Subordination Agreement Form Fannie Mae: Fill & Download for Free

Lessons from 2008A painful lesson from the 2008 financial crisis was the unsustainable framework of having Fannie and Freddie guarantee credit risk of agency mortgage backed securities held by private investors. When home loans default, Fannie and Freddie, i.e. tax-payers, are obligated to step in to shield capital market investors from credit events (even if mortgage borrowers default and unable to pay back their loans, Fannie and Freddie would ensure investors get their principal back). Losses from these operations reached $14.9 billion across multiple Government-sponsored enterprise (GSEs) and triggered Federal takeover of Fannie Mae and Freddie Mac.Fannie and Freddie couldn't (and shouldn't, as some have argued) shoulder the default risk for majority of securitized U.S. home loans during acute credit crises. Below are Fannie and Freddie's stock valuations from 1989 to 2016. Data source: Bloomberg L.PThanks to these measures, holders of agency MBS such as mutual funds, central banks, hedge funds, pension funds, insurance companies, etc, are only exposed to interest rate risk and reinvestment risk.Following the crisis, Federal Housing Finance Agency outlined plans to transfer GSE credit risk to private investors, thus giving birth to the credit risk transfer (CRT) instruments.Before analyzing the derivatives mentioned in the news article (which were first sold to the public in 2013), it is helpful to highlight the G-fees collected by the GSEs - they play a significant role in CRT instruments' cashflow:A home buyer's mortgage rate includes GSE guarantee fees (G-fees) and loan level price adjustment (as a percent rate). This is the reason why agency MBS coupon rates are higher than the actual mortgage ratesG-fees are collected to cover "GSE operational costs associated with guarantee of timely principal and interest payments, capital buffers and administrative costs"An increasing portion of Fannie Mae's net income in recent years has been derived from guaranty fees rather than from interest income earned on the company's retained mortgage portfolio assets (source: Fannie Mae 2Q 2015 quarterly annual results)Credit Risk Transfer (CRT) instruments - a 30,000 feet overview on how credit-linked notes workCash flows of Fannie Mae and Freddie Mac's synthetic credit risk transfer debt obligations are entirely separate from those of agency MBS (meaning home owners' mortgage payments will never be used to pay holders of CRT debt), but CRT cash flows are designed to respond to credit events experienced by "reference pools" that mirror credit conditions of actual agency MBS poolsInvestors would buy individual "slices" of CRT debt issuance representing various tranches of credit riskFannie Mae and Freddie Mac would use g-fee and other sources of income to fulfill their CRT debt obligationsReference pools of home loans are used to determine CRT instruments' coupon and principal paymentsAs loans within the reference pools experience credit events, Fannie and Freddie would decrease their CRT instruments' coupon and principal payments based on their severityThus, cash flow of CRT instruments are "linked" to the credit risk of reference pools, which mirror agency MBS pools, effectively "transmitting" credit risk to private investorsBreaking down Fannie's CAS and Freddie's STACR (sources: Fannie Mae and Freddie Mac)Fannie Mae: Connecticut Avenue Securities (CAS)About Fannie Mae Credit-Linked Debt Issuance:CAS are unguaranteed and unsecured securities issued by Fannie Mae.Coupon payments on the securities are paid to investors by Fannie Mae on a monthly basis.Payment on the securities is based on the performance of a “reference pool” of loans that were recently securitized into Fannie Mae MBS.As loans in the reference pool are paid, the principal balance of the securities is paid, so that CAS deals mirror the payment and prepayment behavior of the mortgage loans in the reference pool.If the loans in the reference pool experience credit defaults, the investors in the CAS deals may bear losses.Under no circumstances will the actual cash flow from the loans in the reference pool be paid or otherwise made available to the holders of the securities.Fannie Mae may retain a first loss piece and will retain a vertical slice of each CAS transaction to ensure aligned interest with investors, in addition to retaining an unfunded senior portion of the transaction.About the reference pool:The reference pools for each CAS deal are large and diversified, consisting of 30-year fixed-rate, fully amortizing, full documentation single-family, conventional fixed-rate mortgage loans that were acquired by Fannie Mae during certain specified periods.Reference pools for each transaction are currently divided into two loan groups based on original loan-to-value (LTV). Each reference pool will generally include loans with original LTV ratios between 60.01% and 80.00% or loans with original LTV ratios between 80.01% and 97.00%.Reference pools will exclude loans originated under Fannie Mae’s Refi Plus program (which includes loans originated under the Home Affordable Refinance Program), as well as loans that have ever missed more than one 30-day payment since acquisition.Fannie Mae's quality control process is applied to all loans that are included in each reference pool in the same manner as applied to all loans in Fannie Mae's guaranteed portfolio. There is no difference in loan servicing practices between loans that are in a reference pool and loans that are not included in a reference pool.Key differences between CAS and Standard Fannie Mae Debt:Investors in CAS deals may experience a full or partial loss of their initial principal investment, depending upon the credit performance of the mortgage loans in the related reference pool.The rate and timing of principal and the yield to maturity on the CAS deals will be related directly to the rate and