Fannie Mae Reports Net Income of $8.7 Billion and Comprehensive Income of $8.6 Billion for Third Quarter 2013
Source: Fannie Mae Progress
Here is a link to a presentation by Fairholme in the Wall Street Journal:
Source: CNN Money
Fannie Mae says the alleged Libor fraud was "willful and wanton."
Fannie Mae is staying on the offensive against Wall Street.
The government-backed firm filed a lawsuit Thursday against nine major banks over their alleged manipulation of Libor, a key interest-rate benchmark.
The suit comes less than a week after a settlement in which JP Morgan agreed to pay Fannie and its sister company, Freddie Mac, $4 billion to settle allegations that it misrepresented mortgage securities sold to the firms.
Fannie says the banks' alleged manipulation of Libor caused it approximately $800 million in losses.
Four banks -- Barclays, UBS, Royal Bank of Scotland and Rabobank -- have already reached settlements with the Justice Department and other regulators on the issue, paying more than $3.6 billion in fines. A handful of brokers and traders have also been charged individually, with more cases expected.
Libor rates are created through a process overseen by the British Bankers' Association, an industry group, in which a group of large banks are polled on their borrowing costs in various currencies over various time periods. Their responses are then averaged to produce rates that are used as benchmarks for trillions of dollars' worth of derivatives and other financial products, including car loans and adjustable-rate mortgages.
In the settlements reached so far, the banks have admitted that traders engineered fraudulent Libor submissions to benefit their derivatives positions. The firms also admitted to lowballing their Libor quotes around the time of the financial crisis to appear stronger and more creditworthy.
The Fannie Mae lawsuit claims that the firm lost money on mortgages and interest-rate swaps with the defendants when certain Libor rates were set artificially low. The British Bankers' Association is also named in the suit.
"Fannie Mae filed this action to recover losses it suffered as a result of the defendants' manipulation of Libor," the firm said in a statement. "We have a responsibility to be good stewards of our resources."
The banks either declined to comment or did not respond to requests for comment.
Freddie Mac filed a similar lawsuit in March against more than a dozen banks. A variety of other plaintiffs, ranging from individual investors to the brokerage firm Charles Schwab (SCHW, Fortune 500) to the City of Baltimore, have also claimed Libor-related losses.
Fannie and Freddie have been overseen by the Federal Housing Finance Agency since their $187 billion bailout in 2008, prompted by their massive losses on mortgage securities. They have since returned to profitability, paying substantial dividends to the Treasury Department.
Source: Fannie Mae
Remarks Adapted From Comments Delivered by Timothy J. Mayopoulos, President and Chief Executive Officer, Fannie Mae
MBA Annual Convention, Washington, DC
It’s great to be with you today to speak. I always appreciate the opportunity to speak with you, our lender customers. Our partnership is essential as we work together to support the economic recovery and build a better housing finance system.
Let me congratulate the MBA on its 100-year anniversary. Your theme for this meeting – 100 years strong – is fitting. As an industry, we have experienced significant challenges. I believe we are stronger and better as a result of the lessons we have learned in the past. At Fannie Mae, we also have a long history. We have been with the MBA for much of your journey. This year marks our 75th anniversary.
Fannie Mae History – 75 Years
To understand where Fannie Mae is today, it is important to recall why the company was founded in the first place.
During the Great Depression, our country recognized the need for a reliable, steady source of funding for housing. Prior to the creation of Fannie Mae and the Federal Housing Administration, families had no consistent access to affordable mortgage credit.
Through the 50s, 60s, and 70s, homeownership grew and contributed to the rise of the middle class in America.
In the 1980s, the global capital markets became important to the company’s business through the development of mortgage-backed securities. This allowed Fannie Mae to bring the world’s capital to America.
In the 2000s, Fannie Mae and Freddie Mac both struggled to respond adequately to a quickly and substantially changing market driven by declining credit standards.
As we all know, in 2008, the global financial crisis hit and the Federal government stepped in to support the U.S. housing finance system. For Fannie Mae and Freddie Mac, this meant federal conservatorship. This was a profound event – conservatorship marked the end of the old Fannie Mae. That company no longer exists and it is not coming back.
However, a “different” Fannie Mae has played an essential role in enabling policymakers to respond to the housing crisis and contribute to the economic recovery. Consistent with its long history, Fannie Mae in the crisis has been an important tool to support housing markets and sustain the housing finance system. We estimate that, in its 75 years, Fannie Mae has provided nearly $13 trillion in liquidity to its lender customers.
In the wake of the financial crisis, we have remained the leading source of liquidity for housing in the U.S. as we have returned Fannie Mae to profitability and paid taxpayers $105 billion through dividend payments to Treasury. We have posted additional facts and information about our progress that may be helpful to you on our website at fanniemae.com/progress.
