The Man in Charge of Fixing Fannie and Freddie Knows Them All Too Well

NY Times:

You may not know much about Craig S. Phillips, special counselor to Steven Mnuchin, the United States Treasury secretary. Because Mr. Phillips was not a political appointee, he did not face congressional scrutiny before he began directing our nation’s housing policy, one of his main tasks.

Getting to know Mr. Phillips and his background is a worthwhile exercise, especially because he’s determining the Trump administration’s path forward on Fannie Maeand Freddie Mac, the mortgage finance giants that remain in conservatorship.

Mr. Phillips certainly knows a thing or two about Fannie and Freddie. As the leader of Morgan Stanley’s mortgage desk during the peak mortgage-mania years of 2004 and 2005, he ran the operation that bundled loans and sold them to the two government-sponsored enterprises. When those loans blew up and the government sued Morgan Stanley, Mr. Phillips was a named defendant in the initial case — a case that resulted in the firm paying a $1.25 billion settlement.

But first things first.

Mr. Phillips’s landing at Treasury is peculiar from a political standpoint. He contributed over $100,000 to Hillary Clinton’s presidential campaign last fall.

Much more germane is the work he’s done on Wall Street, much of it in the mortgage arena.

According to regulatory records, Mr. Phillips has spent 38 years at an array of Wall Street firms, including Credit Suisse First Boston, Morgan Stanley and, most recently, BlackRock, the huge asset manager. While there, he headed the financial markets advisory and client solutions teams at BlackRock Solutions, the powerhouse advisory unit; he left in January.

Hedge Funds Can’t Sue Over Investments in Fannie and Freddie

Hedge funds largely failed in their legal challenge to the U.S. government’s capture of billions of dollars in profits generated by Fannie Mae and Freddie Mac after their bailout, sending shares of the mortgage guarantors plunging.

Perry Capital LLC, the Fairholme Funds and other big investors lost a bid to overturn a judge’s ruling that said they can’t sue the government over the dividend change. The change known as the “net-worth sweep” forced the companies to send almost all their profits to the U.S. Treasury, leaving shareholders with nothing. The companies have been under government control since being bailed out during the 2008 financial crisis.

The funds may still be able to pursue some contract-based claims.

Read on.

The scheme to privatize Fannie and Freddie begins

• Mortgage Bankers Association’s plan would preserve the GSEs
• Proposal would open door to new competitors in the MBS market

A powerful housing trade group is wasting no time in pushing the Trump administration and Republican-led Congress to address one of the last unresolved issues from the financial crisis, outlining a proposal Tuesday to overhaul mortgage-finance giants Fannie Mae and Freddie Mac.

The Mortgage Bankers Association plan would make Fannie and Freddie privately-owned utilities and cap their returns on capital. It would also turn the government’s implicit backstop of the companies into an explicit guarantee of the mortgage-backed securities they sell to investors.

Read on.

Government’s Fannie Mae will back PE giant Blackstone’s rental homes debt

Mortgage giant Fannie Mae is getting into the single-family rental business in a big way.

The government-backed agency said it is going into business with private equity giant and major housing player Blackstone by backing $1 billion in debt. Blackstone’s Invitation Homes filed for an initial public offering this week, and the Fannie Mae relationship was disclosed afterward. Blackstone is looking to raise $1.6 billion by selling shares to the public.

Fannie Mae, currently under government conservatorship, will back $1 billion in debt collateralized by rental homes owned by Blackstone.

Read on.

Supreme Court limits Fannie Mae’s ability to take cases to federal court

In a unanimous opinion handed down Wednesday, the Supreme Court limitedFannie Mae’s ability to transfer cases to federal court, ruling that the government-sponsored enterprise’s charter does not grant it the right to move all state cases to the federal level.

The decision, written by Justice Sonia Sotomayor, overturns a lower court’s ruling, which held that the “sue-and-be-sued” clause in Fannie Mae’s charter allowed for the GSE to transfer any lawsuits against it filed at the state level to federal court.

In the opinion, Sotomayor writes that none of Fannie Mae’s arguments about the interpretation of the  “sue-and-be-sued” clause are “persuasive.”

Sotomayor writes that the Court previously ruled on several other arguments from other federally chartered organizations, but notes that Fannie Mae’s charter differs in that “sue-and-be-sued” clause states that cases can be transferred to “any court of competent jurisdiction.”

The clause in question authorizes Fannie Mae “to sue and to be sued, and to complain and to defend, in any court of competent jurisdiction, State or Federal.”

That distinction places Fannie Mae on the losing end of this argument, according to the court’s ruling.

Read on.

Fannie, Freddie replace HAMP with new foreclosure prevention program

(Update 1: A previous version of this article stated the Flex Modification foreclosure prevention program replaced HARP. The article is now updated to say it replaced HAMP only)

Fannie Mae and Freddie Mac announced on Wednesday their replacement for the Home Affordable Modification Program. The government sponsored enterprises revealed the Flex Modification foreclosure prevention program, which is designed to help America’s families by offering reductions to their monthly mortgage payments.

The government’s Home Affordable Modification Program is slated to end on Dec. 31, 2016, concluding a seven-year government program designed to save struggling homeowners who are behind on their mortgage, or in danger of imminent default due to financial hardship.

HAMP’s sibling, the Home Affordable Refinance Program, which was created at the same time, was extended in August until Sept. 30, 2017 in order to create a smoother transition period for a new refinance product.

