FEDERAL

More documents

Recommendations

Info

Figure 17. FHLBanks’ Net Income for the Six Months Ended June 30, 2013 and 2012 ($ millions) 2013 2012 Net Interest Income $1,682 $2,048 Reversal of (Provision for) Credit Losses 10 (13) Other-than-Temporary Impairment Losses a (6) (86) Other Income (Loss) 189 (31) Total Non-interest Expense (421) (485) Total Assessments (144) (148) Net Income $1,310 $1,285 a Of the other-than-temporary impairment losses, private-label MBS comprised $6 million and $84 million for the six months ended June 30, 2013 and 2012, respectively. derive from decreases in interest income on advances, held-to-maturity securities, prepayment fees, and mortgage loans. Interest income on advances decreased from $1.6 billion to $1.3 billion—i.e., 21%—and interest income on held-to-maturity securities decreased from $1.3 billion to $1.1 billion—a 19% decline—for the six months ended June 30, 2013, compared with the same period in 2012. Also during this period, interest income on prepayment fees was reduced from $158 million to $64 million—or 59%—and interest income on mortgage loans decreased from $1.1 billion to $969 million—a 15% decline, compared with the same period in 2012. 65 On the other hand, a decrease in interest expense from $3.2 billion to $2.6 billion—i.e., 20%—prevented additional declines in net interest income. The decrease was driven by lower funding costs and reductions in the balances of interest-bearing liabilities. The refinancing of consolidated obligations, which resulted in lower interest payments, was a key contributor to this decline. Due to these lower payments, consolidated obligation expenses decreased from $3.1 billion to $2.4 billion, or 22%, for the six months ended June 30, 2013, compared with the same period in 2012. 66 The FHLBanks are exposed to interest rate risk primarily from the effect of interest rate changes on their interest-earning assets, as well as the funding sources for these assets. The goal of the FHLBanks is not to eliminate interest rate risk entirely but to manage it within appropriate limits. To achieve this goal, the FHLBanks use derivatives (e.g., interest rate swaps, options, and swaptions), which help reduce funding costs, maintain favorable interest rates, and manage overall assets and liabilities. 67 Changes in mark-to-market items prevented further declines in overall profitability, adding gains on derivatives and hedging activities. Specifically, the gains accounted for additional non-interest income of $293 million for the six months ended June 30, 2013, compared with a loss of $1 million for the same period in 2012—a substantial increase. 68 As shown in Figure 18 (see below), the FHLBanks’ combined retained earnings have increased every year for the last six years and now approach $12 billion as of June 30, 2013. 69 As long as the FHLBanks are profitable, retained earnings should continue to increase because of the joint capital enhancement plan provisions adopted by the FHLBanks last year. The plan calls for the FHLBanks to set aside 20% of their net income into a separate, restricted retained earnings account. 70 The joint capital enhancements ensure Figure 18. FHLBanks’ Retained Earnings 2007 Through Second Quarter 2013 ($ billions) $12 $10 $8 $6 $4 $2 $0 3.69 2007 2.94 2008 6.03 2009 7.55 2010 8.58 2011 10.52 2012 11.45 Q2 2013 Semiannual Report to the Congress • April 1, 2013–September 30, 2013 47
members’ access to liquidity during times of economic stress; create an additional buffer to absorb FHLBank losses; provide protection on members’ capital investments; and ensure that the FHLBanks will meet their consolidated obligations. 71 Selected FHFA and GSE Activities Over the last six months, there were several significant FHFA and GSE developments related to: developing a common securitization infrastructure; creating exemptions to appraisal requirements for higherpriced mortgages; assessing the viability of the enterprises’ multifamily lending businesses in the absence of a government guarantee; sharing credit risk with private investors; proposing legislation designed to replace the activities of the enterprises with a system more reliant on private capital; and recovering enterprise losses stemming from alleged violations of securities laws in the sale of private-label MBS. These developments and OIG’s efforts in relation to them are summarized below. Mortgage Industry Standards Common Securitization Infrastructure In April 2013, FHFA issued a progress report on the development of a common securitization infrastructure for RMBS. Earlier, in an October 2012 white paper, FHFA called for a two-pronged approach involving the creation of a new securitization platform and a model contractual and disclosure framework. The proposal was designed to contract the dominant presence of the enterprises in the secondary mortgage market while simplifying and shrinking their operations. FHFA received public responses to the white paper from a broad cross-section of industry participants and other stakeholders in the securitization process. 72 Based on this feedback, the update noted progress on the design, scope, and building of a securitization platform to perform functions related to data validation, issuance, disclosures, master servicing, and bond administration. Additionally, it reported that efforts to align enterprise contracts and standards for agency MBS are continuing. The update also noted that the development of uniform contracts and standards for credit risk transfer activities is proceeding according to plan. 73 On August 22, 2013, OIG issued to FHFA a report assessing risks and fraud threats in the securitization infrastructure under development and recommending countermeasures for potential threats. Because information in this report could be used to exploit vulnerabilities and circumvent recommended countermeasures, it has not been released publicly. Appraisal Requirements for Higher-Priced Mortgages In July 2013, six federal financial regulatory agencies issued a proposed rule creating three exemptions to appraisal requirements for higher-priced mortgage loans. In January, the agencies had issued a rule requiring creditors making higher-priced mortgage loans to use a licensed or certified appraiser to prepare a written appraisal report based on a physical visit to the interior of the property. Loans are considered higher priced if they are secured by a consumer’s home and have interest rates above a certain threshold. The July 2013 proposed rule exempts from the appraisal requirements loans of $25,000 or less, certain “streamlined” refinancings, and certain loans secured by manufactured housing. 74 Mortgage Transactions Multifamily Housing In May 2013, FHFA released reports from the enterprises assessing the potential viability of their 48 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 50 and 51: Figure 14. Home Price Index 2011 Th
Page 52 and 53: educe the principal balance of Trea
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 104 and 105:
No. Recommendation Report Status EV
Page 106 and 107:
Page 108 and 109:
Page 110 and 111:
Semiannual Report to the Congress
Page 112 and 113:
Page 114 and 115:
Audit and Evaluation Reports with R
Page 116 and 117:
Appendix D: OIG Reports See www.fhf
Page 118 and 119:
Appendix F: Description of OIG Offi
Page 120 and 121:
Strategic Goal 2—Operating with I
Page 122 and 123:
Figure 17. Federal Home Loan Banks
Page 124 and 125:
Page 126 and 127:
15 Federal Housing Finance Agency,
Page 128 and 129:
33 Fannie Mae, “Multifamily Busin
Page 130 and 131:
Federal Home Loan Banks Office of F
Page 132 and 133:
to FHFA Scorecard Directive, at 48,
Page 134 and 135:
it is preferable to limit our discu
Page 136 and 137:
Position in the Housing Finance Sys
Page 138 and 139:
144 Fannie Mae, “Comparison of Mu
Page 140 and 141:
157 Id., “Mortgage Servicing,”
Page 142 and 143:
184 Federal Housing Finance Agency,
Page 144 and 145:
Transparency and Certainty for Lend
show all

FEDERAL

Create successful ePaper yourself

Delete template?

Save as template?