Luke 532

Fannie Mae, Freddie Mac are preparing to cover servicers’ advances on loans in forbearance https://www.housingwire.com/articles/fannie-mae-freddie-mac-are-preparing-to-cover-servicers-advances-on-loans-in-forbearance/

Latest from Gaby Heffesse. 4:45 minute mark:

ACG: "Calabria, Mnuchin and Powell have a very good relationship, one team, no distance, no friction."

Haha! They might provide one for oil companies. Rubbing it in the faces of servicers! LOL Mnuchin tells @SalehaMohsin he’s considering a lending facility for oil companies that aren’t creditworthy enough to get loans directly from the Fed. Doesn’t elaborate much, but says he’s discussing “alternative structures with banks.”

The US has no plans to create a lifeline for mortgage servicers, Mnuchin told me in a phone interview today Ginnie Mae, FHFA actions earlier this month are enough to "deal with liquidity concerns," he said More on @TheTerminal

Take 20 minutes and enjoy :-) This is from earlier today... https://thenationalrealestatepost.com/breaking-news-david-stevens-fhfa-is-creating-a-crisis/ Few quotes from David Stevens and the interviewer, Brian Stevens: "I don't know if it's intentional obstruction or sabotage." "(Calabria) thinks these are private companies." "They are willingly and knowingly creating a crisis because we've explained all of this to them." "Chris whalen called for (Calabria) to be fired" "Calabria is not only thumbing his nose, he's screwing all of us in the business." "This is a time for war."

I strongly disagree. Calabria isn't alone on an island in this, Powell and Mnuchin are standing right beside him.

https://www.jchs.harvard.edu/blog/americas-housing-finance-system-in-the-pandemic-part-4-seven-reports-from-the-battlefield/ Layton: Good news... "So, the current plan being executed by the FHFA and Treasury – where the GSEs are not wound down but instead exit conservatorship via administrative means, while maintaining the reforms of the last decade – is looking pretty good. In fact, it’s very close to the consensus that was seeming to emerge. Given the reforms that have been implemented, the GSEs in this scenario should operate properly and safely in normal times, and in crises it will enable the government to be nimbler and more effective in quickly delivering large-scale relief." Bad news... "Unfortunately, I believe the pandemic will materially delay the exit process, especially the first capital raises, for two primary reasons: Both FHFA and Treasury will, and should, prioritize dealing with the deep economic disruption and downturn unleased by fighting the pandemic (which is far worse than thought just a month ago). The GSE exits are far less important, and with only so many hours in the day and people to work on priority issues, conservatorship exit-related decisions and actions will get pushed back. Of particular note, learnings from the current stress environment should inform the new capital rule that FHFA is in the midst of developing, which means its finalization should wait until the current crisis has mostly run its course. Raising equity for the GSEs will require record-setting large new issues, which means investor appetite must be broad and strong. However, investors will not sign up to buy record-setting amounts of GSE shares at acceptable prices while the credit cycle, now beginning a severe and hard-to-predict downturn, has the GSEs seeing increasing delinquencies and large credit reserves. (This is known on Wall Street as “catching a falling knife”- i.e. to be avoided.) In fact, history shows that investors will largely wait to see that the credit cycle has credibly peaked before purchasing large amounts of new issue shares. As a guide, that peak happened three-plus years after the beginning of the last financial crisis in 2008. This time around, no one will get a clear picture of credit quality until at least the forbearance programs (which can last up to 12 months) have run their course, so investors can determine how much forbearance turns into re-started prompt monthly payments versus default. So, there will be a delay, and likely by more than just a few months. It’s regrettable and unfortunate, but lots of well-laid plans are being delayed if not wholly changed by the current pandemic."

FHFA has told Fannie and Freddie that loans in forbearance due to the coronavirus can be kept in MBS pools as long as forbearance lasts, and that once a servicer misses 4 months of payments, it will no longer be obligated to pay investors.

https://www.fhfa.gov/Media/PublicAffairs/Pages/FHFA-Addresses-Servicer-Liquidity-Concerns-Announces-Four-Month-Advance-Obligation-Limit-for-Loans-in-Forbearance.aspx

https://www.wsj.com/articles/fannie-freddie-regulator-moves-to-ease-cash-crunch-at-mortgage-servicers-11587475780 WASHINGTON—A top U.S. regulator took a step to help struggling mortgage lenders contend with a cash crunch as millions of Americans suspend monthly payments on their home loans. The Federal Housing Finance Agency said Tuesday it would cap at four months the period of time mortgage companies are on the hook to make monthly payments on behalf of borrowers who are in arrears.

