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Th e M Rep o RT | 63 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 LocaL edition washington D.c. // The Federal Housing Finance Agency (FHFA) submitted its 2013 Report to Congress, which detailed findings from the agency's latest examination of Fannie Mae and Freddie Mac. The report found that although experiencing significant exposure to credit losses from mortgage originations several years prior to the government's conservator- ship, the two GSEs had record amounts of net income in 2013. The report noted that com- bined net income for Fannie and Freddie totaled $132.7 billion, benefiting from a number of non-recurring items such as "the reversal of the valuation allowance associated with deferred tax assets and various legal settlements." The FHFA found that the credit quality of new single-fam- ily guarantees in 2013 remained high by historical compari- sons. They found that higher risk loans, such as no-income documentation or interest-only mortgages, have mostly been eliminated from the GSEs portfolio. Loan-to-value ratios for mortgages in 2013 stood at 73 percent, while the average credit score for purchase money mort- gages stood in the 740s. The agency noted that the average FICO score at the end of 2013 was roughly 25 points higher than scores prior to conservatorship. The FHFA's report also found that although the Treasury's financial support helped stabilize the two com- panies, they are not in "sound financial condition." "The enterprises remain exposed to credit, counterparty, and operational risks. Credit risk management remains a key priority for both enterprises given their substantial amount of remaining legacy distressed assets and ongoing stress in certain housing markets," FHFA said. The agency also noted a growing shift: more mortgage- servicing portfolios are be- ing transferred from banking organizations to non-depository institutions. Record-keeping, legacy systems, and human capital all remain concerns for the govern- ment agency. However, the FHFA believes that the enterprises cannot remain in conservatorship per- manently. The agency said that the expansion of private sector participation is essential for the long-term health of the mortgage market, with the goal of execut- ing risk-sharing transactions on $30 billion of mortgages as hav- ing been met. The FHFA believes that, "In particular, it is critical that the enterprises dedicate appropriate resources to maintaining safe and sound operations in the face of uncertainty regarding the long-term prospects of the enter- prises' operations and charters." mortgage rates Hover Following Fed announcement No losses, but No gaiNs, ac- cordiNg to a survey of the market. washington D.c. // Just as the Federal Reserve kept its course on bond purchases this week, mortgage rates remained more or less steady as well, measures show. Freddie Mac released this month the results of its Primary Mortgage Market Survey for the week ending June 19, recording an average interest rate of 4.17 percent (0.6 point) for a 30-year fixed-rate mortgage (FRM), down from 4.20 percent last week. A year ago, the 30-year FRM averaged 3.93 percent. The 15-year FRM was also down, albeit only 1 basis point, averaging 3.30 percent (0.5 point) for the week. Shifting to adjustable-rate mortgages (ARMs), the average rate for a 5-year Treasury-indexed hybrid ARM was 3.00 percent (0.4 point) this week, falling from 3.05 percent. The 1-year ARM, on the other hand, ticked up to 2.41 percent (0.4 point) from 2.40 percent previously. A year ago, interest rates were on their way up due to specula- tion that the Fed may soon have started tapering its bond stimulus. Now that the central bank is on track to potentially end its stimulus purchases by the end of the year, rates have actually shown little movement, defying expectations. While the first quarter's economic contraction is partly responsible for rates staying put, analysts at finance site Bankrate. com say developments overseas are also having an effect. "[A]lthough the Fed is buy- ing fewer bonds, the ongoing stimulus efforts of the European Central Bank have driven inter- est rates so low on the other side of the Atlantic that many overseas investors have piled into U.S. Treasuries, filling the void left by the Fed and keeping both bond yields and mortgage rates at low levels," they said. As for its own national survey, Bankrate captured the 30-year fixed at an average 4.33 percent, down a single point, while the 15-year fixed was up the same amount 3.44 percent. Meanwhile, the 5/1 ARM remained unchanged at 3.37 percent.