Compliance & Regulation

Freddie Mac has priced a new 2.50% $3.5 billion five-year Reference Notes security due Jan. 7, 2014 at 99.437 to yield 2.621% or 95 basis points more than five-year U.S. Treasury notes. It also priced a new 1.50% $3 billion two-year Reference Notes security at 99.873 to yield 1.565% or 77 basis points more than two-year U.S. Treasury Notes. A syndicate of dealers headed by Barclays Capital Inc., Citigroup Global Markets Inc., and Goldman Sachs Group separately offered both securities. The Committee on Uniform Securities Identification Procedures identifier for the five-year security is 3137EABX6 and the CUSIP for the two-year security is 3137EABW8.

Ronald Rosenfeld, who served for nearly four years as the chief regulator of the Federal Home Loan Banks, has resigned now that his former agency has been merged into the Federal Housing Finance Agency. Mr. Rosenfeld became chairman of the Federal Housing Finance Board, which supervised the 12 FHLBanks, in December 2004, after serving four years as the president of Ginnie Mae. As chairman, Mr. Rosenfeld marginalized the FHLBanks' mortgage purchase programs and curbed the banks' use of excess stock. During his tenure at Ginnie Mae, he improved the pricing of Ginnie Mae II securities. The new Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and the FHLBanks. Stephen Cross is the deputy director in charge of FHLBank supervision.

The Senate Banking Committee has scheduled a Jan. 13 hearing to consider the nomination of Shaun Donovan to be the secretary of housing in the Obama administration. President-elect Barack Obama has selected the New York City housing commissioner to head the Department of Housing and Urban Development. Mr. Donovan previously served at HUD during the Clinton administration as deputy assistant secretary for multifamily housing. After leaving HUD, Mr. Donovan worked at Prudential Mortgage Capital Co. as managing director for Federal Housing Administration lending and affordable housing investments. The early confirmation hearing could put Mr. Donovan in line for a quick Senate approval so he can take the helm at HUD shortly after Mr. Obama is sworn in as president on Jan. 20.

Federal regulators have decided to give banks and thrifts Community Reinvestment Act credit for helping to prevent foreclosures. "Examiners may consider favorably" the establishment of loan programs to modify and restructure mortgages for homeowners facing foreclosure, according to a newly revised "Interagency Questions and Answers Regarding Community Reinvestment." Banks can also receive community development services points by providing foreclosure prevention programs to low- and moderate-income homeowners. "The new and revised Questions and Answers encourage financial institutions to participate in foreclosure programs that have the objective of providing affordable, sustainable, long-term restructurings and modifications for homeowners who are facing foreclosure on their primary residences," according to a joint statement by the regulators.

The National Association of Home Builders is willing to discuss a temporary change in the bankruptcy code to facilitate loan modifications as they lobby Congress for passage of key provisions to boost home sales. "It is a 180 degree turn for us. But desperate times call for desperate measures," NAHB chief executive Jerry Howard said. The builders are concerned foreclosures are making it difficult to sell off excess inventory and vacant homes are pushing appraisals on new homes down to liquidation prices. NAHB also supports a loan modification program developed by the Federal Deposit Insurance Corp. and it is urging Congress to provide $25 billion for the loan guarantees. The builder's main legislative agenda calls for passage of an interest rate buy-down program and an expanded homebuyer tax credit as part of the massive economic stimulus bill that Congress is expected to pass in mid-February. Builders and executives from related industries met in Washington Wednesday to lobby for the buy-down and tax credit provisions. NAHB estimates enactment could increase new home sales by 200,000 and existing home sales by 1 million this year.

In the face of the growing concern among middle age and older Americans about their ability to make their house payments, the AARP has put helping people facing foreclosure remain in their homes near the top of its agenda for the 111th Congress. Specifically, the AARP supports legislation that would give bankruptcy judges the discretion to modify the primary mortgage debt of people who can't afford to pay their loans. "Our political leaders need to make some tough choices," CEO Bill Novelli said at a press briefing outlining the group's legislative goals. Elaine Ryan, AARP's vice president for government relations and advocacy, said during a recent three-month period, more than 700,000 older Americans faced foreclosure. "It's not just first-time buyers, but seniors who are victims of predatory reverse mortgages and persons who had houses willed to them" and were then scammed by mortgage fraudsters, she said. Released along with the group's advocacy agenda were the results on a December telephone survey, including "a new finding" that one third of the 1,097 respondents were worried about being able to afford their mortgage or rent over the next 12 months. Almost half the respondents have already found it tougher to pay their utility bills. AARP's housing plank also calls for a one-year moratorium on foreclosures, an expansion of home equity mortgages as a foreclosure avoidance tool, and great accountability for abusive lending practices.

