The Federal Housing Finance Agency (FHFA), which is the regulator and conservator of Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA) and Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), as well as regulator of 12 Federal Home Loan Banks, released its ‘2013 Performance and Accountability Report’ yesterday.
The report provides detailed information on the Agency’s performance on its goals, assistance to homeowners and plans for the future.
FHFA’s role as regulating Fannie Mae and Freddie Mac
The FHFA was established in 2008 and charged with the responsibility of overseeing all the housing GSEs, namely, Fannie Mae / Federal National Mortgage Association (OTCBB:FNMA), Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC), and the Federal Home Loan Bank System (12 Federal Home Loan Banks and the Office of Finance) to ensure that the GSEs operate in a safe and sound manner. Fannie Mae and Freddie Mac are collectively referred as Enterprises in the report.
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Two figures in the report, shown below, present very clearly the Agency’s functional role as a regulator and conservator.
Improvement in financial condition of the Enterprises and FHL Banks
FHFA reports that the Enterprises achieved positive earnings results during the period October 2012 through September 2013 as per the chart below.
Earnings apart, the Enterprises were able to return a substantial portion of the assistance received from taxpayers via the Senior Preferred Stock Purchase agreements with the Treasury. Against total draws of $187.5B, the Enterprises have already refunded $146.6B to the Treasury in the form of cash dividends.
The FHL Banks too have achieved a much-improved financial condition in recent times, being profitable for the third year running, and building up their reserves.
Improvement in credit quality of the Enterprises’ portfolios
Troubled loans dating prior to 2009 now comprise a much smaller proportion of the Enterprises portfolios. Additionally, loans acquired after 2009 exhibit a better credit performance. Taken with rising house prices, these factors caused the amount of seriously delinquent loans to steadily decline, and a corresponding reduction in the value of loss reserves carried on the books of the Enterprises. This in turn boosted their profitability.
In July and October 2013, the Enterprises each executed Structured Agency Credit Risk (STACR) transactions worth $30B that share the credit risk on single-family mortgages with the private sector. These transactions were in compliance of the mandate given to the Enterprises to shift the risk from taxpayers to the private capital markets.
These transactions also marked the first actions towards gradually contracting the dominant presence of the Enterprises in the mortgage market, as shown in the chart below.
Common Securitization Platform
In recognition of legislative demands for changes in the housing and securitization infrastructure of the future, the FHFA directed the Enterprises to establish a Common Securitization Platform, leading to the incorporation of Common Securitization Solutions (CSS), a company that would take this forward.
Assistance to troubled mortgage borrowers
The Enterprises completed 2.97 million foreclosure prevention actions since September 2008, thereby helping over 2.4 million borrowers to continue to have a roof over their heads.
The enterprises also achieved over 2.9 million Home Affordable Refinance Program (HARP) refinances since conservatorship began through August 2013.
Clean audit reports
The FHFA became five years old in July. It received an unmodified, or clean audit opinion on its financial statements from the US Government Accountability Office for the fifth year running.