Inside Mortgage Finance - Fannie Publishes Return on Equity. (It’s Complicated)
Mike SP
In its second-quarter earnings call last month, Fannie Mae released a number that will be key to any future public offering by the enterprise: the company’s return on equity.
CEO Priscilla Almodovar explained that Fannie calculated an “illustrative return on required common equity tier 1” as a way to measure the company’s performance against its peers. “In the second quarter,” she said, “our return on equity was 9.5%.”
For comparison, the average ROE for a regulated utility — the business structure most industry insiders prefer for the enterprises post-conservatorship — is 8% to 12%, although that can vary significantly depending on the firm’s cost of capital.
But that 9.5% figure is complicated. A footnote in Fannie’s second-quarter earnings presentation explains the calculation. It’s based on what the company’s ROE would have been if its actual CET1 capital had been equal to the CET1 amount required for the quarter under the enterprise regulatory capital framework.
For full details, see Inside The GSEs, now available online.
Mike SP
Many GSE Sellers See More Repurchase Demands Withdrawn
Since 2009, more than 7,000 sellers have received a repurchase demand from Fannie Mae or Freddie Mac and nearly 5,300 of them made buybacks. Weichert Financial Services, for example, has bought back $4.12 million of loans since 2013. Yet, as is true for many sellers, Weichert saw significantly more withdrawn demands during that time — $20.82 million. Get a complete picture of buyback history and exposure in IMF’s GSE Repurchase Activity: Cumulative to Fourth Quarter 2024. The report looks at the GSE buyback record lender by lender and year by year, providing details on every lender who has faced a buyback demand from either Fannie or Freddie since 2009. You’ll find out how much they paid, how much of it relates to each vintage of MBS, and how much they got Fannie and Freddie to back down on.Mike SP
The Trump administration recently touted an entity called The Great American Mortgage Corp., suggesting that the company could complete an initial public offering this year. Details on the entity have been scant, though it helped to prompt speculation that the administration plans to merge Fannie Mae and Freddie Mac.
While the administration has still released few concrete details about its plans for the government-sponsored enterprises, Bill Pulte, director of the Federal Housing Finance Agency, posted an ad for The Great American Mortgage Corp. on his X account Monday.
The one-minute video includes a voiceover that states: “Introducing the all new Fannie Mae and Freddie Mac: bigger and better than ever.” The narrator adds: “Revitalizing the American Dream for all Americans. Led by a man who will go down as the greatest housing president in history.” ...
Mike SP
Deliveries to the government-sponsored enterprises declined by 9.7% on a monthly basis in July, according to a new ranking and analysis by Inside The GSEs.
The decline in deliveries to the GSEs was more pronounced for refinances than purchase mortgages. Refi volume fell from $12.01 billion in June to $9.32 billion in July, a 22.4% drop-off. That amounted to 16.3% of new business for the GSEs, a level last seen in September 2024. Purchase-mortgage volume declined by 6.7% to $47.70 billion in July.
United Wholesale Mortgage remained the largest GSE seller, delivering about $6.22 billion in mortgages to Fannie Mae and Freddie Mac in July. That was a 5.8% decline from June.
While GSE business declined in July, volume for the first seven months of the year was up 7.5% on an annual basis.
For more details, see Inside The GSEs.
Mike SP
GSE Purchases of Credit Insurance Down in 2Q
The government-sponsored enterprises purchased a combined $1.58 billion in credit insurance in the second quarter, down from $1.93 billion in the first quarter.
Freddie Mac’s Agency Credit Insurance Structure purchases rose from $367.9 million in the first quarter to $669.1 million in the second, while, Credit Insurance Risk Transfer purchases at Fannie Mae fell from $1.56 billion in the first quarter to $912.1 million in the second.
GSE issuance of credit-risk transfer notes was down to $2.15 billion during the second quarter of 2025, a 22.8% drop from the first quarter. Year-to-date issuance was down 5.1% from the first half of 2024.