Fannie Mae Today
Fannie Mae’s interests today are aligned with the taxpayers. We attract global capital to the United States to create large-scale access to affordable mortgage credit in all economic cycles. As a result, working with you, our lender partners, we enable families to buy, refinance, or rent a home, even in times of crisis. We have a clear set of priorities to fulfill that purpose:
- Supporting America’s housing recovery
- Paying taxpayers for their investment in our company
- And participating in reforms today that we believe will create a sustainable housing finance system for tomorrow
Building a Sustainable Housing Finance System
So, what might that sensible, sustainable system look like? First, it would reduce uncertainty and correct the obvious defects in the old system:
- If there is to be a government role in housing, that role should be explicit
- If there is going to be a taxpayer guarantee, the taxpayers should be fully compensated for that guarantee
- Private capital should stand in front of the government to withstand market downturns. The amount of this private capital needs to be substantially higher than the capital the GSEs historically held
- Any institution that can deliver a government guarantee needs to operate with the understanding that its risk profile is different and that there is a responsibility to set and enforce proper credit and underwriting standards
- And, strong regulation of the market and good governance are essential
Second, a sustainable system would consider an appropriate range of products with a focus on consumer protection – as we are seeing with the Qualified Mortgage rules. For example, do we as a country want to retain the 30-year fixed interest rate loan for some significant portion of the market? Approximately 74 percent of homeowners say they prefer the 30-year over other products. Long-term fixed-rate mortgages are generally considered beneficial because they protect families from sudden changes in housing cost. But long-term fixed-rate mortgages are not a naturally occurring phenomenon in financial markets. Only government involvement makes this work.
Third, a sustainable system would include much greater private capital participation than we have seen in recent years. This raises an important question of whether private capital is willing to take credit risk to participate in the market at sufficient scale, and if so, at what cost?
Five years after the financial crisis, we see limited evidence of private capital ready to share substantial amounts of mortgage credit risk. We are working to stimulate that participation, but the size of the U.S. mortgage market is such that we need a better strategy than hoping that private capital will fund this market.
Fourth, a sensible system would preserve the benefits of the old system. It would ensure reliable access to affordable credit in all markets at all times – something that most financial markets do not do at all times. And it would preserve the knowledge and capabilities of the people and institutions that have delivered this reliable stream of credit for more than seven decades.
Finally, while people are understandably focused on the end state of our future system, we need to be at least as thoughtful about the transition – how we get from here to there?
We need to preserve the people and capabilities of the critical institutions, including Fannie Mae and Freddie Mac, that make the current system work while we move toward a new system.
These are all critical considerations for lenders, investors – and especially policymakers – as they decide the future of housing in our country.
While Fannie Mae does not take a position on any legislation, we are fully aware of the defects of the old system, and we are working to correct them. Reform is already happening at the GSEs and in the industry.
We have substantially improved loan quality, advanced appropriate underwriting standards, increased pricing to better reflect risk, and enhanced how we collect and report data.
Our loan quality initiatives, such as the Uniform Mortgage Data Program and EarlyCheck, deliver better information earlier in the loan process, reducing the risk of repurchases at a later date.
In addition, we are exploring new ways to attract private capital and transfer credit risk through the Credit Risk Transfer initiative.
And, we are contributing to the development of the Common Securitization Platform being led by FHFA.
We also are reducing uncertainty through the new representation and warranty framework. The old rep-and-warrant model didn’t work well for originators or for Fannie Mae.
We committed to a new model with significant enhancements, and it will continue to evolve into a more nuanced and less binary series of enforcement mechanisms.
We have developed tools to better inspect the loans we buy. We will be freely sharing our insights about potential issues with originators. And, we will work with them to determine appropriate alternatives to repurchase where possible.
The good news is that the book of business we have acquired since 2009 is much better than from 2005 through 2008. As of June 30, 2013, we have made repurchase claims on only one quarter of one percent on our newly acquired loans – versus more than three percent on our legacy book.
I recognize that repurchase resolutions on our legacy book are an important and timely topic, and I want to be clear on our intentions and actions.
I committed early this year to completing our reviews of legacy loans in 2013. We are on track to do that.
We want to resolve legacy loan repurchase issues to reduce uncertainty, strengthen the market, and ensure taxpayers are compensated fairly.
Resolving these issues and preserving solid business relationships with our lender partners is important to our support of the housing recovery.
In conclusion, this country is unique in its tradition of supporting housing – that’s one of the reasons we are here today celebrating 100 years of the MBA.
