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26 SPECULATION SURROUNDS FED BALANCE SHEET As the Federal Reserve begins to normalize its balance sheet, speculators believe the final product may be up to three times larger than it was before the financial crisis, if not more. e CNBC Fed Survey found that participants believe the runoff of the Fed's $4.4 trillion balance sheet may begin as early as January 2018, several months earlier than previously anticipated. e balance sheet refers to the portfolio of securities, such as various types of Treasury debt and mortgage-backed securities (MBS), that the Fed has purchased. In the growing and changing economy, officials have stated that there is no going back to the prerecession levels, due in part to the growing amount of currency in circulation. e Fed aims to reduce the balance sheet down to $2.5 trillion over several years, cutting it down by about $2.5 trillion, but this still-high permanent level could mean higher interest rates and inflation. e $2.5 trillion balance sheet is still well above the prerecession level of around $850 billion. Former Fed Chairman Ben Bernanke wrote in a recent blog post: "ere are reasonable arguments for keeping the Fed's balance sheet large indefinitely, including improving the transmission of monetary policy to money markets, increasing the supply of safe short- term assets available to market participants, and improving the central bank's ability to provide liquidity during a crisis." Rising interest rates are sure to drive up rates in the housing market, and the Fed's decision to pull back from mortgage backed securities will only add to the rising rates. e Fed began buying MBS eight years ago when the housing market was in crisis. It currently owns about 30 percent of the market. Now that the economy and housing markets are seemingly on the up-and-up, it is widely thought that the Fed will start pulling out of the MBS scene in late 2017 or early 2018. of homes in America are considered over assessed with homeowners paying higher taxes than they should be. Source: 2017 Property Taxes Report by Tax-Rates.org STAT INSIGHT 25% FREDDIE MAC ANNOUNCES SECOND SEASONED LOAN TRANSACTION Freddie Mac announced in June it has had its second Freddie Mac Seasoned Loan Transaction (SLST) via auction of 1,262 seasoned re-performing loans (RPL) and moderate delinquent loans serviced by Select Portfolio Servicing, Inc. rough its advisors, Freddie Mac began marketing the transaction to potential bidders May 17, 2017, and is expected to settle in July 2017. e SLST securitization program is an important part of Freddie Mac's seasoned loan offerings initiatives meant to reduce less liquid assets in its mortgage-related investments portfolio and shed credit and market risk via economically reasonable transactions. Similar to FHFA's requirements applicable to the sale of nonperforming loans, the servicing of the loans will be in accordance to RPL requirements, which will prioritize borrower retention options in the event of a default and promote neighborhood stability. e transaction, which is a two-step structured sale of seasoned loans, will first require a competitive bidding process, subject to a securitization term sheet. Second, the purchaser of the loans will securitize them. Freddie Mac will guarantee and purchase the senior tranche of the securitization. e first loss subordinate tranche will initially be retained by the loan purchaser. A key requirement of this transaction is that the buyer of the loans, and therefore the subordinate tranche, be an investor with substantial experience in managing both performing and moderately delinquent mortgage loans as well as securitizing mortgage loans. e collateral is comprised of fixed- and step-rate modified seasoned loans. ese loans were modified to assist borrowers who were at risk of foreclosure to help them keep their homes. e aggregate pool is geographically diverse and has a loan-to-value ratio of approximately 101 percent, based on Broker Price Opinions. Unpaid Principal Balance was reported at $291.6 million with a loan count of 1,262. BPO CLTV, weighted by BPO, was 101 and the average loan balance was 231.1. e winning bidder, Towd Point Master Funding, LLC, was followed by a bid in the high $70s.