Freddie issued a mere $529.0 million in Structured Agency Credit Risk notes in the second quarter, a 59.2% sequential decline in volume. In contrast, Fannie’s issuance of Connecticut Avenue Securities rose to $1.62 billion in the second quarter, up from $1.49 billion in the first quarter.
For full details and exclusive tables, see the latest edition of Inside MBS & ABS, now available online.
Trump Fires Federal Reserve Governor, Accusing Her
of Mortgage Fraud
President Trump late Monday fired Federal Reserve Governor Lisa Cook, accusing her of mortgage fraud and stating in his termination letter that a criminal referral has been filed with the Department of Justice in regard to her alleged behavior.
In a statement, Cook denied legal wrongdoing, saying she would not resign from the Fed. Her attorney Abbe David Lowell said, “President Trump has taken to social media to once again ‘fire by tweet’ and once again his reflex to bully is flawed and his demands lack any proper process, basis or legal authority. We will take whatever actions are needed to prevent his attempted illegal action.”
Trump’s critics view the firing of Cook as another attempt to stack the Fed with members who might be favorable to his policies, in particular rate cuts.
Mike SP
Federal Housing Finance Agency Director Bill Pulte announced on X a second criminal referral of mortgage fraud claims against Federal Reserve Governor Lisa Cook. The FHFA director previously submitted a criminal referral against Cook claiming mortgage fraud on two other properties.
President Trump cited the original claims as cause for termination when he fired Cook last week. Cook has filed a lawsuit against the White House claiming the mortgage fraud allegations are part of an illegal attempt to remove her from her governorship and undermine the independence of the Fed…
Mike SP
Trump Considering Declaring National Housing Emergency
President Trump could declare a national emergency tied to housing as soon as this fall, according to Treasury Secretary Scott Bessent. He disclosed the deliberations Monday in interviews with various news outlets.
The national emergency declaration would allow the administration to use extraordinary powers to address high home prices and limited housing supply.
Bessent didn’t provide many specific details on how the administration would act under a national housing emergency, though he cited potential changes for zoning laws and efforts to reduce closing costs.
The federal government established a national housing emergency in 1946 and 1947, with limitations on non-residential construction and incentives for the construction of rental housing.
Trump Admin Expects High Valuation With GSE IPO
The Trump administration is working toward an initial public offering of stock in Fannie Mae and Freddie Mac, projecting lofty valuations for the government-sponsored enterprises.
Speaking on Fox News in August, Bill Pulte, director of the Federal Housing Finance Agency, said President Trump declined offers of $100 billion to $150 billion for the GSEs during his first term.
“Today, that value is worth anywhere between $500 billion and $700 billion,” Pulte said. “I think it’s going to be a $1 trillion, and potentially even higher.”
Speaking on Fox Business last week, Treasury Secretary Scott Bessent acknowledged that such an enormous transaction would be complex and hinted it could be delayed beyond the end of the year.
For more details, see the new issue of Inside The GSEs.
Mike SP
CFPB Considering Changes to ATR/QM Rule
The Consumer Financial Protection Bureau is considering changes to its ability-to-repay rule and standards for qualified mortgages.
The bureau disclosed potential changes to the rule in its spring 2025 regulatory agenda Thursday.
The CFPB noted that the agency is under interim leadership and is “carefully considering various sources in setting its future priorities.” The CFPB said its regulatory agenda primarily focuses on updating certain projects from the fall 2024 agenda, reconsideration of certain recently completed rulemakings and “limited new additions,” with the ATR/QM rule being one of them.
However, the timeframe for potential action regarding the
ATR rule and QM standards is unclear, listed as “to be determined” in the
long-term agenda. The regulator said it will evaluate further adjustments
to the rule as it continues to monitor market developments, and expects
to have additional information on the rule and other priorities in its
fall regulatory agenda.
UWM Fueling Issuance of Non-Agency MBS
The role United Wholesale Mortgage plays in supplying loans for non-agency mortgage-backed securities is on full display in deals that started marketing Thursday. Two jumbo MBS and an expanded-credit MBS included contributions from UWM.
