April 2016 - Tech Revolution

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TH E M R EP 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 FHFA Continues Outreach Efforts to HARP-Eligible Homeowners The Federal Housing Finance Agency released its 2015 scorecard, reporting outreach efforts to both borrowers and lenders regarding HARP. F annie Mae and Freddie Mac took steps last year to continue encouraging homeowners to refinance their mortgages, all while making efforts to stabilize their operations in federal conservatorship. The Federal Housing Finance Agency (FHFA), which over - sees the two GSEs, detailed its measures in a 2015 scorecard report the agency released in early March. According to the report, FHFA conducted outreach with the Treasury Department to homeowners eligible for the Home Affordable Refinance Program (HARP) in places like Newark, Phoenix, and Columbus. The agency noted it wanted to reach out to home - owners who had other factors that could compensate for their low credit scores. To do this, Freddie Mac rolled out a quality control pilot for pre- and post- closing and altered its Home Possible Advantage product. For its part, Fannie Mae ditched its MyCommunityMortgage product for HomeReady, which offered income limits for proper - ties in low-income census tracts and counted documented income from non-borrower household members as relevant in reviewing a borrower's debt-to-income ratio. FHFA also highlighted its efforts to expand lender partici - pation. The agency also brought on 102 new small lenders as ap- proved sellers—something it said exceeded its original goals. The agency cast these efforts as ones it made along three conservator - ship priorities. These priorities include maintaining credit avail- ability for homeowners eligible to refinance their mortgages, increasing private capital in the mortgage market, and developing new architecture like the single- family loan model. "This Progress Report underscores our commitment to accomplishing our goals of fostering liquidity and efficiency in the housing finance mar - kets, reducing risk to taxpayers and building a new mortgage securitization infrastructure, and our commitment to doing so in a safe and sound manner," FHFA Director Melvin Watt said. "Working collaboratively with Fannie Mae and Freddie Mac, we have accomplished a tremen - dous amount over the past year and we look forward to building on this success in 2016," Watt added. Fannie and Freddie entered federal conservatorship during the housing downturn in 2008. Lawmakers, bank executives, and others continue to call for the GSEs' removal from taxpayer backing. Reuters reports that Bank of America Merrill Lynch called for an end to conservator - ship for the GSEs, given their lack of capital cushions. "We think this opens the door to FHFA pursuing a recapital - ization plan, eventually leading to the end of the conservator- ships," Reuters reported Bank of America Merrill Lynch's rates strategist, Ralph Axel, as saying. law—which does not permit the Net Worth Sweep. Steele stated in his letter that the Ninth Circuit Court's holding that the conservatorship placed FHFA "in the shoes of Fannie Mae and Freddie Mac, and gives the FHFA their rights and du - ties, not the other way around" contradicts the FHFA's motion to dismiss the Jacobs case, in which the agency asserted Fannie Mae and Freddie Mac should be sub - ject to federal and not state law. "This holding is contrary to Defendants' arguments that federal law, not state law, governs the conservator's power to implement the Net Worth Sweep as a term of preferred stock, and that FHFA has authority under HERA to act as it sees fit without regard to whether Fannie Mae and Freddie Mac themselves have power under state law to issue preferred stock having the terms of the Net Worth Sweep," Steele wrote. The FHFA declined to com - ment on the Ninth Circuit ruling. The case ruled on by the Ninth Circuit Court was a False Claims Act suit originally brought about by a group of Realtors in the U.S. District Court for the District of Nevada against various mortgage lenders and loan servicers. The plaintiffs claim the defendants certified that loans purchased by Fannie Mae and Freddie Mac were free and clear of certain HOA charges and liens when they were not, and further alleged that the false certifications were made to the GSEs as instrumentalities of the United States, according to the Ninth Court ruling. The Net Worth Sweep began in August 2012 after an amend - ment to the original bailout agreement for Fannie Mae and Freddie Mac. The GSEs returned to profitability in 2012, four years after accepting a taxpayer-funded bailout of $187.5 billion. The Net Worth Sweep has spawned sev - eral lawsuits by Fannie Mae and Freddie Mac investors, notably by Florida-based mutual fund Fairholme Funds (still pending). A spokesperson for Fairholme Funds told MReport the firm had no comment on the Ninth Circuit Court ruling. "Working collaboratively with Fannie Mae and Freddie Mac, we have accomplished a tremendous amount over the past year and we look forward to building on this success in 2016." —FHFA Director Melvin Watt

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