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Build a new single-family securitization infrastructure for use by Fannie Mae and Freddie Mac and adaptable for use by other participants in the secondary market in the future.
In January 2015, FHFA released annual corporate performance objectives for Fannie Mae and Freddie Mac, referred to as the 2015 conservatorship scorecard, which details specific priorities for implementing FHFA’s strategic goals, including objectives designed to further the goal of reforming the housing finance system. We describe below some of the actions we have taken in 2015 pursuant to the mandates of the scorecard in order to build the policies and infrastructure for a sustainable housing finance system.
Credit Risk Transfer Transactions: Connecticut Avenue SecuritiesTM. FHFA’s 2015 conservatorship scorecard includes an objective relating to credit risk transfer transactions. The goal of these transactions is, to the extent economically sensible, to transfer a limited portion of the existing credit risk on a portion of our single-family guaranty book of business in order to reduce the risk to taxpayers of future borrower defaults. Our primary method of achieving this objective has been through the issuance of our Connecticut Avenue SecuritiesTM (“CAS”), which transfer some of the credit risk associated with losses on the underlying mortgage loans to investors in these securities. During the first quarter of 2015, we issued $1.5 billion in CAS, transferring some of the credit risk on single-family mortgages with an unpaid principal balance of $50.2 billion. See “Risk Management—Credit Risk Management—Single-Family Mortgage Credit Risk Management—Risk Sharing Transactions” for more information on CAS.
Nonperforming Loan Sales. Another objective included in FHFA’s 2015 conservatorship scorecard relates to implementing key loss mitigation activities, including those that enable borrowers to stay in their homes and avoid foreclosure where possible. These activities include developing and executing strategies to reduce the number of severely aged delinquent loans we hold, considering tools such as nonperforming loan (“NPL”) sales. The strategies should help improve outcomes in hardest hit markets. On March 2, 2015, FHFA announced enhanced requirements for NPL sales by Fannie Mae and Freddie Mac. In the announcement, the Director of FHFA indicated FHFA’s expectation that, with these enhanced requirements, NPL sales will result in favorable outcomes for borrowers and local communities. We plan to build NPL sales into a programmatic offering. In April 2015, we began marketing our first bulk NPL sale.
Mortgage Insurance. FHFA’s 2015 conservatorship scorecard also includes an objective relating to implementing final mortgage insurer eligibility requirements. These reforms are intended to strengthen our mortgage insurer counterparties and reduce the risk to taxpayers of future defaults by mortgage insurers on their obligations to the GSEs. On April 17, 2015, we announced and published updated eligibility standards for approved private mortgage insurers. The new standards include enhanced financial requirements and are designed to ensure that mortgage insurers have sufficient liquid assets to pay all claims under a hypothetical future stress scenario. The new standards also set forth enhanced operational performance expectations and define remedial actions that may be imposed should an approved mortgage insurer fail to comply with the revised requirements. See “Risk Management—Credit Risk Management—Institutional Counterparty Credit Risk Management” for additional information on these new standards.
Single Security. FHFA’s 2014 and 2015 conservatorship scorecards include objectives relating to the development of a single mortgage-backed security for Fannie Mae and Freddie Mac. FHFA believes a single security would increase liquidity in the housing finance market. The development of the single security is expected to be a multi-year initiative. In the first quarter of 2015, we worked on a variety of issues relating to the implementation of the single security, including accounting matters, communication planning, risk assessments, legal and contractual issues, trust matters, disclosures, and system development and testing work with the common securitization platform. See “Housing Finance Reform—Conservator Developments” in our 2014 Form 10-K for information on FHFA’s single security proposal and the common securitization platform and “Risk Factors” in our 2014 Form 10-K for a discussion of the risks to our business associated with a single security for Fannie Mae and Freddie Mac.
For more information on FHFA’s 2015 conservatorship scorecard objectives, see our Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on January 20, 2015. For more information on our initiatives in pursuit of these objectives, see “Business—Executive Summary—Helping to Build a Sustainable Housing Finance System” in our 2014 Form 10-K.
Treasury Draws and Dividend Payments
From 2009 through the first quarter of 2012, we received a total of $116.1 billion from Treasury under the senior preferred stock purchase agreement. This funding provided us with the capital and liquidity needed to fulfill our mission of providing liquidity and support to the nation’s housing finance markets and to avoid a trigger of mandatory receivership under the Federal Housing Finance Regulatory Reform Act of 2008 (the “2008 Reform Act”). In addition, a portion of the $116.1 billion we received from Treasury was drawn to pay dividends to Treasury because, prior to 2013, our dividend payments on the senior preferred stock accrued at an annual rate of 10%, and we were directed by our conservator to pay these dividends