Annaly Capital Management is marketing a $304.4 million jumbo MBS in which slightly more than half of the collateral was sourced from UWM. And Redwood Trust has a $595.3 million jumbo MBS with UWM as the top contributor, accounting for 10.5% of the dollar volume of the issuance.
Meanwhile, Goldman Sachs is offering a $281.2 million expanded-credit MBS with investment-property mortgages underwritten using debt service coverage ratios. UWM originated 63.1% of the loans in the MBS.
The nonbank delivers its loans to securitization issuers rather than issuing its own MBS. According to Inside Nonconforming Markets, UWM was identified as the lender of $1.31 billion of prime non-agency MBS issued during the second quarter of 2025 along with $526.3 million of expanded-credit MBS.
SideNote
Freddie Mac is marketing a credit risk transfer transaction tied to a pool of loans with an unpaid principal balance of $20.7 billion. It’s the third issuance in the DNA series of CRT transactions from the government-sponsored enterprise this year. The series focuses on mortgages with loan-to-value ratios of up to 80%.
Mike SP
From Inside Mortgage Finance - Today
The big question for all mortgage professionals: Are we in for some
type of mini refi boom? Owners of 3% mortgage servicing rights don’t
have anything to worry about, but what about 6.5% - 7.0% paper that’s
older than six months?... In general, the share prices of several
nonbank mortgage shops were trading up Monday, but none super
dramatically…One thing we’ve been hearing the past two weeks is that
warehouse lenders are starting to get more line-of-credit inquiries from
their nonbank customers. Later this week Inside Mortgage Finance
publishes its ranking of the nation’s top 15 warehouse providers…
Mike SP
Non-US-Citizen Share of Borrowers in Non-Agency MBS Rising
The share of mortgages for non-U.S. citizens in the non-agency mortgage-backed securities market grew from 4.1% in 2021 to 10.4% this year, according to a new analysis by Kroll Bond Rating Agency.
Included in the borrower group of non-U.S. citizens are permanent residents, nonpermanent residents, borrowers that use Individual Tax Identification Numbers and foreign nationals.
Among non-citizen borrowers in non-agency MBS, KBRA said foreign nationals had the highest 180+ day default rate at 4.6%. “While this population is relatively small, the elevated default risk may reflect unique vulnerabilities — such as limited U.S. credit history, foreign income dependency and the non-owner-occupied nature of these loans,” KBRA said of the performance of foreign national borrowers.
Nonpermanent residents had a default rate of 1.3%, ITIN borrowers have “shown virtually no defaults or losses to date,” and permanent residents’ default rate is 1.7%, the same as the default rate for U.S. citizens.
Mike SP
FSOC Shifts Focus to Promote Economic Growth
Under the Trump administration, the Financial Stability Oversight Council will focus on promoting economic growth. Treasury Secretary Scott Bessent announced the priority shift — away from the regulatory emphasis seen during the Biden administration — during a meeting of the FSOC Wednesday.
FSOC was established by the Dodd-Frank Act and largely consists of federal financial regulators.
Bessent said FSOC is focused on economic growth because “regulators too often overlook the threat economic stagnation poses to financial stability.”
“History is replete with examples: the Latin American Debt Crisis of the 1980s; Japan’s ‘Lost Decades;’ and the Eurozone Debt Crisis,” he said. “In each instance, a period of stagnation or depressed growth precipitated financial calamity, including bank failures, currency devaluations and sovereign debt crises.”
FSOC = Financial Stability Oversight Council
Mike SP
Fannie Mae announced Wednesday that Pacific
Investment Management Company
placed the winning bid on the sale of reperforming loans by the government-sponsored
enterprise. The pool had an unpaid principal balance of $559.1 million.
Mike SP
Fannie Mae and Freddie Mac continue to lose share of the residential mortgage market.
In the second quarter, the two secondary market giants accounted for 51.1% of all new mortgage-backed security issuance, according to a new analysis by Inside The GSEs. That marks the lowest market share for the GSEs since the second quarter of 2007.