Sen. Dick Durbin, D-Ill., has introduced a bill that would allow bankruptcy judges to modify mortgages on primary residences and he is working to include it in the economic stimulus package. The Senate assistant majority leader said Congress has already committed over $1 trillion to address the financial crisis. "Why don't we take a step that would indisputably reduce foreclosures and that would cost taxpayers nothing?" Sen. Durbin asked. The Financial Services Roundtable said the Durbin bill and a similar measure introduced by Rep. John Conyers, D- Mich., in the House would be "counter-productive" and encourage bankruptcies. "They will inject additional risk into home buying and the markets will respond by increasing interest rates, fees, downpayments, or all three," FSR president and chief executive Steve Bartlett said.

Investment funds affiliated with PennyMac -- a "scratch and dent" firm headed by a former top executive at Countrywide Financial Corp. -- have purchased a $558 million portfolio of 2,800 residential loans from the government using a cashflow sharing arrangement. Initially, the Federal Deposit Insurance Corp. will receive 80% of the cashflow on the mortgage portfolio with the balance going to the investor group. A spokesman said eventually the FDIC will receive 60% of the cashflow. "Once it hits a certain threshold it adjusts downward," said the spokesman. He declined to say what that threshold is. The portfolio consists of outstanding first and second liens scattered throughout the U.S. with the heaviest concentration in Arizona, California, Florida, and New York. PennyMac's servicing division will service and work out the loans, the company said in a statement. Investment funds managed by a PennyMac affiliate called PNMAC Capital Management LLC bought the loans from the FDIC, paying cash for them. The portfolio belonged to First National Bank of Reno, which failed this summer. PennyMac is headed by Stanford Kurland, who was forced out of Countrywide in 2006 in a power struggle with then chairman and CEO Angelo Mozilo. (On July 1 CFC was sold to Bank of America.) At one time Mr. Kurland was considered to be Mr. Mozilo's successor at the company. PennyMac was formed by Mr. Kurland last year with financial backing from BlackRock Inc. and other investors.

Departing Treasury Secretary Henry Paulson on Wednesday weighed in on the future of Fannie Mae and Freddie Mac, suggesting a 'public utility' model might be the best way to "resolve the inherent conflict between public purpose and private gain." Speaking before the Economic Club of Washington, Mr. Paulson repeatedly emphasized that the "pre-conservatorship" structure of Fannie Mae and Freddie Mac is not an option for policy makers who will weigh in on the issue this year. Mr. Paulson said the nation needs what he called a "vibrant private market" for mortgages, saying the government might want to "enhance" the ability of depositories to fund mortgages as a possible substitute should Fannie and Freddie be dismantled. He provided no details but discussed four options: expanding the role of FHA and GNMA in mortgages; creating a partial government guarantee for MBS issued by GSEs; completing privatizing the housing GSEs; and the public utility model where private sector money would be used to purchase and securitize mortgages (but not hold them) and where the government would set interest rates and yields.

Sen. Dick Durbin, D-Ill., has introduced a bill that would allow bankruptcy judges to modify mortgages on primary residences and he is working to include it in the economic stimulus package. The Senate assistant majority leader said Congress has already committed over $1 trillion to address the financial crisis. "Why don't we take a step that would indisputably reduce foreclosures and that would cost taxpayers nothing?" Sen. Durbin asked. The Financial Services Roundtable said the Durbin bill and a similar measure introduced by Rep. John Conyers, D- Mich., in the House would be "counter-productive" and encourage bankruptcies. "They will inject additional risk into home buying and the markets will respond by increasing interest rates, fees, downpayments, or all three," FSR president and chief executive Steve Bartlett said.