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Figure 14. Home Price Index 2011 Through Second Quarter 2013 Housing Index 160 158 156 154 152 150 148 146 144 142 140 138 136 134 132 130 1Q 2011 2Q 2011 3Q 2011 4Q 2011 1Q 2012 2Q 2012 3Q 2012 4Q 2012 1Q 2013 2Q 2013 Impact of National Home Prices on Credit Losses Another factor positively influencing credit-related expenses, i.e., credit losses, is national home prices. These overall derivative gains were primarily An increase in home prices can decrease the likelihood due to gains in risk management derivatives and that loans will default and reduce the estimated credit mortgage commitment derivatives. The gains in risk losses on the loans that default. 35 As shown in Figure management derivatives were a result of increases 14 (see above), the S&P/Case-Shiller Home Price on swap rates, and the increases in mortgage Indices for the last 10 quarters ending June 30, 2013, commitment derivatives were a result of gains on show a steady increase in the housing index since the commitments to sell mortgage-related securities, as first quarter of 2012. 36 a consequence of a decrease in prices as interest rates increased during the commitment period. 40 Higher Increases Figure in Swap 14. Home Rates Price Lead Index to 2011 Through Second Quarter 2013 Derivative Gains The enterprises use derivative instruments to manage the interest rate and prepayment risk associated with their investments in mortgage loans and mortgagerelated securities. 37 Derivative instruments include written options, interest rate guarantees, and shortterm default guarantee commitments. 38 Fannie Mae’s derivative gains for the six months ended June 30, 2013, were $1.8 billion, compared with a loss of $2.4 billion for the same period in 2012. Freddie Mac’s derivative gains for the six months ended June 30, 2013, were $1.7 billion, compared with a loss of $1.9 billion for the same period in 2012. 39 Government Support Due to the continued profitability of the enterprises, they are no longer requesting draws from Treasury, are paying significant dividends, and do not currently require additional government support. Treasury Draw Requests and Dividend Payments Due Under the Senior Preferred Stock Purchase Agreements In August 2012, FHFA and Treasury agreed to a third amendment to the PSPAs that, among other Semiannual Report to the Congress • April 1, 2013–September 30, 2013 43
Figure 15. Enterprises’ Treasury Draws and Dividend Payments Due Under PSPAs ($ billions) $100 $90 $80 $70 $60 $50 $40 $30 $20 $10 $0 59.8 0.2 2008 66.1 6.6 2009 Net Capital to Enterprises: $41.3 billion Dividends Paid: $146.2 billion Treasury's Investment: $187.5 billion 33.6 28.0 13.5 16.1 2010 2011 2012 18.8 91.0 Q3 2013 Total Enterprise Draws Total Enterprise Dividends things, replaced the fixed dividend rate the enterprises pay as of the first quarter of 2013. This ended the circular practice of the enterprises drawing funds from Treasury in order to pay dividends back to Treasury. The enterprises’ net worth (above a specified amount) is now effectively distributed to Treasury; for the six months ended June 30, 2013, approximately $76.4 billion was distributed, with an additional $14.6 billion due in the third quarter of 2013. 41 Freddie Mac’s net worth as of June 30, 2013, was $7.3 billion, resulting from comprehensive net income of $11.3 billion for the six months ended June 30, 2013, and a beginning equity balance of $8.8 billion less $12.8 billion paid to Treasury in senior preferred stock dividends during the first half of 2013. As a result, Freddie Mac did not request a draw from Treasury in the second quarter of 2013 under the PSPA. 43 As shown in Figure 15 (see above), since the conservatorships began in 2008 through September 30, 2013, the enterprises have drawn a total of $187.5 billion from Treasury and paid Fannie Mae’s net worth, including noncontrolling $146.2 billion in dividends. As of June 30, 2013, interests, Figure as 15. of June Enterprises' 30, 2013, was Treasury $13.2 billion, Draws and Dividend Fannie Mae’s Payments total draws Due from Under Treasury PSPAs under the PSPA resulting from comprehensive net income of remain at $116.2 billion and Freddie Mac’s remain at $69.6 billion for the six months ended June 30, 2013, $71.3 billion. 44 and a beginning equity balance of $7.2 billion—i.e., the enterprise’s net worth as of December 31, 2012— less $63.6 billion paid to Treasury in senior preferred stock dividends during the first half of 2013. As a result, Fannie Mae did not request a draw from Treasury in the second quarter of 2013 under the PSPA. 42 For the second quarter of 2013, Fannie Mae and Freddie Mac made dividend payments of $59.4 billion and $7 billion, respectively, to Treasury without any assistance under the PSPAs. For the third quarter of 2013, Fannie Mae and Freddie Mac will make additional payments of $10.2 billion and $4.4 billion, respectively, under the terms of the PSPAs. As of September 30, 2013, Fannie Mae and Freddie Mac will have paid Treasury a total of $105.3 billion and $40.9 billion, respectively, in dividends on the senior preferred stock. 45 These dividend payments do not 44 Federal Housing Finance Agency Office of Inspector General