The decline in market share has been more pronounced at Freddie, which saw its slice of the issuance pie fall from 29.1% in the first quarter to 26.8% in the second even while production rose from $80.89 billion to $89.62 billion over the same period. During that same interval, Fannie’s market share went from 24.9% to 24.3% as deliveries rose briskly from $69.04 billion to $81.26 billion.
The real winner, of course, has been Ginnie Mae.
For full details and exclusive MBS issuance tables, see the new edition of Inside The GSEs, now available online.
Mike SP
Michael Comparato, president of Franklin BSP Realty Trust, is confident that efforts by the Trump administration to reform the government-sponsored enterprises won’t have a negative impact on the housing market.
“What I can say with almost absolute certainty is I do not think this administration — or any administration — is going to do something that’s going to mess with home ownership and the cost of mortgages,” he said Monday during an investor call.
FBRT focuses on multifamily mortgage origination, securitization and servicing.
Comparato conceded that it’s difficult to predict the exact changes the Trump administration will make to Fannie Mae and Freddie Mac. “But I think any outcome is ultimately an acceptable outcome,” he said.
Mike SP
The Trump administration hasn’t yet determined the future of the government-sponsored enterprises, according to Bob Broeksmit, president and CEO of the Mortgage Bankers Association.
“There have been a number of trial balloons floated, but it appears no decisions have been made,” he said Tuesday at a summit hosted by the Mortgage Industry Standards Maintenance Organization.
The administration has convened a number of meetings with stakeholders in recent weeks to consider reforms to Fannie Mae and Freddie Mac. Broeksmit said it’s still not clear how talk of an initial public offering of stock or other potential actions will turn out.
“We don’t even know what to call it, because we don’t know whether it’s release [from federal conservatorship],” he said. “It’s not really an IPO, because we can already buy shares in these companies. Is it reform? Is it release? Is it recapitalization? It’s unclear.”
Mike SP
Applications for mortgages appear to be poised to increase even if interest rates on mortgages hold steady following the Federal Reserve’s move Wednesday to reduce the federal funds rate by 25 basis points.
“If mortgage rates hold at these levels, origination activity will be boosted, both for homeowners who purchased in the last three years and can realize considerable savings at these rates, and for potential homebuyers, who now have one more reason to look for a home, in addition to increasing housing supply in many markets,” said Mike Fratantoni, a senior vice president and chief economist at the Mortgage Bankers Association.
Speaking after the Federal Open Market Committee announced the rate cut, Fed Chair Jerome Powell suggested that additional reductions in interest rates on mortgages will be needed to prompt a significant shift in originations.
“I think most analysts think there would have to be ... big changes in rates to matter a lot for the housing sector,” he said.
While noting that the Fed doesn’t set interest rates on mortgages, Powell added that the Fed’s actions should help the housing market. “By achieving maximum employment and price stability, that’s a strong economy,” he said. “That’s a good economy for housing.”
Mike SP
UWM is allowing one-unit mortgages with balances of up to $819,000 to receive conforming-loan pricing. That loan limit is 1.5% above the current baseline conforming limit, indicating that UWM expects that the Federal Housing Finance Agency will increase the baseline loan limit for the government-sponsored enterprises by at least that amount in 2026...
Mike SP
The Federal Housing Finance Agency recently disclosed plans to halt or rescind an extensive list of newly proposed or recently enacted rules. At least one of those rules dates back to the tenure of Mark Calabria, who served as the agency’s director during Trump’s first term.
The agency’s spring regulatory agenda includes plans to reverse four proposed new rules from the prior administration and five rules that have already been finalized.
Among the proposed rules that the agency now wants to withdraw is one that would have established minimum liquidity requirements for Fannie Mae and Freddie Mac. Originally proposed by Calabria in early 2021, the rule would have defined eligible assets and the appropriate metrics for determining whether the GSEs were in compliance.
Various reforms for the Federal Home Loan Banks planned during the Biden administration were also dropped.
For more details, see Inside The GSEs.