Scoop: Fannie and Freddie’s regulator may soon allow the mortgage-finance giants to purchase loans in forbearance from U.S. lenders, easing restrictions that have helped to fuel strains in the $11 trillion mortgage market

Agree with you guys on IMF's suspect motives, but it is a bit alarming to me that F&F would submit plans to FHFA even after Calabria told them he's not helping out the servicers. Fannie & Freddie reportedly submitted plans to the FHFA to provide liquidity to MBS servicers. It's just waiting on approval:

Thoughts? Fannie & Freddie reportedly submitted plans to the FHFA to provide liquidity to MBS servicers. It's just waiting on approval: https://t.co/h2t9JilXrW

+1

Treasury giving FHFA "whatever permissions it needs..." I was watching the coronavirus press briefing last night and can confirm Mnuchin said that. Very interesting.

Bingo.

-September: Treasury talks restructuring with Houlihan. -Early February: FHFA hires Houlihan. -Early February: First thing Houlihan told FHFA was that a settlement is needed to raise capital, per David Metzner. -Late February: FHFA announces looking for firm. -Early April: FHFA hires Milbank, Metzner today "this is real non political serious legal advice and that can't be ignored, when Milbank says this is the reason they should settle or this should be in PSPA that recommendation will be taken seriously."

Recording of ACG's call was just posted:

My typed notes while listening to ACG's Q&A today. Please excuse and grammatical errors, typos, etc... Overview before Q&A... -The progressive community is for housing. -The hire of Milbank is very important, they start this week. -Calabria hired Houlihan Lokey but the weakness at fhfa is general counsel, gentlemen was there long time and even mel watt frustrated -calabria not getting clear insight with litigation, frustration with arnold and palmer -this is real non political serious legal advice and that can't be ignored, when Milbank says this is the reason they should settle or this should be in PSPA that recommendation will be taken seriously. -RFP focuses on pspa and what needs to be taken care of before raising capital, do it once so get on recap path. -timing is good, people forget two teams on field, mba team who has number of characters fought hard to continue obama policies -path of recap but interesting moment, calabria says need to be counter cyclical -we believe strongly lawyers and advisors looking and understand how to fortify balance sheet in a hurry, not tomorrow but milbank and houlihan lokey know what they're doing -balance sheet is stronger than people expect, overpament to treasury if NWS not there would have been 10% dividend, if you run numbers on how much swept above it is around 25-30B, counting Q4 last year is about 23b now thanks to letter agreement from september -3 steps to take: (1) stop sweep permanently, (2) deem senior repaid, (3) credit the overpayment. This results in above 50b core capital with credit added to balance sheet -stroke of pen can get this done to beef up balance sheet and bring closer to regulatory captial and make capital raise much less than what we hear is needed. -calabria very vocal about difference of ginnie, fha, and F&F. F&F have been very careful for which mortqages on their books... 740 avg fico score which is very high. -The problems flowing less into F&F than they are into ginnie. -Really depends which mortgages they have and F&F have very strong mortgages. -mba lighting up washington very vocal, world burning down -calabria stickler for hera mandatory recap but don't have to help servicers -jay powell watching this segment, washington view it to see where they are in 4-5 weeks before doomsday scenario -mba talking 30-50% forbearance, gaby doesn't see it happening as in low single digits. -task force at treasury but data doesn't show need to extend liquidity -if gets into political we are in counter cyclical time it would be nice to already have all that capital, but haven't been capitalized for this moment so if anything shows why F&F need to be recap for moments like this. -calabria stickler for statute. -believe cap rule out later in may -enterprises hiring own fin advisor by july 4, work on balance sheet, Calabria strengthens his ability to be regulator and make sure enterprises have control to comply with standards the regulator puts out. Q&A... -settlement odds between now and june 1? nothing short term, litigants not there yet, I've spoken to some of them, everything on table now though which wasn't the case 3 weeks ago, Milbank on team makes it much easier for Calabria to do cost-benefit analysis of litigation, makes no sense to defend sweep while ending sweep at same time and pay Arnold and Palmer 20m per year to do so. -Receivership happen here? Receivership not happening and not really worth the time now to discuss it. Receivership would be worst policy for government because you have to run it down and then there's no plumbing in the housing system. Receivership is not remotely possible. -Treasury have manpower to get this done? They are underwater with personnel, but essentially there's a merger of UST and Fed right now, domestic policy worked well, don't need a lot of UST's time to get this done. Calabria, Mnuchin and Powelll have a very good relationship, one team, no distance, no friction. -If Biden wins, what happens? He put out minor housing position calling for more affordable housing in primary season, go to urban institute website and look for housing day panel with jim parrot, he stacked the panel with guests against the enterprises, he invited Elizabeth Warren's staffer but couldn't make it so subbed with Jared Bernstein (Biden advisor) and he said he is not for blowing them up at all and that GSE's are important part of economy. Bernstein very important advisor to biden. progressive democrats are for recap, won't compromise on duty to serve, want larger affordable housing trust funds. -crisis change landscape? it hasn't but if it goes for longer and complete meltdown then that could change it as forbearance astronomical and home prices plunge, 8 weeks from now we'll be ok, could be pushed back couple months if earnings hit, doesn't need to