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30 WATT DISCUSSES FHFA'S PROGRESS TOWARD GOALS Federal Housing Finance Agency (FHFA) Director Mel Watt discussed the progress toward the agency's three main goals— maintaining, reducing, and building—in a speech he delivered in early March at the Goldman Sachs Housing Finance Conference in New York. ese three goals are being tracked in the FHFA's annual Conservatorship Scorecard, which was released in early January. "e annual Conservatorship Scorecard is FHFA's mechanism for laying out our priorities and expectations for the enterprises and our means of providing transparency to the public about what we expect," Watt said. Watt said there are "no surprises" in 2015 when it comes to the first goal of maintaining. He outlined the agency's two objectives under this goal, which are to maintain, promote, and expand access to credit safely and soundly; and to continue the loss mitigation and foreclosure prevention activities of Fannie Mae and Freddie Mac. Two of the actions the FHFA has taken to fulfill the goal of maintaining are updating and clarifying the Representation and Warranty Framework Fannie Mae and Freddie Mac use to make sure the loans they purchase meet underwriting guidelines and updating and enhancing the enterprises' counterparty standards for mortgage servicers. "We believe that providing lenders greater certainty about when and under what circumstances they would be required to repurchase or take loans back onto their books and providing servicers updated guidelines about when they would be required to pay compensatory fees has moved the availability of mortgage credit in the right direction," Watt said. "We expect the enterprises to continue these efforts in 2015." Also to fulfill FHFA's goal of maintaining, Watt said both enterprises planned to reduce the amount of non-performing loans (NPL) in their portfolios. Freddie Mac recently made its first NPL sale of 2015 when it auctioned off 1,975 loans with a UPB totaling $392 million. Last month in its 2014 Financial Summary, Freddie Mac reported it helped 120,000 distressed borrowers avoid foreclosure through either loan modifications, repayment plans, forbearance agreements, short sales, or deeds-in-lieu of foreclosure—bringing the total number of homeowners the enterprise has helped with a foreclosure alternative since 2009 up to 1.1 million. Under the goal of reducing risk to taxpayers by increasing private capital's role in the mortgage market, Watt said 2014 was a "breakthrough year for the enterprises' single-family credit risk transfer program." e enterprises began a handful of transactions in the second half of 2013 that became programs of regular debt issuances known as STACR for Freddie Mac and CAS for Fannie Mae. "e ability and willingness of the enterprises to provide historical loan performance data has greatly enhanced the ability of the market to achieve pricing that both serves the interests of investors and allows the enterprises to meet their financial objectives," Watt said. According to Watt, FHFA tripled the risk transfer requirement in the 2014 scorecard compared to 2013. Each enterprise was required to transfer a portion of the single-family mortgage credit risk with a UPB of $90 billion, compared with the 2013 requirement of $30 billion. Both enterprises executed credit risk transfer transactions on mortgages with a combined UPB of more than $300 million, significantly surpassing last year's benchmark. On the "build" component of the 2015 scorecard, Watt discussed the objective of building a new securitization infrastructure for Fannie Mae and Freddie Mac that other secondary market participants would be able to use. "Last year was the first time that FHFA included the development of a Single Security as part of our conservatorship priorities for the enterprises," Watt said. "Our objective in adding this multiyear project to the agenda is to improve overall liquidity in the market, which will not only be beneficial to the enterprises and other market participants, but will also benefit borrowers. It would also benefit taxpayers by reducing Freddie Mac's costs that result from the trading disparity between Freddie and Fannie's securities." Watt said providing increasing levels of detail about the single security will be a "high priority" for FHFA in 2015. NEW YORK APPEALS COURT APPROVES BANK OF AMERICA'S $8.5 BILLION RMBS SETTLEMENT A New York appeals court approved in full Bank of America's $8.5 billion settlement with investors over the packaging and selling of faulty residential mortgage-backed securities by its Countrywide unit in the run-up to the financial crisis, according to multiple media reports. e settlement was originally reached in June 2011. e March ruling by the appeals court reversed a decision made by a New York State Supreme Court judge in January 2014 that Bank of America did not have to repurchase the faulty loans because the trustee, Bank of New York Mellon, did not evaluate them properly. e judge wrote in the March ruling that the settlement was legal and that BNY Mellon showed "no indication that it was acting in self- interest or in the interests of Bank of America rather than that of the certificate holders." According to reports, BNY Mellon attempted to have the settlement approved in 2011 but was blocked by American International Group (AIG) over concerns of investor losses. AIG later sued Bank of America for $10 billion but settled with the bank for $650 million in July 2014, after which AIG withdrew its objection to the settlement. In all, the settlement included 22 institutional investors, which included BlackRock, MetLife, and Allianz SE's Pacific Investment Management, according to reports. e investors claimed to suffer significant losses after much of a $174 million bundle of securities issued by Countrywide before the financial crisis later went into default. A Bank of America spokesman declined to comment when reached by email. Bank of America's January 2008 acquisition of the then-biggest residential mortgage lender in the nation, Countrywide Home Loans, for $4.1 billion has since cost the megabank at least $60 billion in settlements and legal expenses, including a record $16.65 billion settlement with the Department of Justice in August 2014 over the sales of faulty securities leading up to the financial crisis. e bank also agreed to pay $10 billion to Fannie Mae in January 2013 over similar issues.

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