Mike SP
Federal Housing Finance Agency Director Bill Pulte announced Tuesday that FHFA terminated its advisory committee on affordable, equitable and sustainable housing. “We are, instead, focused on the safety of the market and restoring the American Dream,” he wrote on X.
Mike SP
Lender repurchases of mortgages sold to Fannie Mae and Freddie Mac rose to $502.9 million in the second quarter of 2025, up 18.7% from the prior period, according to a new Inside The GSEs analysis.
Repurchases were up 30.8% from the first quarter at Freddie, and up by 6.3% at Fannie.
Despite the second-quarter increase, repurchases for the first half of 2025 were down 33.9% from the same period last year.
It’s worth noting that the repurchase figures refer to the remaining principal balance of loans subject to repurchase claims that were repurchased in whole by the seller, as well as claims that were resolved through indemnification, such as a loss-sharing agreement or some other settlement with the GSE.
For more on the story and exclusive tables on Fannie/Freddie loan repurchases, see the new edition of Inside The GSEs, now available online.
Mike SP
The government shut down after midnight when Congress reached an impasse on negotiations to keep it funded, with far-reaching but still-hazy impacts that will be a drag on some lending.
Broader economic effects notwithstanding, conventional lending won’t be directly affected. Fannie Mae and Freddie Mac will continue to function, but could be impacted by reliance on other agencies, the Mortgage Bankers Association noted.
Government-backed lending is expected to slow. The FHA single-family housing office will continue endorsing new loans for lenders with direct endorsement authority, but not for non-DE lenders, nor for Title 1 loans or reverse mortgages. As FHA’s loss-mitigation waterfall comes into effect today, the FHA Resource Center will be open to answer questions, although servicers may have to wait on answers requiring escalation.
Lending tied to the Department of Veterans Affairs is expected to continue, but U.S. Department of Agriculture rural housing lending will not.
Elsewhere, authority to provide new insurance contracts under the National Flood Insurance Program lapsed. The Internal Revenue Service, meanwhile, anticipates normal functions to continue as it relies on funding appropriated under the Biden administration’s 2022 tax and spending law, according to its contingency plan.
FHFA to Propose Reducing Certain GSE Housing Goals
The Federal Housing Finance Agency is poised to issue a proposed rule that would reduce some housing goals for the government-sponsored enterprises. The proposed rule is scheduled to be published in the Federal Register Thursday.
Under the draft proposal, home purchase goals for low-income borrowers and very low-income borrowers would be cut.
Currently, the GSEs have a goal where at least 25.0% of their acquisitions of mortgages on single-family, owner-occupied properties go to borrowers with incomes no greater than 80% of area median income. FHFA will propose reducing that benchmark level for 2026 through 2028 to 21.0%. And the home purchase goal for very low-income borrowers would drop from 6.0% to 3.5%.
The proposed rule would also combine the current low-income census tracts home purchase subgoal and the minority census tracts home purchase subgoal into a single low-income areas home purchase subgoal.
The proposal will be subject to a 30-day comment period after it’s published.
Mike SP
Good Times Ahead
Brandon Hamara resigned as a board member of Freddie Mac this week.
Subsequently, Bill Pulte, director of the Federal Housing Finance Agency,
announced that Hamara will be hired by Fannie Mae as an employee and serve
on Fannie’s board. To this point,
Hamara was working at Tri
Pointe Homes.
“In my view, it will take somebody with deep understanding of homebuilding in order
Mike SP
The volume of conforming jumbo mortgages is running below levels seen in 2024, according to a new ranking and analysis by Inside Nonconforming Markets.
Through the first nine months of 2025, conforming jumbo business at the GSEs fell by 17.2% on an annual basis to $22.19 billion.
On a sequential basis, though, conforming jumbo volume grew slightly, by 0.2% to $8.27 billion.
Conforming jumbo mortgages fall outside of the GSEs’ core functions but still flow through Fannie Mae and Freddie Mac. Other non-core GSE loan types include cash-out refis and loans for second homes or investment properties.