happen through retained portfolios, should reopen happen then this whole thing doesn't impact prospects. The Philosophy for recap is validated by crisis, were 1000 to 1 leveraged, now 240 to 1. Private in front of taxpayer = validated. example for companies that we're getting involved in as a country, go in reform and release. -Settlement negotiations already happening? I don't think so but amenable to them in not too distant future but everybody focused on other things, Milbank needs marching orders to do litigation analysis, Calabria frustrated with cost of litigation, it's illogical to defend something trying to end. -Once gse reach 25b fannie, 20b freddie, can they release by consent decree? That is the hope released by consent decree and start having new capital coming in be comfortable. Everyone is focused on next 90 days, statutory capital in Fall and consent decree and pspa in Fall is still intact, but recognition that private is the answer. PSPA is most important thing to move the ball here, and then consent decree later, houlihan and milbank really helps move that forward and it puts manpower behind it when they decide they want to to do it. -CRT impact? Nobody buying CRT for awhile. Seen as weakening capital and balance sheet. -Seila vs cfpb impact timeline? Seila come down by june 1st, we were hoping regrant cert in 5th circuit to create political cover for settlement but that didn't happen, so if seila law comes down and calabria removable at pleasure of potus then we have to see if scotus takes 5th circuit at that point, all of these cases are catalyst for settlement: atlas, selia, etc. lot of noise and suspense, so we do think they are catalysts to start getting sides to talk settlement. if unconstitutional and retroactive, that possibility is a stretch but would be big. -Will we need a settlement to raise capital? Yes. First thing Houlihan told them, and second is we need to relist on NYSE. -Go on NYSE before re-ipo? Yes. good public policy, more capital in market, certain investors can't buy pink sheets, encourage retail to get in, broader policy reasons. -Will current common be wiped out? Aligned with gov't when own common have 79.9%, cleanest way to do this isn't wiping but deem senior pref paid back, don't see common completely wiped out. -Incenvtives for plaintiffs to settle below par to get things moving quicker? We have no clients that are litigants but friends are litigants, depending on terms and conditions they might take discount but don't know. -Why worry about political cover when have 11,000 docs? Govt been on losing end of document production. prez privilege request exceds fast and furious southern border, lamberth ordered UST to turn over 11,000 docs and they pushed back but lamberth ordered them to do it saying your signature is on 3rd amendment you will turn them over. gov't on losing end, wheels grind slowly and it's expensive but we have a public policy reason now to settle, country has lots of needs, ensuring stable housing without drawing on govt is excellent reason to settle. -Do you see junior prefs riding common appreciation after conversion? Yes, incentivize to convert is you get to ride as common goes up with earnings and upside. -Calabria visited banks on ipo a year ago, has appetite for offering changed at all? No, other work to be done, calabria meeting investment bankers, he is a phd economist but not financial background, said largest ipo in history maybe yes maybe no, right offering as part of conversion maybe, that's down the road, more an education process first which is where we are, getting there and convinction is unaltered and need to do it is now completely evident to all policy makers. UST and FHFA reasons to waste time why not cancel pspa right now? Just put milbank in and houlihan just started, using both political cover of outside firm helping and fresh eyes, want to do it right and only once, don't feel rushed to do it today, calabria said do it in fall as originally planned when hit statutory capital at fannie, that timing may change now, don't think UST detractors would spend more than 5 minutes on it, that's the work milbank and houliahn are thinking about right away, not that it will happen but should it need to they have the work done. Ginnie has extended line of credit to servicers for loans it guarantees, fed and ust team looking at it but want to see how mgmt puts it together. -Timeline for relisting? Fall, not a difficult thing to do, politically irritant to opponents for example the letter sent by Warner and senators to half of govt complaining about danger to servicers, classic tactic of other team to send letter to hill then senators sign it, so there can be a reaction for every action, relist doesn't need to be done now, but hopefully before end of year.

