WE’RE HEARING that Fannie Mae and Freddie Mac will be selling assets out of their mortgage investment portfolios this year.
Federal Housing Finance Agency acting director Edward DeMarco noted in a recent speech that the portfolios used to be dominated by their own MBS and performing loans.
“As those securities have paid down, and as the need to work through delinquent loans increased, the retained portfolios changed from being liquid to less liquid,” he said.
An Inspector General report shows Fannie’s investment portfolio has $386.8 billion in whole loans. And 60% of those whole loans are modified or delinquent. Freddie has $232 billion in whole loans and 50% are distressed loans.
“To address this issue and further ‘derisk’ the [GSEs’] portfolios in 2013, we are setting a target of selling 5% of the less liquid portion of the retained portfolios,” DeMarco said on March 4.
But it appears the FHFA hasn’t decided which illiquid assets to sell—nonperforming loans, modified loans or private-label securities.
“The 2013 Scorecard released on March 4 sets forth a goal for Fannie Mae and Freddie Mac to reduce their retained portfolios by selling 5% of their illiquid assets, which could include nonperforming loans, reperforming modified loans, or PLS,” according to Meg Burns, FHFA senior associate director for housing and regulatory policy.
Fannie and Freddie do not currently sell nonperforming loans.
The FHFA Office of Inspector General points out the modified and delinquent loans in portfolio are difficult to manage in terms of interest rate risk. “Although short-term interest rates are at historically low levels, the risk of a sharp increase in them cannot be discounted,” the IG warns.
The GSE regulator also recognizes that these distressed loans are likely to remain in the portfolios for an “extended period, perhaps until their maturity, unless they are sold at a reduction—perhaps a significant reduction—from their face amount,” the report says.
MOST EMAILED: Opposites attract, or so the thinking goes. Our most emailed item this week was on the possible merger of New York Community Bank and OneWest Bank in California, a unit that has an abundance of assets from the failed mortgage lender IndyBank. Robert Barba’s item giving the details on the cross-country romance is here.
CAPTAIN VIDEO: Check out our multimedia section! It’s where we put up our own videos and slideshows of SourceMedia events like the Mortgage Technology Conference and also where we host video bloggers from the industry. (If you’d like to do a regular video blog for us, email firstname.lastname@example.org) Here’s a recent one: Susan Milazzo, president of the California Mortgage Bankers Association, talks about mortgage issues currently up for state legislation, including recordation fees, lien issues, and energy efficiency for commercial properties. If you’re from Cally these are directly applicable to you. If not, they may be coming attractions!
OH THOSE VINERS, ST. PATTY’S DAY VERSION: Far be it from our community at mortgagegrapevine.com to forget about a holiday! And the first thing that Viners think about when they think about the Irish saint is: going to church? If you don’t believe us, see it for yourself! One of our posters has started a signup sheet for devout Viners who will go to church to start off the holiday. (So far, no takers.) And, happy St. Patty’s Day. If you are working tomorrow, don’t lend and drive!
SHOUT OUT: We’ve been trying to encourage a return to fuller employment (key for a healthy mortgage market) by giving a shout out in this blog to any company in the sector that hires ten or more new people. This week we don’t see any but to keep the energy going we’re going to refer to a blog by our new blogger, George Yacik, who has written about this topic, specifically on loan officers moving from big banks to smaller lenders and nonbanks. And since we correspond with George, and don’t trade on this insider info, we can tell you that his blog for next week will be on the subject of employment, too!
Mark Fogarty is editorial director of the SourceMedia Mortgage Group and has been commenting on the mortgage market since 1984. Brian Collins is the group’s senior editor and D.C. bureau chief. He has worked the mortgage beat since 1988.