“The new Flex Modification announced by Fannie Mae and Freddie Mac (the Enterprises) today was designed based on lessons learned from crisis-era loan modification programs to help borrowers stay in their homes and avoid foreclosures whenever possible,” the FHFA said in a statement.

The Flex Modification also reflects input received over the course of extensive engagement with lenders, mortgage insurers, consumer advocates, and other stakeholders, the statement adds.  By avoiding the high costs associated with foreclosures, the Flex Modification will result in significant savings for the Enterprises and taxpayers, the FHFA said, and it will provide borrowers who face permanent hardships with a sustainable modification.

“The Flex Modification is an adaptive program that will allow us to continue to assist struggling homeowners in a changing housing environment and simplify the process for servicers to deliver those solutions,” said Bill Cleary, Vice President of Single-Family Servicing Policy, Fannie Mae. “We believe the program is flexible to adjust for regional and even local differences in housing. It provides the greatest amount of assistance to those areas in need.”

Read on.

Fannie, Freddie surge as Trump taps advisors who back privatization

Marketwatch:

Shares of Fannie are up about 63% during the week, and Freddie shares have risen about 65% in that time.

Fannie FNMA, +4.64%  and Freddie FMCC, +3.86%  were placed into federal conservatorship during the 2008 financial crisis, and in 2012 the Obama administration amended the terms of the 2008 agreement to sweep quarterly profits from the two enterprises, a move that’s been challenged in court by shareholders.

Ken Blackwell, who’s been tapped to lead the domestic transition team, wrote an op-ed in 2014 in which he called the Treasury arrangement “theft of private property.” In the piece, Blackwell noted that there is a “bipartisan consensus on how to wind down Fannie and Freddie.”

On Wednesday, the Wall Street Journal reported that hedge fund investor John Paulson had been tapped to be a Trump advisor because of his understanding of the housing market. Paulson is known for shorting the subprime mortgage market as the housing bubble inflated a decade ago.

Paulson’s company has donated extensively to nonprofits and lobbyists advocating for the release of the enterprises from government controls, according to an earlier Journal article.

Fannie & Freddie Shareholders Want Billions

HOUSTON (CN) — Shareholders have sued the Department of the Treasury and the Federal Housing Finance Agency, claiming their $195 billion “net worth sweep” of Fannie Mae and Freddie Mac in 2012 illegally sent all their dividends to the U.S. Treasury rather than shareholders.
The Federal National Mortgage Association (Fannie Mae), and The Federal Home Loan Mortgage Corporation (Freddie Mac), are government-sponsored private companies that own or guarantee trillions of dollars in U.S. home loans. They buy home loans from banks, freeing up the banks to issue more home loans.
After the financial crisis began in late 2007, as the value of securitized home loans collapsed, Congress in July 2008 passed the Housing and Economic Recovery Act of 2008, under which Fannie and Freddie received a $188 billion government bailout.
The Act also created the Federal Housing Finance Agency and authorized it to appoint itself conservator of the companies, which it did in September 2008.
Lead plaintiff J. Patrick Collins a Freddie Mac stockholder, filed the lawsuit on Oct. 20 in Federal Court.

Read on.

No privilege for feds’ memos on Fannie Mae: Judge ordered gov’t to turn over documents

(CN) — A federal judge has ordered the government to turn over documents related to its decision to permanently divert billions of Fannie Mae and Freddie Mac profits from investors to the U.S. Treasury following their $188 billion bailout in 2008.
Fairholme Funds is an investment fund run by Bruce Berkowitz. Mr. Berkowitz was named domestic equity fund manager of the decade by Morningstar Inc. in 2010, but since then his fund has massively underperformed the S&P 500 by nearly 12 percent annually, according to Seeking Alpha.
Part of the fund’s losses are due to its large holdings in Fannie Mae and Freddie Mac.
Value of preferred shares of the mortgage giants has dropped by more than half since Fairholme lost its federal lawsuit challenging the government’s 2012 amendment to the 2008 bailout terms. The amendment diverted Fannie and Freddie profits to the U.S. Treasury and eliminated dividends that normally go to private investors.
Investors described the amendment as requiring “Fannie Mae and Freddie Mac to pay a quarterly dividend to Treasury equal to the entire net worth of each enterprise, minus a small reserve that shrinks to zero over time.”

Read on.

Here is the court document. Click here.

Miami investors win access to secret documents in Fannie Mae fight

A federal judge on Tuesday ordered the U.S. Treasury Department to release more than 50 documents it tried to keep secret in a lawsuit over government-backed mortgage giants Freddie Mac and Fannie Mae.

The plaintiff is Miami-based mutual fund Fairholme Fund, which filed suit in the Federal Court of Claims in 2013. Fairholme is one of many Freddie and Fannie investors suing the federal government in different venues. The plaintiffs claim the government illegally seized the companies’ earnings after the bailout. The Obama administration says it is acting within the guidelines of Congressional legislation.

Judge Margaret Sweeney has previously ordered the government to release documents over which it exerted executive privilege. The latest batch of documents — mainly internal memos and correspondence between top Treasury officials and the White House — will remain under seal, available only to Fairholme’s attorneys.

Read more here: http://www.miamiherald.com/news/business/real-estate-news/article103199827.html#storylink=cpy