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multifamily housing lending businesses without the benefit of a government guarantee. The enterprises had also been asked by FHFA, as part of the 2012 Conservatorship Scorecard, to analyze the likelihood of the firms operating on a stand-alone basis after attracting private-sector capital and making adjustments for pricing. The reports concluded that without government guarantees, the enterprises’ multifamily businesses would have little inherent value and the sale of those businesses would return little value to Treasury or the taxpayers. 75 Since the conservatorships began, the enterprises have used their government guarantees to provide a secondary market for $30 billion to $50 billion in annual multifamily loan production. Fannie Mae, currently the largest lender in the multifamily market, said that because of the need to capitalize an independent firm’s balance sheet, neither Fannie Mae nor Treasury would benefit from the sale of the business. In addition, it said the withdrawal of the government guarantee would have serious negative consequences for independent lenders, borrowers, and the renters they serve. 76 Risk Reduction Initiative In July 2013, Freddie Mac offered $500 million of bonds designed to reduce credit exposure and taxpayer risk. The Structured Agency Credit Risk Debt Notes were the first in a planned series of bond offerings that are not guaranteed by Freddie Mac. 77 Due to investor demand, the size of the bond offering was increased from $400 million to $500 million and attracted 50 diversified investors, including mutual funds, hedge funds, real estate investment trusts, pension funds, banks, insurance companies, and credit unions. 78 FHFA’s Acting Director noted that the transaction was “a key step in the process of attracting private capital back to the U.S. housing finance market.” 79 FHFA’s Conservatorship Strategic Plan: Performance Goals for 2013 called on each enterprise to test the viability of multiple types of risk transfer transactions involving single-family mortgages with at least $30 billion of unpaid principal balances in 2013. 80 FHFA and GSE Performance and Accountability On June 13, 2013, FHFA released its 2012 Report to Congress, which detailed the agency’s examinations of the enterprises, the 12 FHLBanks, and the FHLBanks’ Office of Finance. 81 For 2012, FHFA assigned the enterprises composite ratings of critical concerns, which were unchanged from 2011. It said they exhibit critical financial weaknesses stemming from lack of capital, the quality of legacy assets, and uncertainty about the conservatorship status. 82 Figure 19 (see below) depicts FHFA’s supervisory ratings. The report noted that the conservatorships of the enterprises, combined with Treasury’s financial support, have stabilized the enterprises but have not restored them to a sound financial condition. It said the enterprises remain exposed to credit, counterparty, and operational risks. Because of their large volume of distressed assets and ongoing stress in certain housing markets, the FHFA report noted that credit risk management is a key priority for both enterprises. Figure 19. FHFA’s Supervisory Ratings CRITICAL CONCERNS SIGNIFICANT CONCERNS LIMITED CONCERNS NO OR MINIMAL CONCERNS Semiannual Report to the Congress • April 1, 2013–September 30, 2013 49
In addition, counterparty risk is an area of concern, especially given the changes in the mortgage industry and the greater prominence of new types of sellerservicers. The report also singled out operational risk as an area of concern because of challenges related to legacy systems, recordkeeping, and ongoing concerns about human capital. 83 FHFA’s discussion of the FHLBank System indicated that the FHLBanks of Boston, Chicago, and Pittsburgh presented “limited supervisory concerns,” while the FHLBank of Seattle presented “supervisory concerns.” The FHLBanks of New York, Atlanta, Cincinnati, Indianapolis, Des Moines, Dallas, San Francisco, and Topeka were described as “satisfactory.” 84 FHFA’s summary of the FHLBanks’ Office of Finance noted improvements in corporate governance and operational risk management processes. Principal supervisory concerns included weaknesses in the director compensation policy, weaknesses in certain internal controls, incomplete implementation of a vendor management program, and the lack of a formalized process for collecting from the FHLBanks selected data related to dealer eligibility. 85 Housing Finance Reform One of OIG’s strategic goals is to contribute to the dialogue on enterprise reform and collaborate with Congress on legislative policy initiatives before they become program requirements. In our fifth Lawmakers introduced two major bills intended to reform housing finance, and the Administration announced core principles that it believes should underlie such reform. Semiannual Report, we featured a discussion of key reformers and reform proposals. Since then, lawmakers introduced two major bills intended to reform housing finance, and the Administration announced core principles that it believes should underlie such reform. These recent developments are summarized below. In June 2013, the Corker-Warner Housing Finance Reform and Taxpayer Protection Act was introduced in the Senate. 86 The bill calls for the winding down of the enterprises and FHFA within five years of the bill’s passage. It would transfer the functions of the entities to the Federal Mortgage Insurance Corporation (FMIC), modeled on FDIC. 87 Under the bill, the FMIC would collect insurance premiums and maintain a deposit fund on all outstanding obligations. It would provide backstop insurance that will kick in after a substantial amount of private capital is exhausted. The FMIC would capitalize the housing finance system by separating credit risk from interest rate risk and bringing in private capital to take on both. In addition, the FMIC would leave the securitization and insurance functions to privatemarket participants. 88 In July 2013, the Protecting American Taxpayers and Homeowners Act was introduced in the House of Representatives. 89 The bill would end the FHFA conservatorships of the enterprises in five years. During the transition period, it would reduce the enterprises’ mortgage portfolios by 15% a year. 90 50 Federal Housing Finance Agency Office of Inspector General
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Federal Housing Finance Agency Offi
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Section 3: Lessons for Housing Fina
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Page 8 and 9: A Message from the Acting Inspector
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Page 44 and 45: the SEC, and others. In July 2013,
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No. Recommendation Report Status EV
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No. Recommendation Report Status EV
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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,
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Transparency and Certainty for Lend
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