Federal home Loan Mortgage

Guidelines for the assessment of the exposure of mortgages to financial risks published by Financial Markets Stabilisation and Association (FHFA)

The Federal Finance Agency for Housing (FHFA) published its consulting report AB 2018-02 on 25 April, which provides the Federal Home Loan Institutions (FHL banks) with guidelines on the use of model and methodology for the assessment of the exposure of mortgage assets to financial covenants. FHL Bankers purchasing credits from acquirer member assets, mortgage-backed bonds (MBS) and collateralised mortgage bonds.

Exceptions to the Directive are certain mortgage-related property covered by US Treasury guarantees or working with US Treasury funding, such as Fannie Mae and Freddie Mac. In choosing a rating agency that is " sufficiently robust to provide significant losses estimates", the FMFA recommends that FHL lenders consider the following when considering compliance with regulations:

i) selecting the mortgage borrower default protection models; ii) macro-economic distress settings; iii) provisions of the distress setting; and iv) loan improvements. It allows the existing own-brand MBS to be excluded from the Directive where stressed- loss estimations would be negligible and contains procedures for the determination of the expected loan capital lost on unmodellable instruments.

This new Directive complements the general Directive on Modelling Approaches to Financial Market Stabilisation and Association (FHFA) and will enter into force on 1 January 2019.

Securities and Exchange Commission sue former Freddie Mac and former Fannie Mae leaders

Last-sunday, the US securities and exchange commission reported six former senior officers of the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) to the US Federal Department of Justice. SEC filings showed that senior management had alleged that their company's exposures from 2007 to 2008 were between $2 billion and $6 billion, although they were actually up to $244 billion.

Among the suspected fraudsters are former Fannie Mae CEO Daniel Mudd, Single Family Mortgage VP Thomas Lund, and Enrico Dallavecchia, CRO. Freddie Mac's executive officers have included CEO Richard Syron, VP Patricia Cook and Single Family Guarantee VP Donald Bisenius.