Lending in the High Tech Age

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Local edition s e c on da r y m a r k e t a na ly t ic s se r v ic i ng Or ig i nat ion SECONDARY MARKET Corker, Warner: Secondary Market Reform Bill 'Gaining Momentum' Zillow chats with the senators who put together the bill designed to privatize the secondary market. VIRGINIA // Sen. Mark R. Warner (D-Virginia) is seeing "tremendous momentum" toward GSE reform in Congress, he said during a recent discussion with Zillow chief economist Stan Humphries. He also expressed his optimism that the Housing Reform and Taxpayer Protection Act of 2013—a bill he helped cosponsor—"actually has a chance" of passing. Fellow co-sponsor Sen. Bob Corker (R-Tennessee), who was also part of the discussion with Humphries, expressed similar sentiment, saying the bill is "gaining momentum." The major components of the bill include winding down Fannie Mae and Freddie Mac over a period of five years; placing private capital in a first-loss position in which they would absorb 10 percent of losses before a government bailout ensued; and creating a Federal Mortgage Insurance Corporation (FMIC) to ensure securitized loans. Corker and Warner said 10 percent risk retention by the private market is double what would have been necessary to prevent the bailout that took place in the recent housing crisis. Not only does the 10 percent provision likely preclude the need for a government bailout in the future, but also the private market "does a much better job than the government ever would pricing that risk," Warner said. Warner said the combination of the roles the GSEs have played in the housing market—securitizing loans, insuring those loans, and supporting low-income housing and first-time home buyers— "makes no long-term sense." 62 | The M Report Therefore, the Taxpayer Protection Act of 2013 splits these objectives up so that securitization is achieved in the private market, and the FMIC insures securities. Regional banks would gain access to the secondary market through the FMIC, and Freddie Mac Announces More Repurchase Settlements Wells Fargo and SunTrust move to clear up their legacy issues. The Housing Reform and Taxpayer Protection Act of 2013 "actually has a chance" of passing. the FMIC would be owned by member institutions rather than the government. Corker added that any need for a bailout is also reduced by the bill's enhanced underwriting standards. When asked about the viability of a market with no government guarantee, Corker said, "Going to a completely privatized system today, to me, is not something that has one chance of passing." A government backstop encourages market liquidity, he said. Warner said the industry has given the bill "a seven or eight" on a scale of one to 10, and the bill already has 10 co-sponsors in Congress. GEORGIA // Two more companies are in the clear with Freddie Mac following agreements on claims related to loans that went south after being sold. Wells Fargo and SunTrust Mortgage are the two most recent companies to settle over claims regarding representations and warranties on single-family loans sold to the GSE. It was also announced that Freddie Mac had reached an agreement with Citigroup for the same issues. All agreements were approved by the Federal Housing Finance Agency (FHFA), acting in its capacity as Freddie's conservator. Together, the three institutions are paying $1.3 billion to the enterprise. In exchange, they will be released from certain existing and future repurchase obligations for loans sold during the housing boom. For its portion, Wells Fargo has agreed to pay a total of $869 million, $89 million of which has already been credited for repurchases already made. The bank said in a statement it had "fully accrued for the cost of the agreement" as of the end of the second quarter. The agreement covers approximately 6.7 million loans. A representative for Wells Fargo could not be reached for comment. Under SunTrust's agreement, the company will pay the GSE a total of $65 million (minus credits of $25 million). As part of the settlement, it will be released from obligations on approximately 312,000 mortgages. While the majority of the settlement is covered by SunTrust's repurchase reserves, the company expects to take a mortgage provision expense of $15 million for the third quarter. "We are pleased to enter into this agreement with Freddie Mac as it marks another step in our resolution of legacy mortgage-related matters," said SunTrust Mortgage CEO Jerome Lienhard. "We continue to remain focused on providing highquality products and services to our mortgage clients." "With these settlements, Freddie Mac is recouping funds effectively due to the nation's taxpayers," said Freddie Mac CEO Donald Layton. "We believe these settlements are equitable, and we are pleased to have resolved legacy repurchase issues with three of our valued customers." Ally Exec to Replace Freddie Mac's Departing CFO James Mackey will take over for CFO Ross Kari, who is retiring.

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