FHFA Subpoenas Residential MBS Issuers

The Federal Housing Finance Agency, which is currently in charge of Fannie Mae and Freddie Mac, has issued 64 subpoenas to issuers of mortgage-backed securities back in the mid-2000s heyday of that kind of deal. The agency didn't disclose which banks it was going after, but its objective in issuing the subpoenas was clear enough: namely, overturn some subprime and Alt-A MBS rocks to see what kind of fraud or other misdeeds crawl out from under them.

July 14, 2010
By Dees Stribling, Contributing Editor

Courtesy Flickr Creative Commons user chrisdlugosz

The Federal Housing Finance Agency, which is currently in charge of Fannie Mae and Freddie Mac, has issued 64 subpoenas to issuers of mortgage-backed securities back in the mid-2000s heyday of that kind of deal. The agency didn’t disclose which banks it was going after, but its objective in issuing the subpoenas was clear enough: namely, overturn some subprime and Alt-A MBS rocks to see what kind of fraud or other misdeeds crawl out from under them.

It’s no academic matter for Fannie and Freddie, which bought a lot of the “triple-A” rated slices of these toxic MBS once upon a time. As of 1Q10, Fannie said that its subprime and Alt-A MBS exposure was $44 billion with losses of $16 billion; Freddie held $97 billion with a loss forecast to be $30 billion.

The GSEs, which have been bleeding money in recent years, probably aim to get some of those MBS purchases invalidated so they can reclaim some of those lost billions. The subpoenas are shots across the bows of the organizations that sold the MBS. “By obtaining these documents we can assess whether contractual violations or other breaches have taken place leading to losses for the enterprises and thus taxpayers,” FHFA acting director Edward J. DeMarco said in a statement on Tuesday.

Prime Delinquencies Show Steady Increase

But of course Alt-A and subprime are hardly the only problems when it comes to MBS — in fact, the serious delinquency rates (60+ days) on those kinds of mortgages are falling, probably because most of the damage they can do has already been done. According to Fitch Ratings on Tuesday, however, serious delinquencies of prime mortgages within residential MBS rose in June for the 37th straight month in a row, to 10.4 percent from 10.3 percent the month before.

A year ago, the figure was 6.4 percent. California remains king of prime residential MBS delinquencies, with 44 percent of the entire total. The state’s delinquency rate is 12.1 percent, up from 12 percent last month.

“The persistently high roll rates indicate that the delinquency declines are more a reflection of increased property liquidation and ongoing loan modification activity than of widespread improvement in mortgage payment performance,” Fitch managing director Vincent Barberio said in a statement on Tuesday. adding that prime residential MBS has yet to show any signs of a turnaround.

Job Openings Spike Compared With ’09

U.S. Bureau of Labor Statistics reported on Tuesday that there were 3.2 million job openings nationwide at the end of May 2010, which represented little change from the end of April. The figure does, however, represent an increase of 37 percent compared with the end of July 2009, when there were only 2.3 million job openings.

Even an anemic industry such as construction has more job openings now than a year ago. At the end of May 2010, there were 88,000 construction jobs open. A year earlier, that figure was only 37,000. State and local governments, on the other hand, are clearly feeling the pinch of declining revenue. In May 2009, there were 256,000 state and local government job openings. A year later, there were 239,000.

Wall Street was seemingly high on good quarterly numbers in various sectors of the economy on Tuesday, with the Dow Jones Industrial Average up 146.75 points, or 1.44 percent. The S&P 500 gained 1.54 percent and the Nasdaq waxed positive by 1.99 percent.