While we have experienced some very difficult problems in the past decade, the system overall has worked well for most of its long history. Our system has:
- Attracted global capital efficiently
- Provided deep liquidity to all markets at all times
- And lowered the cost to acquire credit
As we look to the future, let’s be certain that we understand what we are solving for: What are we seeking to accomplish by refashioning the system?
Returning to the old way – the old Fannie Mae – is not and should not be an option. We should, however, be just as cautious about the complexity, cost, and risk associated with new models.
Yes, we must fix the problems of the past. But not everything was broken, and trying to overhaul everything about our current system could result in negative long-term consequences for the housing market and the stability of the U.S. economy. We should all be concerned about the risk of unintended consequences. Housing is too important to our economy for us to get this wrong.
At Fannie Mae, our goal is a safer, more transparent, and sustainable housing finance system.
We want to work together with you to achieve it.
MCLEAN, VA--(Marketwired - Oct 25, 2013) - Freddie Mac (OTCQB: FMCC) today announced it has entered into an agreement with JPMorgan Chase concerning Freddie Mac's claims related to representations and warranties on single-family loans sold to Freddie Mac. Separately, Freddie Mac, Fannie Mae and FHFA also entered into an agreement with JPMorgan Chase to settle litigation concerning investments by Freddie Mac and Fannie Mae in residential non-agency mortgage-related securities.
In total, Freddie Mac will be paid approximately $3.2 billion under the two agreements.
In addition to its agreement with J.P. Morgan Chase, Fannie Mae has reached resolutions this year with a number of lenders on repurchase issues and other matters, including:
- A $10.3 billion agreement announced in January 2013 with Bank of America including resolution of repurchase issues on certain loans, transfer of servicing rights on 941,000 loans, and repurchase of 30,000 loans by Bank of America. Additionally, the agreement included a $1.3 billion compensatory fee payment for servicing obligations.
- A $968 million agreement announced in July 2013 with Citigroup to resolve repurchase issues on certain loans
- A $373 million agreement announced in October 2013 with SunTrust to resolve repurchase issues on certain loans
Fannie Mae disclosed in its most recent 10-Q filing that as of June 30, 2013, it had completed reviews on 89% of the loans delivered from 2005-2008 for defects that would trigger potential repurchase requests and that the company expects to complete those reviews by the end of 2013.
Settlements include private-label securities and representation and warranty claims Washington, DC –
The Federal Housing Finance Agency (FHFA), as conservator of Fannie Mae and Freddie Mac, today announced it has reached a settlement with J.P. Morgan Chase & Co. and related companies for $ 4 billion to address claims of alleged violations of federal and state securities laws in connection with private-label, residential mortgage-backed securities (PLS) purchased by Fannie Mae and Freddie Mac. Under the terms of the agreement, J.P. Morgan Chase & Co. will pay approximately $2.74 billion to Freddie Mac and $1.26 billion to Fannie Mae to resolve certain claims related to securities sold to the companies between 2005 and 2007 by J.P. Morgan Chase & Co., Bear Stearns & Co., Inc. and Washington Mutual.
The $5.1 billion that JPMorgan Chase has agreed to pay hardly ends its legal troubles over mortgage securities it sold . . .
. . . Between 2005 and 2007, JPMorgan sold $33 billion in mortgage securities to Fannie and Freddie, according to their regulator. That was the second-most sold to Fannie and Freddie ahead of the crisis, behind only Bank of America. The securities soured after the housing bubble burst in 2007, losing billions in value . . .
Bank of America Corp.’s Countrywide unit was found liable for defrauding Fannie Mae and Freddie Mac by selling them thousands of defective loans.
Read the Full Story >>
Thanks to the many users who have responded so far, the results of the Restore Fannie Mae poll are now available. It looks like the majority of users are targeting Q4 for net-positive. We're still taking responses here.
Source: Bloomberg News
(James K. Glassman, a former undersecretary of state, is a visiting fellow at the American Enterprise Institute.)
Five years after they were rescued with taxpayer money, Fannie Mae and Freddie Mac (FMCC) are thriving.
The two giant providers of cash for mortgages now back almost 9 out of 10 home loans. Fannie, founded during the New Deal as a federal agency and then converted into a shareholder-owned government-sponsored enterprise in 1968, had its most profitable year in 2012. Together, the entities paid the U.S. Treasury $66.3 billion in dividends on July 1 -- a sum that extended the debt-ceiling deadline by a month.
Now, policy makers are poised to eliminate the GSEs’ roles in home mortgages. They have some justification: Fannie and Freddie distorted their books and loaned recklessly in the middle of the last decade. (They weren’t the only guilty parties, of course. This week, JP Morgan Chase & Co. (JPM) agreed to a tentative $4 billion settlement with the Federal Housing Finance Agency for misleading the GSEs in their purchases of mortgage bonds.)