Pasting entire article in case it gets deleted/removed from the website it's on... Payback Time: Why COVID-19 Forces the Federal Government to Pay Its Debt to Housing https://medium.com/@HPEquityTrust/payback-time-why-covid-19-forces-the-federal-government-to-pay-its-debt-to-housing-2b802c928468 by Anne Segrest McCulloch, Social Impact CEO As a nation, we face a moral imperative: shelter-in-place orders today should not have the effect of soon denying shelter to Americans. For the past 10 years, Washington has imposed a hidden tax on homeowners and renters so that it could keep the federal budget afloat. Every month, Americans paid their mortgages or covered their landlord’s mortgages by paying rent. That money flowed to and through two, giant, government-controlled utilities — Fannie Mae and Freddie Mac — and directly into the U.S. Treasury. It was an unfair transfer of wealth. And it’s time to pay it back. Why? Because the COVID-19 crisis is about to spawn a housing crisis that, as things are currently structured, we simply cannot manage without those funds. Let’s face it, it was a great deal for those charged with trying to balance the budget. The revenue grab was made possible politically by the lingering resentment of Fannie and Freddie’s past, perceived sins. It almost felt like free money. But it wasn’t. And most Americans, going about dutifully paying their mortgage or rent, had no idea their money — which could have been used to keep a housing finance system healthy for all — was being funneled into the U.S. Treasury. What is this thing we call the housing finance system? Put it this way: If you’re paying for a roof over your head, there’s a complex web of pipes and levers uniquely constructed to get money flowing to you, in the form of funds for buying, selling or investing in that roof, and millions more like it. That same plumbing also flows in reverse, taking those billions in monthly payments back upstream to replenish the supply for others. When the federal government nationalized Fannie and Freddie in 2008, that pipeline was redirected to feed the federal budget — the whole budget, not just federal housing programs. It would have been better if they had allowed that money to continue circulating within a system that is specifically designed to assure, for all Americans, accessibility and affordability in housing. But they didn’t. And now, as jobs disappear and wages disintegrate, many thousands of Americans face foreclosure or eviction, with only the thread-bare facsimile of a safety net. Federal officials, of both parties, could have reserved that capital for this rainiest of days. That would have strengthened Fannie and Freddie, so that they would be ready to do what they always were intended for: to provide strength and stability in the housing of Americans, especially in the worst of times. Now Fannie’s and Freddie’s federal conservator has warned, in an interview with the Financial Times, that the two firms could run out of money in just three months and would then require yet another federal bailout. So, what does that mean for the well-being of our fellow citizens? In a phrase, housing insecurity. In times of hardship, nothing is more important than a secure place to live. Today, Americans are hurting. Public relief is not yet flowing fast enough to mitigate the pain that is rapidly flowing toward homeowners and renters, as well as landlords, financial institutions, and, ultimately, bondholders. Renters often have relatively few funds in reserve, so they and the owners of their rental properties need emergency support right now. Too many renters simply will not have the ability to make up missed rent payments. In ordinary times, it might take two to three weeks after a worker filed for unemployment insurance to get a payment. With record-high first-time jobless claims, that time can be expected to stretch out considerably. Meanwhile, a 2018 Federal Reserve study found that almost 40 percent of American adults wouldn’t be able to cover a $400 emergency with cash, savings or a credit card charge that they could quickly pay off. As a result, families are tapping their limited resources to pay for food and medicine and may have little to nothing to apply to rent. The current proposals for mortgage forbearance for apartment owners provide for up to three months of mortgage forbearance in exchange for a moratorium on evictions and waiver of penalty fees. That’s a good start. But the current guidance also would require repayment of the deferred mortgage payments over the following 12 months. Unless renters can make up their lost payments, after the moratorium is lifted, apartment owners who don’t have deep, deep reserves will have only two choices to make up the gap left by renters who don’t make up their delayed payments: 1) charge higher rents or b) evict renters and start collections actions. Either will hurt the millions of working families who, even before today’s crisis, found it nearly impossible to find safe, decent or affordable housing. Homeowners can also apply for hardship forbearance on their mortgages. If Fannie and Freddie, and the Federal Housing Administration (FHA), apply the lessons learned during the 2008 financial crisis, homeowners will ultimately be able to get a loan modification (and maybe even loan forgiveness), when we begin to emerge from the COVID-19 crisis. But that is going to require a well-functioning system which includes: a) mortgage servicers having the capacity to engage consumers immediately; and b) capital on hand, at Fannie and Freddie, to make up for shortfalls in collections, so they can make good on commitments to bondholders to make timely payment of principal and interest. As a nation, we face a moral imperative: shelter-in-place orders today should not have the effect of soon denying shelter to Americans. The federal government should immediately return to housing a significant portion of the funds it has drained from the housing finance system. Yes, it’s a radical departure from the direction we all thought we were headed with Fannie and Freddie only a few weeks ago. The generally accepted plan was to free them from government ownership. But this would be an absurd time for the government to conduct an IPO, which the releasing of the two firms would essentially be. COVID-19 has changed the paradigm for many things. Fannie and Freddie are no different. The good news is that they are extremely well-equipped to execute this payback to housing from the federal government. It would require no reengineering of the way they operate because they already are embedded in the nation’s mechanisms for delivering liquidity for housing. It’s what they do. Paying back its debt to housing is the right thing for the federal government to do. It is the only thing that will bring real stability to housing. In this unprecedented time, it’s the best way to support homeowners and renters, as well as the infrastructure of property owners, lenders and mortgage servicers who keep the nation’s housing system intact. Anne Segrest McColloch is President and CEO of the Housing Partnership Equity Trust (HPET) and a former Fannie Mae executive. HPET is a Washington, DC-based social-purpose real estate investment trust (REIT) that acquires and preserves affordable housing in partnership with leading nonprofit apartment owners.

Inspector General report on FHFA from March 30th. https://www.fhfaoig.gov/sites/default/files/OIG-2020-002.pdf

Treasury wants servicer liquidity. Thoughts on how this might impact GSE's? Article linked below...

Calabria: No servicer liquidity facility coming, but GSEs may pull servicing from struggling companies https://www.housingwire.com/articles/calabria-no-servicer-liquidity-facility-coming-but-gses-may-pull-servicing-from-struggling-companies/ "...Calabria said they have a plan, but it’s not the one that the industry is calling for." “So, the yes is we have contingency plans and procedures put in place were this distress to happen,” Calabria continued. “So that’s the yes part. The no part is, do we have a liquidity facility that we will be providing via Fannie and Freddie? The answer’s no. We don’t have the resources at Fannie and Freddie to do that.” “Nobody that we’re talking to is seeing 25%, 30%, 40%, 50% take out (in forbearance requests),” Calabria said. “So, I don’t know where those estimates are coming from, because they just don’t match anything we’re seeing at all.”

DS5 (who?! LOL) interview with Calabria: https://dsnews.com/daily-dose/04-06-2020/ds5-fhfa-director-discusses-forbearance