Posts tagged ‘GSEs’

Dividend Payouts, Housing Reform and Taxi Lending Highlight CU News You Can Use

Show Me More Money

I figured I’d start with some good news this morning. NCUA announced that it will be paying out dividends totaling $160.1 million. This means that NCUA has been able to issue close to $900 million in equity distributions over the past year. Right now the NCUA has a Share Insurance Fund equity ratio of %1.39 to aggregate credit union assets. Under the law, any money in excess of the ratio must be returned to credit unions. The money is available as a result of NCUA’s decision to end the temporary Credit Union Stabilization Fund which was set up in the aftermath of the corporate crash.

GSE Capital Requirements Emerge As Key Issue In Housing Reform Debate

A key fault-line in the debate over how to reform the GSE’s spilled out into the public yesterday. In a speech before the Mortgage Banker’s Association laying out his view of what the housing industry should look like the future, FHA Director Mark Calabria argued that Fannie and Freddie should exit conservatorship but only after huge capital infusions. He explained that, “I can’t tell you what exactly the new model will look like. But, as a regulator, what I do know is that the future role and structure of Fannie and Freddie will be determined by the amount of private capital they’re able to build up.”

In the meantime, Dan Layton, the CEO of Freddie told lawmakers, albeit in bureaucratic speak, that the capital plans being drawn up by the Trump Administration are crazy. He called plans to have the GSE’s raise $125 billion in capital “unprecedented” and predicted that it would take at least 5 years to raise up to $50 billion. Five years is the length of Calabria’s term at the FHFA and he made it clear yesterday that when he leaves his post he intends the housing market to be a different place than it is today.

Taxi Lending Investigations Keep Piling Up

Now for some bad news. The investigations into taxi medallion lending practice are piling up quicker than presidential tweets. Yesterday evening the Times tweeted out that New York Senator and Minority Leader Chuck Schumer is requesting “a review of the regulation of credit unions in a taxi industry.” A good place to start would be the review of the regulation of credit unions in the taxi industry already conducted and released by NCUA’s Inspector General. New York City Mayor DeBlasio, Assembly Banking Chair Zembrowski and New York Attorney General James have already called for hearings and/or started investigations. As these investigations go forward let’s not forget about two companies called Uber and Lyft.

May 22, 2019 at 9:04 am Leave a comment

It All Comes Down to Money

There are two reasons governments nationalize corporations:  (1) The company is losing money and it is considered too important to fail; or (2) it is making lots of money and the government wants to get its hands on it.  Fannie and Freddie have had such a roller coaster ride since 2008 that they have been victimized by both impulses.  Since credit unions have a vital stake in the future of the secondary market, they shouldn’t shy away from voicing their opinion.

Yesterday, Freddie Mac announced a $200 million loss for the first quarter.  It attributed the loss to those blasted GAAP accounting rules.  (If only companies could come up with their own financial statements without accountants getting in the way, the economy would be so much stronger.) Specifically they explained that interest rate volatility, combined with the way they book their derivatives, made things look worse than they actually are. Yada, yada, yada.

Freddie’s announcement raises questions about the continued wisdom of an aspect of US housing policy, which has thus far received too little attention.  In September, 2008 the Government handed the GSEs a lifeline and $187 million was drawn from the treasury.  Congress also empowered the FHFA to act as conservator or receiver of Fannie and Freddie, and to take over the rights of any stockholder, officer, or director.  The Government originally took preferred stock; but, starting in 2012, the Government started sweeping all GSE profits exceeding capital buffers.  Considering that the GSEs have made lots of money in recent years, this was a good deal for the Government.  In fact, it was such a good deal that the Treasury is being sued by private stockholders claiming that the Government is taking money that belongs to them.  Perry Capital LLC v. Lew, 70 F. Supp. 3d 208, 217-18 (D.D.C. 2014).

But, does this policy make sense if the GSEs are losing money?  “This development reinforces my concern over current federal policy regarding the GSEs, who have more than fully repaid the funds they borrowed during the 2008 financial crisis,” said Rep. Michael Capuano, D-Mass.  He is a member of the House Financial Services Committee, who has emerged as a level headed voice of reason on housing policy and was quoted in this morning’s American banker as saying. “Despite this, they must continue sweeping all their profits to the Treasury Department. The policy needlessly prevents them from building a capital reserve, which leaves taxpayers vulnerable in the event of a future crisis.”

Political News

A lot happened yesterday in NYS politics.  Long-serving Southern Tier State Senator Thomas W. Libous, whose career terminated following a federal perjury conviction, passed away after battling prostate cancer.

Hugh Farley has announced he is leaving the State Senate after 40 years.  For decades, Farley was one of the most influential banking policy makers as Chairman of the Senate Banks Committee.

And, of course, Sheldon Silver was sentenced to 12 years in jail, in addition to a hefty fine, and ordered to pay restitution of over $5 million.

May 4, 2016 at 9:29 am Leave a comment

Unsealed Gas Drilling Settlement Underscores Need For CU Vigilence

imagesCAZ2XNH1As readers of this blog will know, I have consistently urged credit unions in areas where members are being asked to lease property to hydro-fracking companies to take steps to protect the value of their mortgage collateral.  Recently, documents unsealed by a Pennsylvania court involving drilling on the Pennsylvania side of the Marcellus Shale demonstrates precisely why this is so important.

Earlier this week, a judge unsealed a settlement between a Pennsylvania family and Marcellus Shale development companies.  The $750,000 settlement, which the companies wanted to keep confidential, stemmed from allegations that the family’s property was made worthless and they suffered health problems as a result of drilling, which took place on adjacent property.  According to the Wall Street Journal, a lawsuit technically was never filed and as part of the settlement the family also agreed that any future health claims would be settled through arbitration.

