TheMReport

60 | TH E M R EP O RT 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 Stakeholders Urge Watt to Reduce LLPAs and G-Fees NAR, NAHB and other major organizations pen letter to FHFA director on eliminating fees. A group of 25 stakehold- ers in the housing industry that includes some of the coun- try's most influential housing organizations has written a let- ter to FHFA Director Mel Watt asking him to either reduce or eliminate loan-level price adjustments (LLPAs) and guar- antee fees charged by Fannie Mae and Freddie Mac. LLPAs are paid at the time the loan is delivered to the GSEs and can total up to 4 percent of the loan value for some borrowers, depending on such factors as credit scores and LTV ratios. These fees were introduced in 2008 to address increasing default risk. In the letter, the groups noted that G-fees have increased by approximately 164 percent from 2009 to 2014—from 22 basis points to 58 basis points—while during that same time, credit quality increased and regulations limiting risk to the GSEs went into effect. These G-fees, combined with LLPAs, have "resulted in substantial gains in the GSEs' income, without achieving broad access to credit, despite the FHL Banks Ready for Meltdown; GSEs Not Dodd-Frank stress tests reveal how an economic downturn would impact today's biggest financial institutions. I n its annual report to Con- gress, the Federal Housing Finance Agency (FHFA) published the results of Dodd-Frank stress tests that as- sess what would be the impact of "immediate financial shocks and nine quarters of adverse economic conditions" on capital levels among institutions with at least $10 billion in assets. The verdict? Federal Home Loan banks (FHLs) came through sparkling. The GSEs, not so much. According to FHFA, all 11 of the FHLs maintained compliance with regulatory capital and lever - age capital requirements over the nine quarters of the stress test, with the banks of San Francisco and Seattle projecting assets well above regulatory minimums. "Though some variables caused negative net income or other reductions in capital under the severely adverse scenarios, these losses were lower than the cushion the FHL banks held above their capital requirements at the start of the stress test," the report stated. Nine FHLs projected negative net income in one or more quar - ters under the Severely Adverse scenario, but only two projected cumulative losses over the nine quarters. These losses occurred almost entirely in the first quar - ter of the projection period and were primarily due to "Other Than Temporary Impairment" charges on securities. But even with projected losses, FHLs showed they would be able to withstand a repeat of the 2008 crash. On the other side of the good news, Fannie Mae and Freddie Mac each projected draws from the U.S. Treasury Department to the tune of billions. In the Severely Adverse scenario, Fannie Mae projected additional draws of between $34.2 billion and $94.9 billion, depending on the treatment of deferred tax as - sets, the report stated. As of September 2014, Fannie had drawn $116.1 billion and had $117.6 billion in remaining funding commitment. Fannie Mae projected that the remain - ing funding commitment under the Preferred Stock Purchase Agreement (PSPA) at the end of the Severely Adverse scenario would range between $22.6 bil - lion and $83.4 billion. Freddie Mac fared only slightly better in anticipated draws, projecting additional draws of between $34.4 billion and $62.3 bil - lion, depending on the treatment of deferred tax assets in the event of a calamity. As of September 2014, Freddie had drawn $71.3 billion from the Treasury Department under the terms of the PSPA, with $140.5 billion of remaining funding commitment. Freddie Mac projected that the remaining funding commitment under the PSPA at the end of the Severely Adverse scenario would range between $78.2 billion and $106.1 billion.

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