For more details, see the latest edition of Inside Nonconforming Markets.
Fannie Tweaks Rental Income Rules
In an announcement in its selling guide this week, Fannie
Mae alerted lenders to several minor changes to the way it treats rental income
on mortgage applications. The updates should make more loans eligible for sale
to the mortgage giant.
Most importantly, Fannie has modified its policy to allow income
from an accessory dwelling unit to be considered as qualified income. There are
stipulations, though.
Fannie says this amendment to the rental income policy only
applies if the property is a one-unit principal residence. The option is also
only available for purchase loans and limited cash-out refinances.
Fannie also limits the eligible income to a single ADU. That’s true even if the property actually has several ADUs present.
These new rules will become available on Desktop Underwriter in the first quarter of 2026; however, lenders may implement the changes immediately for loans that are eligible for manual underwriting.Mike SP
Big lenders and technology vendors have received plenty of attention in the mortgage market for their investments in artificial intelligence. But lenders speaking Thursday at Information Management Network’s Mortgage AI forum in Dana Point, CA, presented a more nuanced view of AI use.
Ann Nguyen, an executive vice president and head of AI at Pennymac, said the nonbank has focused its AI adoption in the origination space on low-risk activities that aren’t consumer facing. She noted heavy regulation involving consumer interactions with AI as one reason to be cautious implementing the technology.
A number of representatives from smaller- and mid-size lenders also revealed that they haven’t taken big steps with AI.
Meanwhile, Dan Vasquez, AI strategy lead at Rocket Mortgage, one of the major lenders that frequently touts investments in AI, said regulators, the government-sponsored enterprises and mortgage investors are often times forward-thinking and willing to work with Rocket to facilitate use of AI.
More Low-Risk Purchase Mortgages Flow Into GSEs
Lenders delivering single-family mortgages to Fannie Mae and Freddie Mac focused on purchase mortgages with the least risk during the third quarter of 2025.
Purchase-mortgage volume increased 12.7% from the second to the third quarter, while refinance loans securitized by the two government-sponsored enterprises declined 7.4%.
Mortgages with credit scores of 740 or higher accounted for 74.23% of the GSE purchase market in the third quarter, little changed from 74.64% in the previous period.
Among the top GSE sellers, second-ranked Pennymac was slightly more risk averse than top-ranked United Wholesale Mortgage.
For more details, see the latest edition of Inside Mortgage Trends.
Mike SP
Characteristics of GSE Deliveries Diverge in Third Quarter
Lenders got a little more conservative in the third quarter with their sales of purchase mortgages to the government-sponsored enterprises while loosening up to some extent on refinances, according to a new analysis by Inside Mortgage Trends.
The share of GSE purchase loans in the lowest-risk bucket — with high scores and low loan-to-value ratios — increased by 59 basis points from the second quarter of 2025 to 9.51%.
Lenders opened the credit box slightly for refi borrowers in the high-risk category as volume declined during the third quarter. Some 20.49% of refis securitized by Fannie Mae and Freddie Mac had credit scores below 700. That was up from 17.32% in the second period.
For more details, see Inside Mortgage Trends.
FHFA’s OIG Cites Vulnerabilities in Public-Facing System
The Federal Housing Finance Agency’s Office of Inspector General recently published a report identifying vulnerabilities in the agency’s public-facing systems. The vulnerabilities expose non-public data to unauthorized use, the report says.
Although FHFA successfully blocked simulated email phishing attacks during the OIG’s social engineering testing, the auditors were able to use various “institutional identifiers” to log in to the agency’s community support program website as member banks of the Federal Home Loan Bank system. This allowed them to download internal files without authentication or even detection.
The CSP is critical because it handles personally identifiable information. In this case, though, it was operated with inadequate security or privacy documentation. The auditors found that the system “lacked fundamental safeguards,” such as user authentication, access control and privacy documentation.
FHFA management responded to the OIG report by agreeing with all its recommendations. These include developing and implementing a plan to enhance authentication controls for accessing the CSP website.
For more details, see Inside The GSEs.