The Federal Housing Finance Agency is in the midst of a full and frank appraisal of the Treasury Department’s recently proposed incentive program to spur GSE principal reductions through the Home Affordable Modification Program, with a final answer to be forthcoming later this month, according to the agency head. For months now, FHFA Acting Director Edward DeMarco has been the target of unrelenting political pressure from the Obama administration and Congressional Democrats to allow Fannie Mae and Freddie Mac to employ mortgage principal reductions as a tool to modify underwater GSE loans.

Fannie Mae and Freddie Mac mortgage-backed securities remained the preferred investment choice of the Federal Home Loan Banks during the fourth quarter of 2011, with a minor decline posted from the previous quarter, according to a new analysis by Inside The GSEs based on data from the Federal Housing Finance Agency. Ginnie Mae securities likewise posted a decline within the 12 FHLBank system during the three-month period ending Dec. 31, 2011. GSE MBS accounted for 69.6 percent of combined FHLBank MBS portfolios, down 2.1 percent from the third quarter of 2011. The Finance Agency’s data do not separately break out Fannie and Freddie volume or share.

President Obama this week signed into law a measure that, among other things, kills big bonus payments to Fannie Mae and Freddie Mac executives for as long as the GSEs are subsidized by taxpayers. After nearly two months and some legislative positioning, Congress passed the Stop Trading on Congressional Knowledge Act of 2012. Primarily, the STOCK Act bars House and Senate members and their staff from using non-public, inside information for personal benefit.However, an amendment to the bill which was passed on an overwhelmingly bipartisan margin in both houses of Congress prohibits the payment of bonuses over and above a GSE executive’s salary compensation while Fannie and Freddie remain in government conservatorship.

The inherent tensions between the Federal Housing Finance Agency’s dual role as both conservator and regulator of Fannie Mae and Freddie Mac pose “significant challenges” that may put the Finance Agency at cross purposes with its two missions, according to the FHFA’s official watchdog. A white paper issued by the FHFA’s Office of Inspector General last week offering its current assessment of the agency’s conservatorship of the GSEs cited the Finance Agency’s two main challenges as: attempting to advance the enterprises’ business interests while assisting distressed homeowners; and simultaneously serving as both conservator and regulator.

Three former Fannie Mae executives, including the company’s one-time CEO, have petitioned a federal judge to toss the securities fraud case the government filed against them late last year. Filed last week in the U.S. District Court for the Southern District of New York, the motion to dismiss contends the Securities and Exchange Commission is thin on proof that the GSE, at the direction of the then top executives, failed to disclose to investors the companies’ exposure to subprime mortgages prior to the 2008 housing market crash.

Although it questions the appropriateness of Fannie Mae and Freddie Mac funding charitable activities while the two companies remain under government conservatorship, the Federal Housing Finance Agency’s official watchdog has concluded that the FHFA has the dissolution of the GSEs’ charity funds in hand. The recent report by the FHFA’s Office of Inspector General noted that at the time the conservatorships were established 3½ years ago, both companies had long-standing mechanisms in place to make “substantial contributions” to charitable organizations. In 2008, both GSEs’ charitable giving totaled $73 million.

Roughly one out of every 14 banks in the country suffered significant investment losses following the September 2008 government takeover of Fannie Mae and Freddie Mac, according to a new Federal Reserve discussion paper. The paper, When Good Investments Go Bad: The Constriction in Community Bank Lending After the 2008 GSE Takeover, details how financial institutions took a bath when the two companies were placed into conservatorship and dividend payments on common and preferred shares were suspended.

The Federal Housing Finance Agency expects to finish its latest assessment of principal reductions on Fannie Mae and Freddie Mac loans sometime this month against a backdrop of intensifying public debate over the issue. The Treasury Department this week fought back against claims that its proposed incentive payments to the government-sponsored enterprises, if they agree to principal reduction loan mods, would be a “backdoor bailout” for banks that service these loans. Treasury earlier this year offered to pay the GSEs the same incentives that other investors get for principal reduction loan mods under...

The Federal Housing Finance Agency is calling for Fannie Mae and Freddie Mac to conduct an analysis of the viability of each company’s multifamily operations without government guarantees, suggesting the possibility of separating the two government-sponsored enterprises’ multifamily and single-family businesses. The GSEs’ mandated review of their multifamily operations is part of the FHFA’s 2012 “conservatorship scorecard” unveiled two weeks ago, which outlines the specific objectives and timelines for the Finance Agency’s strategic plan for the conservatorships of Fannie and Freddie. The multifamily...

The Federal Housing Finance Agency is looking for two good chief executives who are willing to work a “thankless job” for substantially reduced pay and the chance to oversee the transition of Fannie Mae and Freddie Mac from private companies to government entities and perhaps eventually out of business altogether. Working closely with the two GSEs, the Finance Agency is in the midst of discussions with candidates to fill the CEO vacancies at both Fannie and Freddie, according to FHFA Acting Director Edward DeMarco.