FHFA: GSEs Rated as ‘Critical Concerns’ in 2012 Report to Congress

FHFA: GSEs Rated as ‘Critical Concerns’ in 2012 Report to Congress

06/13/2013 BY: ESTHER CHO

The Federal Housing Finance Agency (FHFA) labeled Fannie Mae and Freddie Mac as “critical concerns” in the composite rating category for 2012.

The assessment, which was part of the agency’s fifth annual Report to Congress, was unchanged from the rating assigned in 2011.

“Key challenges facing Fannie Mae and Freddie Mac include ongoing stress in the nation’s housing markets, the challenging economic environment, uncertainty regarding the long term prospects of their operations and charters and the need to implement the FHFA Strategic Plan for Enterprise Conservatorships,” the FHFA stated.

In the earnings category, the GSEs were rated as “significant concerns,” an upgrade from the “critical concerns” rating in 2011.

FHFA noted the GSEs generated positive annual income in 2012, a first since 2006, with Fannie Mae bringing in more than $17 billion in earnings and Freddie Mac reporting net income of $11 billion in 2012.

Credit risk though remained a critical concern for the GSEs, unchanged from 2011.

The GSEs’ 2005 to 2008 single-family mortgage books were noted as a key concern.

The report also stated that while seriously delinquent loans and REOs are trending downward, troubled assets are still at high levels.

Since September 2008, the GSEs have completed nearly 2.7 million foreclosure prevention actions, of which about 1.3 million were loan modiifcations.

For the full year in 2012, 541,219 foreclosure prevention actions were completed, including 125,232 short sales and 239,993 modifications.
Of the loans that were modified throughout 2011, more than 70 percent stayed current nine months after getting modified.

According to the report, the GSEs guaranteed $1.3 trillion in new mortgages in 2012, which represents 77 percent of all originations last year.

The GSEs also adopted a new compensation plan in 2012, which included a 10 percent reduction in direct compensation for most executives. In addition, salaries of new CEOs were set at $600,000.

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