Worst of all, Fannie and Freddie gave the green light to other investors to follow their lead. Even former Representative Barney Frank, a Massachusetts Democrat and GSE cheerleader, concluded in 2010: “I hope by next year we’ll have abolished Fannie and Freddie. ... It was a great mistake to push lower-income people into housing they couldn’t afford.”
Never mind that it was legislators such as Frank who were doing the pushing. In return for an implicit federal guarantee on their debt, Fannie and Freddie were pressured by Congress to take on various social responsibilities -- such as funding subprime mortgages -- that conflicted with their financial responsibilities.
Some kind of reform is necessary, but policy makers should be careful not to destroy the parts of the GSEs that work as they seek to expiate their own political sins. They also need to avoid solutions that needlessly raise the cost of borrowing for homeowners. In addition, they should be aware of the adverse effects on the financial system that would be caused by the seizure of private property -- in this case, securities held faithfully by those investing in a turnaround that, eventually, occurred.
Last year, in a breathtaking display of greed, the Treasury and the FHFA changed the terms of the original agreement that accompanied the 2008 bailout, which gave the Treasury 79.9 percent of the GSEs’ stock and required a rich 10 percent annual dividend payout.
That payout wasn’t enough for a government running trillion-dollar deficits. The dividend was replaced by a quarterly “net worth sweep” that gives the Treasury almost the entire net worth of Fannie and Freddie’s balance sheets. The sweep, Treasury said, will suck up “every dollar of profit each firm earns going forward.” (See the $66.3 billion dividend three months ago.) The two GSEs have already repaid $132 billion of the $188 billion they received. The rest should be paid by the end of 2014, but the sweeps will go on and on.
The changed payout arrangement prevents the GSEs from rebuilding their capital and deprives private shareholders of the value from their investments.
Many in Congress approve. Representative Jeb Hensarling, the Texas Republican who leads the House Financial Services Committee, has offered a measure that would officially kill off Fannie and Freddie. It would use new federal agencies to set rules for the private securitization of mortgages and help first-time buyers.
A bill by Senators Mark Warner, a Virginia Democrat, and Bob Corker, a Tennessee Republican, would replace the two GSEs with a mortgage insurance fund that resembles the Federal Deposit Insurance Corp. In August, President Barack Obama indicated he was leaning toward the Senate version.
Both bills, however, would have serious negative consequences:
-- They require outright -- as opposed to implicit -- backing for all of the GSEs’ outstanding debt and mortgage-backed securities, with the “full faith and credit of the United States.” As Karen Shaw Petrou of Federal Financial Analytics Inc. told the American Banker: “If you give Fannie and Freddie that explicit guarantee for all their existing obligations, what’s the budget impact of that? It’s huge.” Fannie has $3 trillion in debt on its balance sheet; Freddie, $2 trillion. Those would become government liabilities.
-- Neither measure adequately addresses mortgage liquidity, which was the reason that both Fannie and Freddie were established. With the lenders gone, it’s unclear what would fill the gap. Private sources originated just 14 percent of home loans in 2012, down from 67 percent in 2006.
-- The bills would increase loan payments for consumers. Mark Zandi, chief economist of Moody’s Analytics Inc., calculated that each of the congressional proposals would add $900 to $1,050 in annual interest for a $200,000 home loan. “You have to assume that almost in any future model being drafted, loans will be more expensive,” said David Stevens, chief executive officer of the Mortgage Bankers Association.
-- Neither bill addresses what happens to the private investors in Fannie and Freddie, including the community banks and insurance companies that were encouraged by their regulators to bolster the GSEs’ capital. The threat of government confiscation is precisely the wrong message to be sending investors. Even Ralph Nader has cried foul, complaining that federal policies have turned shareholders such as him into “zombies.” The GSEs’ investors have filed 10 separate lawsuits seeking damages from the takeover, and U.S. District Judge Robert Wilkins consolidated the cases on Oct. 9.
A better, simpler solution would be to end the federal guarantee -- explicit or implicit -- and allow Fannie and Freddie to rebuild their capital. The GSEs served a highly constructive purpose until they became political institutions. They can play an even more important role without special benefits, providing liquidity while encouraging private competition on a level playing field. The government should sell its GSE holdings at a profit, provide a strong regulator, and treat Fannie and Freddie like Citigroup Inc. or any other large financial company.
Politicians should promise to stay away. That won’t be easy for them, but rather than devising plans for sweeping reorganizations, it is exactly what is demanded of Congress.