FHFA

A discussion draft of the legislation was introduced October 31, 2011 by Senior House Financial Services Committee member Scott Garrett (R-NJ). Here is a summary of the key points:

• Requires the Federal Housing Finance Agency (FHFA) to establish classifications for mortgages-backed securities (MBS) – to be known as Qualified Securities (QS) – and set standards around key features of the securities in order for investors to appropriately price credit risk into the QS market. Further requires FHFA to establish criteria for each classification based on underwriting, pooling and servicing, and disclosures’ standards.

• Authorizes the FHFA director to establish standards of classification for the mortgages that collateralize QS based on a mortgagors’ debt-to-income ratio, loan-to-value ratio, credit history, loan documentation, occupancy, credit enhancement, and loan payment terms.

• Directs the FHFA to establish standard form securitization agreements for QS that include terms relating to: pooling and servicing; purchase and sale; representations and warranties; indemnification and remedies; and the qualifications, responsibilities, and duties of trustees.

• Establishes an application system for qualified sponsors of QS under which interested parties would submit applications to the FHFA demonstrating proof of their experience and integrity, compliance history with Federal and State laws, adequacy of insurance and fidelity coverage, and ability to regularly submit audited financial statements to the Agency.

• Grants the FHFA director broad supervisory and enforcement capabilities, with the authority to issue regulations, orders, and interpretations in order to establish a fully-liquid forward market for QS – similar to the Fannie Mae and Ginnie Mae to-be-announced (TBA) markets in which most agency mortgage-backed securities are sold today.

• Directs the FHFA to establish mandatory arbitration procedures under which all disputes between an owner of a QS and the qualified sponsor of such QS shall be subject in the event of a disagreement between investors and issuers on whether there was a breach obligating an originator or securitization sponsor to repurchase a loan or to indemnify a loss.

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As we noted earlier today, the administration was going to seek input on how to reclaim some of the value of foreclosed properties, through measures like converting properties into rental units. Here is the official press release announcing the request for input:

FHFA Public Affairs
HUD Public Affairs
Treasury Public Affairs
FOR RELEASE
Wednesday
August 10, 2011

FHFA, TREASURY, HUD SEEK INPUT ON DISPOSITION OF REAL ESTATE OWNED PROPERTIES
Range of Ideas Sought, Including Transition to Rental

Washington, DC – The Federal Housing Finance Agency (FHFA), in consultation with the U.S. Department of the Treasury and Department of Housing and Urban Development (HUD), has announced a Request For Information (RFI), seeking input on new options for selling single-family real estate owned (REO) properties held by Fannie Mae and Freddie Mac (the Enterprises), and the Federal Housing Administration (FHA).

The RFI’s objective is to help address current and future REO inventory. It will explore alternatives for maximizing value to taxpayers and increasing private investment in the housing market, including approaches that support rental and affordable housing needs.

“While the Enterprises will continue to market individual REO properties for sale, FHFA and the Enterprises seek input on possible pooling of REO properties in situations where such pooling, combined with private management, may reduce Enterprise credit losses and help stabilize neighborhoods and home values,” said FHFA Acting Director Edward J. DeMarco. “Partnerships involving Enterprise properties may reduce taxpayer losses and meet the Enterprises’ responsibility to bring stability and liquidity to housing markets. We seek input on these important questions.”

“As we continue moving forward on housing finance reform, it’s critical that we support the process of repair and recovery in the housing market,” said Treasury Secretary Tim Geithner. “Exploring new options for selling these foreclosed properties will help expand access to affordable rental housing, promote private investment in local housing markets, and support neighborhood and home price stability.”

“Millions of families nationwide have seen their home values impacted as their neighbors’ homes fall into foreclosure or become abandoned,” said HUD Secretary Shaun Donovan. “At the same time, with half of all renters spending more than a third of their income on housing and a quarter spending more than half, we have to find and promote new ways to alleviate the strain on the affordable rental market. Taking steps to encourage private investment in REO properties and transition them into productive use will help stabilize neighborhoods and home values at a critical time for our economy.”

The RFI calls for approaches that achieve the following objectives:

  • reduce the REO portfolios of the Enterprises and FHA in a cost-effective manner;
  • reduce average loan loss severities to the Enterprises and FHA relative to individual distressed property sales;
  • address property repair and rehabilitation needs;
  • respond to economic and real estate conditions in specific geographies;
  • assist in neighborhood and home price stabilization efforts; and
  • suggest analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental, or, in certain instances, demolition. FHFA, Treasury and HUD anticipate respondents may best address these objectives through REO to rental structures, but respondents are encouraged to propose strategies they believe best accomplish the RFI’s objectives. Proposed strategies, transactions, and venture structures may also include:
  • programs for previous homeowners to rent properties or for current renters to become owners (“lease-to-own”);
  • strategies through which REO assets could be used to support markets with a strong demand for rental units and a substantial volume of REO;
  • a mechanism for private owners of REO inventory to eventually participate in the transactions; and
  • support for affordable housing.

To view the RFI, please visit here .

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The Federal Housing Finance Agency is adopting a final rule that re-organizes and re-adopts regulations regarding consolidated obligations (COs). The rule amends the current regulations, “to reflect statutory amendments made to section 11(c) of the Federal Home Bank Act (Bank Act) with regard to the issuance of COs.”:

The main purpose for this rulemaking is to update Finance Board regulations to reflect amendments made by HERA to section 11 of the Bank Act with regard to Bank authority to issue COs and to combine certain parts of the former Finance Board regulations into new part 1270. 75 FR at 68535. As already discussed, because the Finance Board had previously delegated responsibility to the Banks themselves to issue COs in 2000, the changes made by HERA to section 11 of the Bank Act—or the related regulatory amendments now being adopted—do not alter the current processes or practices for issuing COs. Otherwise, as FHFA noted when it proposed new part 1270, most of the provisions in new part 1270 are being carried over from existing regulations, without substantive change.

