February 2014

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Th e M Rep o RT | 59 O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET Department FHFa reviews 2013 settlements Fannie and Freddie's conservator took back about $8 billion last year. a s conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA) recovered nearly $8 billion on behalf of taxpayers in 2013 through settlements with financial institutions. FHFA sued 18 financial insti- tutions in 2011 alleging violations of the federal Securities Act of 1933 and, in some cases, alleg- ing fraudulent activity related to sales of private-label mortgage- backed securities to Fannie and Freddie between 2005 and 2007. The GSEs' regulator reached settlements with six institu- tions named in the 2011 suits last year, the largest of which was JPMorgan Chase & Co. for $4 billion. FHFA settled with Deutsche Bank AG for $1.925 billion, UBS Americas (Union Bank of Switzerland) for $885 million, Ally Financial for $475 million, CitiGroup for $250 million, and General Electric Co. for $6.25 million. A non-litigation agreement was also struck outside of court with Wells Fargo Bank in October for $335.23 million. Of the 18 lawsuits filed by FHFA, 12 are still pending a resolution. Named as defendants in these are Barclays Bank, Bank of America, Credit Suisse Holdings (USA), First Horizon National Corp., Goldman Sachs & Co., HSBC North America Holdings (Hong Kong Shanghai Banking Corp.), Merrill Lynch & Co., Morgan Stanley, Nomura Holding America, SG Americas (Societe Generale), the Royal Bank of Scotland, and Countrywide Financial. "FHFA remains committed to satisfactory resolution of the remaining actions," the agency said in a separate statement. When FHFA stepped in as conservator of the nation's two largest mortgage financiers in September 2008, the agency was charged with "preserving and conserving" the GSEs' assets on behalf of taxpayers since Treasury pumped $187 billion of taxpayer dollars into the two companies over the last five years. In line with this mandate, FHFA has aggressively pursued repurchase claims made by Fannie Mae and Freddie Mac to recoup GSE losses on bad loans sold to them by financial institutions in the private sector in the run-up to the housing crash. After a review of loans purchased by the GSEs during the 2005–2007 time frame, FHFA determined the loans had different and more risky character- istics than was relayed in the mar- keting and sales materials used to sell the securities to the enterprises. FHFA said the complaints filed in 2011 reflected its conclusion that some portion of the losses Fannie Mae and Freddie Mac incurred on these private-label mortgage- backed securities were attributable to misrepresentations and other improper actions by the firms and individuals named as defendants. FHa seeking comment on cut to conforming loan limits The administration's proposal would lower the ceiling to $400,000 for most of the country. t he Federal Housing Fi- nance Agency (FHFA) says it wants input on a plan to lower the ceiling for loans eligible for purchase by Fannie Mae and Freddie Mac. Under FHFA's proposed plan, the $417,000 maximum limit for single-family homes in most areas around the country would be lowered to $400,000, a reduc- tion of about 4 percent. Areas with higher limits would see a similar cut, with the $625,500 maximum dropping to $600,000. As FHFA said in its an- nouncement, the proposed decrease "furthers the goal of contracting the market pres- ence of Fannie Mae and Freddie Mac gradually over time"—an objective laid out in the agency's Strategic Plan for Enterprise Conservatorships. "The loan purchase limits, which FHFA would set under its authority as conservator of Fannie Mae and Freddie Mac, would modestly reduce Fannie Mae's and Freddie Mac's business at the high end of the market, invite private capital to re-enter the market, and limit taxpayer exposure to losses," the release goes on to say. Among the agency's concerns are whether an advance notice of six months is adequate, whether it is preferable to work with a multiyear schedule of decreases, and when any future loan limit reductions should be enacted. While there has been little public reaction from the industry regarding the proposal, history would suggest many housing groups will oppose reduced lim- its, with the National Association of Realtors recently applauding an announcement that conform- ing loan limits will stay as they are for the time being. Nevertheless, FHFA's an- nouncement includes an assur- ance that no final decision on purchase limits will be made until comments are reviewed and that the discussed changes will not affect loans originated before October 1, 2014. "FhFA remains committed to satisfactory resolution of the remaining actions." — FHFA

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