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50 FREDDIE MAC MSR CHANGES HANDS; FANNIE MAE TO FOLLOW? According to a filing with the U.S. Securities and Exchange Commission in June, PHH Mortgage Corporation has closed the sale of nearly its entire Freddie Mac portfolio of mortgage-servicing rights (MSR) to New Residential Mortgage, LLC—about 81,500 loans. New Residential picked up the portfolio for approximately $110 million. Of that sum, $101.5 million was attributable to the purchase rights for the Freddie Mac MSR portfolio and $8.5 million was for related servicing advances. As pursuant of the agreement, PHH Mortgage and New Residential entered into a MSR Defense Agreement; PHH Mortgage will also be reimbursed by New Residential for any servicing advances the company makes on a weekly basis. PHH Mortgage will remain the subservicer for the portfolio for a term of three years. e sale is the second of a three-phase move for PHH Mortgage to rid themselves of all MSRs associated with government-backed lenders. e mortgage company sold off their Ginnie Mac MSR portfolio to the Delaware- based limited-liability company back in November of 2016. ey expect to sell off their portion of Fannie Mae MSRs sometime in the third quarter of 2017; however, this deal has not been formalized. is sale rides on the coattails of New Residential's $950 million purchase of Citigroup's servicing rights back for Fannie Mae- and Freddie Mac-backed loans in January, as reported by Bloomberg. ose loans have an outstanding balance totaling $97 billion. Bloomberg is also reporting that New Residential has been aggressively acquiring mortgage-servicing rights since the appointment of CEO Michael Nierenberg. GSE PROFIT ALLOCATION DECISION COULD TAKE A TOTAL OF 10 YEARS In a recent Bloomberg interview by Joe Light and Erik Schatzker, Fairholme Hedge Fund Manager Bruce Berkowitz said the legal battle with the U.S. government regarding Fannie Mae's and Freddie Mac's profits could last another five years. Back in February, the D.C. Circuit panel gave the U.S. Department of the Treasury and Federal Housing Finance Agency a win over the allocation of profits from Freddie Mac and Fannie Mae to the Treasury. is affirmed a lower court's ruling that actions taken under the FHFA's conservatorship of the GSEs cannot be challenged in court; however, Fannie and Freddie shareholders sued the two for agreeing to the deal. When the government took over the GSEs in 2008 during the housing crisis, the Treasury had "senior" preferred shares that paid a 10 percent dividend and had warrants to acquire nearly 80 percent of the companies' stock. When the company changed the terms in 2012, instead of the 10 percent dividend, the government would receive nearly all profits, but there would be no payouts if the company suffered losses. ey believe the profit sweep violates the reasonable expectations that they had when they originally purchased stock in the GSEs. e battle has already lasted more than four years, but Berkowitz said from beginning to end, it could be a 10-year process. He and several other investors were a part of the group that sued the government over its 2012 decision to seize all of Freddie's and Fannie's earnings that federal judges have so far upheld the legality of. According to Bloomberg, lawmakers in the Senate are in the early stages of developing legislation to revamp the housing-finance systems, which even if it succeeds, doesn't give a clear ending for shareholders. Treasury Secretary Steven T. Mnuchin said he prefers to work with Congress on bipartisan reform, but hasn't ruled out taking action without lawmakers. ough Berkowitz said he hasn't discussed Fannie and Freddie overhaul plans with Mnuchin, if the Trump administration doesn't stop the profit sweep, Fairholme will "absolutely" go to the Supreme Court. "When you go back and think about it, right, there are issues of breach of contract," Berkowitz said in reference to the Federal Housing Finance Agency who oversees the GSEs. "ere are constitutional issues. How do you create an agency that oversees Fannie and Freddie that doesn't answer to any branch of government?"

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