Now, I have no idea about the underlying merits of the claims, but I do know that for those of you who don’t think drilling could have consequences for your lending practice, the settlement underscores yet again why this type of thinking is just plain wrong.  As the months turn into years, it’s possible that Governor Cuomo will never lift New York’s moratorium on high-powered hydro-fracking, but if he does, it will be too late to do anything about the leases that your members have already granted.

With that backdrop in mind, the case demonstrates the need for appraisers who are skilled in assessing the impact that gas drilling may have on property values in a given area.  Remember, the people who settled in this case didn’t even have gas drilling taking place on their own property, but their property value was impacted by the activity nonetheless.

Also, as the holder of the mortgage, the credit union has to give itself a seat at the table in any lease negotiations.  At the very least, members should be put on notice that any agreement to enter into a gas drilling lease requires the approval of the credit union.  If you do find yourself reviewing a lease agreement, there are further stipulations you can try to negotiate including making sure that the mortgage is one of the first things paid off with any gas drilling royalties.

Finally, the big question remains:  will Fannie and Freddie be willing to accept mortgages that are subject to gas leases as an acceptable exception to title?  Remember that hydro-fracking has been taking place across the country and I haven’t been able to find a single recorded case of Fannie or Freddie refusing to take a mortgage.  In addition, my brethren in Pennsylvania haven’t had any issues with the GSE’s yet.  But, when you start hearing about out-of-court settlements involving several hundred thousand dollars, it is hard to believe that this won’t at least raise some eyebrows in the secondary market community.  Remember that even if a mortgage is sold to Fannie and Freddie, they are typically going to have the right to make a lender repurchase property that is subject to environmental hazards.

NYS Budget Close to Done

If press reports are accurate, legislators could be voting on budget bills to enact the 2013-2014 State Budget by Sunday or early Monday.  The unofficial deadline is Passover.  The budget deal calls for a little more than $135 billion in spending.  If all goes according to plan, the Legislature will be taking three weeks off, meaning that everyone will be good and refreshed for our upcoming Government Affairs Conference.

March 22, 2013 at 8:38 am Leave a comment

Fannie and Freddie Light?

imagesCAV2T9RE I have some good news this morning.  Freddie Mac posted an $11 billion profit in 2012, its first profit since 2006.  This is the best indication I have yet seen that the housing market really has stabilized.  Now if only we could get Washington to get its act together, we could actually see some real economic growth in this country, but that’s a blog for another day.

The announcement of GSE profitability comes the same week as a bipartisan group of prominent housing experts and politicians released a report outlining their vision for a post Fannie and Freddie world.  With the CFPB coming out with its final mortgage regulations and Jeb Hensarling, the new head of the House Financial Services Committee, making housing reform a top priority, we are moving ever closer to delving into the nitty-gritty of what this world might look like.  The Commission’s report may very well provide the primary framework for when the discussion starts getting serious.

This is the conundrum.  On the one hand, Fannie and Freddie are absolutely vital to the American housing system.  They provide the primary means that most credit unions and banks have of getting their mortgages off their balance sheet, indirectly making everyone’s mortgage cheaper and spreading the risk of mortgage failures.  They do this by bundling many, if not all, of the mortgages they receive into mortgage-backed securities.  They guarantee investors against the failure of such securities by charging guarantee fees in return for purchasing the mortgages.  We all know now that there were more foreclosures than the GSEs could protect themselves from and that when the government took over the GSEs it covered the cost of guaranteeing the outstanding securities, bailing out investors and keeping the American housing market from freezing up completely, but ending any pretense that our housing market is a free market.

Under the Commission’s plan, a convenient chart of which is available on page 58 of the report, the role that Fannie and Freddie play in guaranteeing and securitizing mortgage-backed securities would be replaced by a public guarantee corporation.  The corporation would approve companies for issuing mortgage-backed securities and establish the baseline criteria that would have to be met in order for it to issue mortgage-backed securities.  Instead of mortgages being insured against default through guarantee fees, private insurers would take on the primary responsibility for insuring against the default of these securities with the government stepping in to provide catastrophic insurance against default when and if it came to that.

In theory, the system would provide many of the current benefits provided by Fannie Mae and Freddie Mac while ensuring that private entities take on more of the risk associated with securitization.  In the generic parlance of the politician who doesn’t want to say whether or not he likes an idea, the Commission’s proposal is an idea worth considering.  First, the Commission stressed that any system has to ensure that credit unions have continued access to the secondary market.  Second, the system envisioned by the Commission might provide a mechanism for credit unions to get more directly involved in the securitization process by giving them a public platform through which to issue and bundle their own securities.

Now for the risks.  By getting more private money into the system, the cost of mortgages will go up.  The question is by how much.   At the end of the day, in spite of the Commission’s recommendation that there be a single securitization platform, banks won’t be kept from creating their own securitized pools of mortgages.  We could end up with a two-tiered system where the largest banks work together to more cheaply finance mortgages while credit unions are placed at a structural cost disadvantage.  Remember, whether you love or hate Fannie Mae or Freddie Mac, by aggressively moving into the subprime market, they ensured that the largest banks had competition that simply would not have been there otherwise.  Finally, it is absolutely crucial that whatever public institution is set up to sign off on mortgage-backed securities it is insulated from policy makers.  Fannie Mae and Freddie Mac were justifiably criticized for being too sensitive to Washington’s political class.  It seems to me that this problem could be exacerbated under a government guaranteed public entity.

Enjoy your first weekend of the Sequester.  See you on Monday.

March 1, 2013 at 7:48 am Leave a comment

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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