Investors are snapping up a new type of security sold by Fannie Mae and Freddie Mac, increasingly assuming the risks of mortgage defaults from taxpayers and powering a quiet transformation of the housing giants after almost a decade of government control, the Wall Street Journal reported today. Fannie and Freddie have sold roughly $48 billion of the securities since 2013 to a broadening group of buyers including asset managers and insurance companies. Sales are expected to reach a fresh high of $15 billion this year, up from the previous record $13 billion last year, according to JPMorgan Securities. The sales mark an early step toward reducing the government’s role in the $14.4 trillion U.S. mortgage market. The amount of mortgage debt funneled through Fannie and Freddie and other taxpayer-backed entities roughly doubled after the financial crisis, to around 70 percent.
Advocates for the elderly persuaded federal housing officials two years ago to offer more rights and protections to the spouse of a borrower who takes out a reverse mortgage and later dies. Now there is concern that a small wording change in the Trump administration’s proposed budget request for the Department of Housing and Urban Development could undo some of those protections — potentially increasing the chances that a surviving spouse who did not sign the mortgage documents could lose a home in a foreclosure, the New York Times reported today. Two United State senators sent a joint letter to Ben Carson, the secretary of HUD and Mick Mulvaney, director of the Office of Management and the Budget two months ago, seeking clarity on the proposed wording in the budget request. Sens. Marco Rubio (R-Fla.) and Catherine Cortez Masto (D-Nev.) asked whether the agency was seeking to reverse the earlier policy change.
Fannie Mae and Freddie Mac could need a taxpayer bailout of as much as $99.6 billion if a severe economic downturn gripped the U.S., their regulator said yesterday, according to a MarketWatch.com report. The Federal Housing Finance Agency released the results of a stress test that examined how the mortgage finance companies would perform in what’s called a “severely adverse scenario.” The stress test was mandated by the post–financial crisis Dodd-Frank Act and the specifics of the scenario were devised by the Federal Reserve. The test found that Fannie and Freddie together would require between $34.8 and $99.6 billion, FHFA said. That’s an improvement from last year, when FHFA said the enterprises would need $125.8 billion. The two government-sponsored enterprises have operated under federal conservatorship since the 2008 crisis. In 2010, the Obama administration amended that 2008 agreement to require that Fannie and Freddie send all their profits to the Treasury and draw down remaining capital buffers until they reach zero in 2018.
The developer of an enormous Ute Avenue mansion that at one time was the most expensive home on the market in Colorado is being sued by a lender who has foreclosed on the residence, which is now in receivership, Aspen Daily News reported today. Aspen developer Leathem Stearn contends a Pitkin County judge’s receivership order for the nearly 19,000-square-foot home was improper and has filed for federal bankruptcy to try to hang onto it. Built in 2011, the mansion drew media attention for its numerous amenities, including a lazy susan for vehicles in the five-car garage, a two-lane bowling alley, 40-foot ceilings and a floating staircase, a 30-foot rock-water wall and an indoor saline pool and hot tub. It also has seven bedrooms and 11 bathrooms, along with ski-in access from the nearby Ajax Trail. Stearn told CNBC in 2013 that it was a “lifestyle compound.” It was initially listed for $45 million before the price was reduced to $39.7 million. The home has never sold, according to Pitkin County Assessor records. Stearn sued Dutch businessman Paul J.A. van Hessen, the holder of $16.8 million in loans, in May, alleging that van Hessen is falsely claiming ownership of the home. Stearn also alleges the lender has fouled efforts to market and sell the home, and develop an adjacent house and common elements the residences would share. Van Hessen sued Stearn in June, saying that the developer has failed repeatedly to pay back the loans. Judge Chris Seldin of Pitkin County District Court in June ruled in van Hessen’s favor, putting the property into receivership. However, ownership of the property is not settled. The case has been removed from Pitkin County District Court and is now in the hands of a federal judge after Stearn filed for chapter 11. It was the second time since 2010 that Stearn has filed for bankruptcy. To fund the development, Stearn received loans from various entities, court filings show.
In August 2012, the federal government abruptly changed the terms of the bailout provided to Fannie Mae and Freddie Mac, The New York Times reported on Sunday. Instead of continuing to receive payments on the taxpayer assistance, Treasury officials decided to begin seizing all the profits both companies generated every quarter. It was an unusual move, but it was necessary to protect taxpayers from likely future losses in their operations. Newly unsealed documents show that as early as December 2011, high-level Treasury officials knew that Fannie and Freddie would soon become profitable again. The materials also show that government officials involved in the decision to divert the profits knew the change would most likely generate more money for Treasury than the original rescue terms, which required the companies to pay taxpayers 10 percent annually on the bailout assistance they had received. The 17-page memo shows that the idea to extract all of Fannie’s and Freddie’s profits coincided with their anticipated turnaround. Another unsealed document, a draft memorandum circulated before the profit sweep, shows that federal officials recognized it would generate more money than the original bailout terms. Net income generated by Fannie and Freddie and paid to the government “will likely exceed the amount that would have been paid if the 10 percent was still in effect,” it stated.