Page 2 and 3: Federal Housing Finance Agency Offi
Page 4 and 5: Section 3: Lessons for Housing Fina
Page 6 and 7: OIG’s Accomplishments from 2010 t
Page 8 and 9: A Message from the Acting Inspector
Page 10 and 11: insures mortgages against credit lo
Page 12 and 13: Semiannual Report to the Congress
Page 14 and 15: in a number of criminal and civil i
Page 16 and 17: Figure 3. Scoring of Investor Quali
Page 18 and 19: and provide for financial consequen
Page 20 and 21: Figure 5. Agreements Between Fannie
Page 22 and 23: 2010 to 2012, but the attrition rat
Page 24 and 25: Figure 8. Estimated Enterprise Aggr
Page 26 and 27: operations that pose the greatest r
Page 28 and 29: poor financial condition, Appalachi
Page 30 and 31: fraud and wire fraud involving a fi
Page 32 and 33: This was a joint investigation with
Page 34 and 35: y falsified, forged, and altered do
Page 36 and 37: Short Sale Schemes A short sale occ
Page 38 and 39: This was a joint investigation with
Page 40 and 41: at Appalachian concealed past due l
Page 42 and 43: indemnification payments that OIG p
Page 44 and 45: the SEC, and others. In July 2013,
Page 46 and 47: Figure 10. Overview of the Enterpri
Page 48 and 49: Figure 12. Enterprises’ Annual Ne
Page 52 and 53: educe the principal balance of Trea
Page 54 and 55: Figure 17. FHLBanks’ Net Income f
Page 56 and 57: multifamily housing lending busines
Page 58 and 59: The bill would replace the enterpri
Page 60 and 61: mortgage credit. For its part, the
Page 62 and 63: Figure 20. Reform Models and Reform
Page 64 and 65: Multifamily We have also found indi
Page 66 and 67: Based on recent history, a reformed
Page 68 and 69: Figure 26. The Mortgage Servicing P
Page 70 and 71: Even though the FHFA senior examine
Page 72 and 73: assistance to homeowners and to use
Page 74 and 75: positive NPV, then the servicer is
Page 76 and 77: Siloed Practices: Harmonizing Busin
Page 80 and 81: overseen by FHFA. As conservator, F
Page 82 and 83: Interest Rate Swap: An interest rat
Page 84 and 85: References Federal Deposit Insuranc
Page 86 and 87: Department of the Treasury Financia
Page 88 and 89: Acronyms and Abbreviations Agency A
Page 92 and 93: Figure 29. Summary of OIG Recommend
Page 94 and 95: No. Recommendation Report Status AU
Page 100 and 101:
No. Recommendation Report Status AU
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No. Recommendation Report Status AU
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No. Recommendation Report Status EV
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Page 108 and 109:
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Semiannual Report to the Congress
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Audit and Evaluation Reports with R
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Appendix D: OIG Reports See www.fhf
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Appendix F: Description of OIG Offi
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Strategic Goal 2—Operating with I
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Figure 17. Federal Home Loan Banks
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15 Federal Housing Finance Agency,
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33 Fannie Mae, “Multifamily Busin
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Federal Home Loan Banks Office of F
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to FHFA Scorecard Directive, at 48,
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it is preferable to limit our discu
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Position in the Housing Finance Sys
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144 Fannie Mae, “Comparison of Mu
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157 Id., “Mortgage Servicing,”
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184 Federal Housing Finance Agency,
Page 144 and 145:
Transparency and Certainty for Lend
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