 

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Yesterday, The Federal Housing Finance Agency (FHFA) issued a final rule that raises the minimum capital level required of the entities overseen by the Agency (Fannie Mae, Freddie Mac, and the Federal Home Loan Banks):

The Federal Housing Finance Agency (FHFA) is issuing a final rule to implement a provision of the Federal Housing Enterprises Financial Safety and Soundness Act, as amended, that provides for a temporary increase in the minimum capital level for the entities regulated by FHFA—the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation and the Federal Home Loan Banks. The final rule establishes standards for imposing a temporary increase and for rescinding such an increase, and a time frame for review of such an increase.

For further information contact: Christopher T. Curtis, Senior Deputy General Counsel,Christopher.Curtis@fhfa.gov, (202) 414-8947, or Jamie Schwing, Associate General Counsel, Jamie.Schwing@fhfa.gov, (202) 414-3787, (not toll-free numbers), Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552. The telephone number for the Telecommunications Device for the Deaf is (800) 877-8339.

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The Federal Housing Finance Agency proposed a rule that would restrict Fannie Mae and Freddie Mac from, “dealings in mortgages encumbered by certain types of private transfer fee covenants and in certain related securities.” The rule stems from the FHFA’s position that transfer fees are harmful to the, “liquidity and stability of the housing finance market, and to financial safety and soundness.” There are, however, some exceptions to the restriction, “fees paid to homeowner associations, condominiums, cooperatives, and certain tax-exempt organizations that use the private transfer fees to provide a direct benefit to the owners of the encumbered real property”.

Commenters on an earlier version of the proposed rule advocated for an exemption of:

transfer fees paid to nonprofit corporations with tax-exempt status under Internal Revenue Code (“Code”) sections 501(c)(3), 501(c)(4) or 528 where the fees are targeted to social welfare purposes, environmental purposes, civic betterment and social improvements or to “sustain the real estate infrastructure.” (76 FR 6704)

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The proposed rule would revise HUD’s regulations governing the eligibility for FHA insurance of mortgages used for the purchase or refinancing of existing multifamily housing projects. In particular, HUD is seeking to expand eligibility of FHA insurance to include cooperative multifamily projects, a move the Department hopes will increase the availability of financing in a tight capital market:

Given the current crisis in the capital markets and the significant downturn in the multifamily market, the Department has determined that this is an appropriate time to reconsider this regulatory imposed limitation with respect to the mortgage insurance for the refinancing of cooperative projects. As mortgage lenders strive to increase capital reserves and tighten underwriting standards, the availability of financing for multifamily housing has been reduced. (76 FR 5518)

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Today, The Federal Housing Finance Agency posted notice of a final rule to expand the type of collateral eligible for use by community financial institutions in securing advances from the Federal Home loan Bank for the purposes of community development to include “community development loans”. The final rule defines community development as having:

the same meaning as under the definition set forth in the Community Reinvestment rule for the Federal Reserve System (12 CFR part 228), Federal Deposit Insurance Corporation (12 CFR part 345), the Office of Thrift Supervision (12 CFR part 563e) or the Office of the Comptroller of the Currency (12 CFR part 25), whichever is the CFI member’s primary Federal regulator.

And, defines a community development loan as:

(1) Any loan or instrument that qualifies as eligible security for an advance under § 1266.7(a) of this part;
(2) Any loan that qualifies as a small agri-business loan, small business loan or small farm loan, under definitions set forth in this section; or
(3) Consumer loans or credit extended to one or more individuals for household, family or other personal expenditures.

FHFA considered several comments on the proposed definitions, but determined to move forward with the proposed language. In particular, both comments received on the definition of “community development”, called for a the FHFA to expand their definition and to drop the income criteria inherent in the proposed language. FHFA did not agree with the arguments made in the comments on the grounds of legislative history, ” As it noted in proposing this definition, FHFA is relying on this long-standing regulatory history in defining the term.”

Comments were also made to expand the scope of “community development loan”, particularly to include municipal bonds. FHFA declined to expand the scope of their initial language, noting that municipal bonds were inherently included in the definition of “community development loan” in certain cases, but that to include all types of municipal bonds, “would go beyond what is authorized in the Bank Act and would not be consistent with the statutory limitation.”

The one major exception to the final rule’s general consistency with the proposed version, is the FHFA decision to drop a “proposed prohibition on reverse repurchase agreements and similar secured lending transactions with affiliates of members.”

The final rule is effective on January 10, 2011

FOR FURTHER INFORMATION CONTACT: Thomas E. Joseph, Senior Attorney Advisor, thomas.joseph@fhfa.gov, (202) 414-3095 (not a toll-free number); Office of General Counsel, Federal Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, DC 20552; or Julie Paller, Senior Financial Analyst, julie.paller@fhfa.gov, 202-408-2842 (not a toll-free number); Division of Federal Home Loan Bank Regulation, Federal Housing Finance Agency, 1625 Eye Street, NW., Washington, DC 20006. The telephone number for the Telecommunications Device for the Hearing Impaired is (800) 877-8339.

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