Federal Housing Finance Agency (FHFA)

FHFA Finalizes House Price Index Measure for Conforming Loan Limits for Fannie Mae and Freddie Mac

On October 19, 2015, the Federal Housing Finance Agency issued a Final Notice indicating that it will continue to use “expanded-data” House Price Index when establishing Freddie Mac and Fannie Mae’s maximum conforming loan limits.  Release.

 

Mel Watt of FHFA Discusses the Common Securitization Platform and Credit Risk Transfers

In a recent speech, Federal Housing Finance Agency (FHFA) director Melvin Watt discussed key FHFA initiatives for 2016. Watt stated that the common Securitization Platform (CSP) and Single Security efforts will be launched in two stages. Watt stated, “In the first stage, which we are calling Release 1, the CSP will begin issuing and administering only Freddie Mac’s securities. In the second phase, Release 2, the CSP will begin issuing and administering securities for both Enterprises and will do so using the new Single Security for the first time.”

Regarding credit risk transfers, Watt stated that Fannie Mae and Freddie Mac are on pace to exceed the 2015 Conservatorship Scorecard objectives. In terms of next steps, Watt stated, “we want to refine and further standardize the Enterprises’ debt, reinsurance and upfront offerings. This will help broaden liquidity. We will continue to work with the Enterprises on other innovative transaction types, such as credit-linked notes. We will also aggressively continue our work to analyze, assess, and define upfront credit risk transfers. We are committed to engaging stakeholders as part of this process.”  Speech.

Nomura Found Liable in RMBS Trial

On May 11, 2015, Judge Denise Cote of the United States District Court for the Southern District of New York found Nomura Holdings Inc. liable for inaccurately characterizing the mortgage loan collateral backing seven RMBS certificates it sold to Fannie Mae and Freddie Mac between 2005 and 2007.  The suit against Nomura is the last that remains of sixteen lawsuits originally filed against by FHFA against RMBS issuers and sellers alleging violations of Sections 12(a)(2) and 15 of the 1933 Securities Act and state securities laws.  Judge Cote’s decision followed a nearly 4-week bench trial that concluded on April 9, 2015.

In a 361-page decision, Judge Cote found, among other things, that 45% to 59% of the sample loans were materially defective insofar as they deviated from relevant underwriting guidelines, and that 27% of the sample loans were subject to inflated appraisals.  Judge Cote treated this as strong circumstantial evidence that the appraisers did not believe in the credibility of their appraisals at the time that they were made.  Additionally, Judge Cote found that inadequacies in credit ratings of the offered certificates were due to inaccurate loan tapes Nomura provided to the rating agencies.  Finally, Judge Cote found that Nomura’s due diligence practices were insufficient, and rejected Nomura’s argument that market conditions, and not the misrepresentations, caused the losses alleged.  Judge Cote did not specify the amount of damages and asked the parties to submit a proposed judgment by May 15, 2015.  Opinion and Order.

FHFA Release Results of Fannie Mae and Freddie Mac Dodd-Frank Stress Tests

On April 30, the Federal Housing Finance Agency (FHFA) released a report providing the results of annual stress tests Fannie Mae and Freddie Mac are required to undergo under the Dodd-Frank Act.  The report provide updated information on possible ranges of future financial results for Fannie Mae and Freddie Mac under severely adverse economic conditions.  Press ReleaseReport.