and investors, and from other regulators and government

agencies. FHFA expects that this effort will lead to a proposal for a new single-family

mortgage servicing compensation model that will benefit from broad public input. Any

implementation of a new servicing compensation structure would require a significant

lead time to ensure that all participants in the mortgage finance process have sufficient

time to adjust to any changes. Any such implementation would be prospective in nature

and would not be expected to occur before Summer 2012.

The joint initiative is about developing a servicing compensation model for the future.

Clearly the last few years have posed unprecedented challenges for the servicing

industry, in spite of efforts to expand the resources dedicated to loss mitigation activities

and improve communications with troubled borrowers. While none of us underestimate

the difficulties that servicers face, mortgage servicing, especially of delinquent loans,

must improve.

To address the near-term issues we are facing today with servicing, FHFA has directed

the Enterprises to participate in a separate working group with FHFA. This effort is

focused on aligning the Enterprises’ current servicing standards and establishing

appropriate incentives to encourage and support servicer contact with borrowers in the

early stages of delinquency, when evaluation for loan modification or other foreclosure

alternatives is most effective. While each of the Enterprises has servicing guides and

various procedures in place, greater consistency in servicing practices will ease burdens

on servicers and can build on the best practices developed by each of the Enterprises.

The working group will develop consistent timelines and requirements for

communications with borrowers, including solicitation for foreclosure prevention

options, so that there is no confusion regarding what the two companies expect from

servicers. Early intervention and evaluation are critical and we want to ensure that the

guidelines are clear and simple to apply, to help all servicers provide homeowners in

need with complete and useful information regarding their foreclosure prevention options

as well as the opportunity to make decisions without the undue pressure of a looming

foreclosure sale.

The working group is also developing an incentive structure that will reward servicers for

early engagement, and update the foreclosure processing timelines in recognition of

changes in state and local mandates and practices. Each Enterprises’ work to develop

new standards will now be part of the larger working group effort, and will include

consideration of appropriate penalties to encourage efficient resolution and liquidation of

properties in cases where foreclosure is necessary. The Enterprises will be moving

forward with servicer penalties for last year in the coming weeks, but our goal is to

announce the new set of requirements, timelines, incentives, and penalties by the end of

the first quarter of this year.

Finally, FHFA is closely involved with other government regulators in the process of

developing national servicing standards. The issues we are considering as part of the

joint initiative and the near-term working group are closely related to the process of

developing national servicing standards. This heightened regulatory coordination

between primary and secondary market supervisors should help market participants

operate with more uniform regulatory standards and expectations.

I know that members of the panel about to follow me can expand on the initiatives I have

just described. Thank you again for inviting me to speak here today.