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Th e M Rep o RT | 61 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 the latest Fannie mae's mortgage Portfolio on the decline For the sixth time in the last seven months, Fannie Mae's portfolio has contracted. F annie Mae's gross mort- gage portfolio declined at a compound an- nualized rate of 19.1 in August, marking the sixth time in the last seven months that the portfolio has contracted at the rate of at least 13 percent, ac- cording to Fannie Mae's August 2015 Monthly Volume Summa- ry released in late September. For the first eight months of 2015, Fannie Mae's gross mortgage portfolio has contracted at an an- nualized rate of 12.6 percent; the only two months that saw expan- sion were January and March at a rate of 3.5 percent and 7.8 percent, respectively. The balance of the gross mortgage portfolio at the end of August was $377.9 billion, com- pared to $384.6 billion at the end of July. It has seen expansion in only three months out of the last 62 since June 2010 (March 2015, January 2015, and December 2012). At the beginning of that stretch in June 2010, the portfolio's value was $818 billion. At the start of 2015, the portfolio's value was $414.8 billion. The good news for Fannie Mae is that the serious delin- quency rate on single-family mortgage loans is still well below its pre-crisis levels after declining by one basis point in August down to 1.62 percent. The serious delinquency rate on Fannie Mae-backed single-family mortgage loans has declined every quarter since Q1 2010. At 1.62 percent, it is less than half of the national average of 3.4 percent reported by CoreLogic for July. Along with the contraction of the gross mortgage portfolio, however, Fannie Mae's Book of Business also declined. The Book of Business includes the gross mortgage portfolio plus the total Fannie Mae mortgage-backed securities and other guarantees less the Fannie Mae mortgage- backed securities in the portfolio. In August, the Book of Business decreased at a compound annual- ized rate of 2.1 percent, and has now decreased at an annualized rate of 1.1 percent for the first eight months of 2015. The total value of the Book of Business af- ter August's contraction was $3.101 trillion. The total value of Fannie Mae's mortgage-backed securities and other guarantees for August was $2.811 trillion, a slight increase from July's total of $2.813 trillion. The number of loan modifica- tions completed by Fannie Mae was down slightly, from 7,245 in August, down from 8,356 in July. Year-to-date as of the end of August, Fannie Mae has complet- ed 68,049 loan mods, an average of 8,506 per month. Fannie Mae completed an average of 10,235 loan mods per month for the full year of 2014. gse reform Hot topic of Bipartisan Panel Seven years after conservatorship, experts examine the future of Fannie and Freddie. F annie Mae and Freddie Mac were placed into conservatorship seven years ago, and questions still linger as to how and when to reform the GSEs. The Bipartisan Policy Center hosted a keynote address and panel discussion titled "Housing Finance Reform: Opportunities and Obstacles of Risk Sharing" in October. The event highlighted GSE reform and conservatorship, the need for more private capital in the financial system and to transfer risk away from taxpayers and GSEs, focusing on risk shar- ing, specifically "front-end," which makes housing finance more sustainable. While the GSEs are experiment- ing with additional forms of risk sharing, all of them are handled on the back end after the loan is on the GSEs balance sheets. The keynote speakers were Sen. Bob Corker (R-Tennessee), member, Senate Banking Committee and Sen. Mark Warner (D-Virginia), rank- ing member, Senate Securities, Insurance, and Investment Banking Subcommittee. The other panel included Laurie Goodman, director of the housing finance policy center at Urban Institute; Mike Fratantoni, chief economist at the Mortgage Bankers Association; Kevin Chavers, managing director at BlackRock; Pat Sinks, CEO of Mortgage Guaranty Insurance Corp.; and Bob Ryan, acting deputy director of the division of conservatorship at the Federal Housing Finance Agency. Nic Retsinas, senior lecturer in real estate at Harvard Business School, moderated the panel. In June, a bipartisan group of Senate Banking Committee mem- bers wrote a letter to the Federal Housing Finance Agency (FHFA) requesting that the agency expand and provide better transparency of the development of the credit risk transfer programs. These programs shift credit risk from Fannie Mae and Freddie Mac to the private sector, accord- ing to a press release. "We supported the direc- tion of the risk sharing language within Title VII of The Financial Regulatory Improvement Act of 2015, and we strongly support the expansion of these transactions, given they provide a vehicle for moving the government out of the first loss position and inform the process for policymakers looking to invite greater private capital into the market," the senators noted in the letter. "The credit risk transfers are a vehicle for moving the hous- ing market forward by attracting private sector investors, improv- ing access to credit, and reducing taxpayer risk. As such, we ask that you prioritize work with the Enterprises on transactions designed specifically to push out first loss credit risk to the market, and to encourage transparency for investors and the public so that we can all better judge how these transactions impact returns to the Enterprises, costs to the taxpayer, and effects to the health of the broader housing finance system," the letter stated. Coker cautioned that GSE reform could "be a while and won't happen in the next year and four months. Some of our wingers are migrating over to this third amendment thing because it makes it easy not to do anything." The overall consensus of the panelists was that moving forward, the goal should be to strengthen the housing market, build more capital, and enhance credit risk transfers. However, GSE reform could be a lengthy and a difficult issue to overcome as "legislation on this topic remains elusive, the new word for 'not happening,'" the introductory speaker said.