Monday Morning Cup of Coffee: Treasury, FHFA plan to securitize GSE mortgage exposure
The Treasury Department and the Federal Housing Finance Agency are making progress on a plan to securitize some Fannie Mae and Freddie Mac mortgage credit exposure for private investors.
"These arrangements could be structured as securities that would allow private investors to bear some of the credit risk that the GSEs normally hold," said Michael Stegman, counselor to the Treasury Secretary for Housing Finance in a speech Friday. "We believe that this initiative could help support our broader efforts to restart the private mortgage market, shrink the government's footprint in housing finance, and protect the long-term interests of taxpayers."
Stegman said the administration is considering the tax and legal treatment of these bonds, and how they can be structured to both reduce risk for the GSEs but still entice investors. The FHFA announced the idea in February.
"It can also help determine how the market values a credit guarantee on conforming mortgages," Stegman added, "which is a question that many stakeholders and policymakers have been closely analyzing."
Officials at Lender Processing Services ($30.06 0%) and the Department of Housing and Urban Development held a brief meeting over the phone late Friday in effort to resolve conflicting reports over Federal Housing Administration foreclosures, according to a source briefed on the talks.
LPS Data Analytics said Thursday FHA foreclosure starts spiked 73% in April to 63,000, while HUD said foreclosures on the government-backed loans actually declined to less than 19,000.
"There were a couple of a-ha moments, where we identified a couple of possible candidates for why the reports were so different," the source said. "We're going to sit down next week face to face and we're going bring the two numbers together and reconcile the data."
Commercial mortgage servicers shied away from a technique used to purchase properties out of CMBS trusts due to investor concerns, Fitch Ratings said in a report over the weekend.
The credit ratings agency said of the more than 7,000 commercial mortgage workouts since 2009, only 11 fair market value purchase options were executed. Servicers hold an advantage when using the option, allowing the company first shot at purchasing the loan out of a trust because it can assess the property's value at the time of default.
Once the option is used, there is no requirement to report the option to investors. Fitch found CIII Asset Management completed six of the 11 conducted in the past three years.
"Investors continue to raise concerns over conflicts of interest created by special servicer affiliates," according to the report. "One such conflict is the ownership by large commercial real estate (CRE) corporations of special servicers, creating the concern that those companies were buying access to the real estate held by servicers."
Investors will monitor a meeting this week between four central banks to see if any further stimulus to help the global economy — specifically Europe — is possible.
The central banks of Europe, England, Australia, Canada will hold talks.
"Most indexes were down last week as worries concerning the European sovereign debt situation and specifically escalating woes in Spain and to some extent Italy, sent investors fleeing to safe havens," wrote Anne Picker, chief economist at Econoday. "The impact of the crisis has begun to emerge as countries from India and China to those in Europe and North America begin to record slower growth — and some slide into recession."
The House government oversight committee will hold a hearing Wednesday on a shift in how the government will release its jobs reports every month.
The last report issued Friday showed just 69,000 jobs created in May as the unemployment rate edged up to 8.2%.
A new policy will go into effect June 15, requiring reporters to remove any hardware and software from the Department of Labor lines, which could change how the influential news is released to the market. The DOL would own and operate the data lines, Internet access and Internet connections, according to the rule.
You can read more here on the rule change via a letter from the Sunshine in Government Initiative.
There were no bank failures over the weekend. A total of 24 banks closed so far in 2012, according to the Federal Deposit Insurance Corp., compared to 45 this time last year.
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