timing of collections of principal payments on the loans in the related reference pools.Fannie Mae's obligations under our CAS deals are governed by the applicable Debt Agreement and defined in the related Prospectus. CAS deal securities are not governed by Fannie Mae's Universal Debt Facility Offering Circular.Freddie Mac: Structured Agency Credit Risk (STACR) STACR CharacteristicsOne of the industry’s largest and most diversified reference poolsFreddie Mac holds the senior risk, which is unfunded and not issuedSenior mezzanine and junior mezzanine notes, which are not guaranteed by Freddie Mac, are sold to investorsFreddie Mac may retain a first-loss pieceSTACR notes have a 10-year final maturity for fixed severity and 12.5-year final for actual lossThe notes are paid monthly principal similar to a senior/subordinate, private label residential mortgage backed securities structureLosses based on credit events in the reference pool are allocated to the Notes in reverse order of seniority, and reduce the balance of such NotesSTACR Reference PoolA large and highly-diversified reference pool that helps to provide more stable and predictable performanceFreddie Mac’s Underwriting StandardsFreddie Mac’s internal fraud prevention and quality control review processStandardized servicing guidelines that are uniform across Freddie Mac’s entire portfolioFreddie Mac’s internal quality control sampling strategy will not distinguish between STACR Reference Pool loans and non-STACR Reference Pool loansKey Differences Between STACR Debt and Standard Freddie Mac Debt SecuritiesSTACR debt investors may not receive their full principal and will receive periodic payments of principal as well as interestPeriodic and ultimate principal payments on STACR debt are influenced by the delinquency and principal payment experience on a STACR Reference Pool, in addition to predetermined principal payment rulesSTACR debt coupon yields will likely be established at higher levels than standard Freddie Mac debt offeringsConclusionInstruments such as STACR and CAS represent initial steps by the FHFA to first reduce and then eliminate Fannie and Freddie's roles in the mortgage process in the long term. The current framework remains vulnerable to another credit crisis, and investors' reactions to these debt issuance are somewhat mixed (please see: Fidelity Shuns Risk-Sharing Bonds as Watt Lifts Goals). Nevertheless, some market participants expect CRTs' market liquidity to improve in the future as issuance increase, assuming FHFA maintains its current policy and continues to tweak its risk transfer program.Below are excerpts from prepared remarks of Melvin L. Watt Director of FHFA at the Mortgage Bankers Association's Annual Convention and Expo 2015Credit Risk Transfer TransactionsAnother long-term priority for FHFA is our work with the Enterprises to transfer credit risk to the private sector through various financial transactions. This initiative ensures that the private sector continues to assume meaningful credit risk, with the Enterprises remaining as backstops to cover catastrophic risk. Since 2013, the Enterprises have transferred a significant portion of credit risk on single-family mortgages with a total unpaid principal balance exceeding $700 billion. Both Fannie Mae and Freddie Mac are on track to exceed our2015 Conservatorship Scorecard credit risk transfer objectives by comfortable margins.As the Enterprises have gotten these risk transfer transactions up and running, we have been strategic about which loans to target. Instead of using a random sample of Enterprise loans, we have targeted new loan purchases with the greatest credit risk. The targeted loans include new acquisitions of 30-year fixed-rate mortgages that have loan-to-value (LTV) ratios exceeding 60 percent, excluding HARP refinances. The Enterprises are currently transferring significant credit risk on approximately 90 percent of these targeted loans, the bread and butter of their single-family purchases. This approach has made the transactions easier to scale up and more economical, with the Enterprises and taxpayers getting a greater bang for their buck.As part of our next steps, we want to refine and further standardize the Enterprises' debt, reinsurance and upfront offerings. This will help broaden liquidity. We will continue to work with the Enterprises on other innovative transaction types, such as credit-linked notes. We will also aggressively continue our work to analyze, assess, and define upfront credit risk transfers. We are committed to engaging stakeholders as part of this process.While a great deal has been accomplished in a short time, it is still early in the development of the risk transfer market. FHFA and both Enterprises are committed to building on our recent progress, and we view credit risk transfers as a key part of Fannie Mae and Freddie Mac's credit guarantee business going forward.

The investment is Nigerian Treasury bills, guaranteed by the Nigerian Federal Government, the interest is a cash upfront and it's actually 15.50%.First why would anyone essentially give you a 14 percent upfront intrest payment? Unless this is a sharia law governed transaction and the intrest is actually a fee I see no reason why they would borrow more than they needed in order to provide the upfront intrest payment. Second, why would they not get a loan with cheaper intrest per anum? If they are borrowing just to pay you interest or fees they likely will default or have insufficient collateral to justify the loan. The type of transaction and collateral would need to be known. If you are a lender of last resort then the collateral needs to be substantial, liquid, or transferable upon the loan inception. Meaning you have possesion or title to the property, or a tangible asset. Subprime loans are also dependant on amount. Credit cards charge high rates, as do pawn brokers, pay day loans, title loans and the like.Understand the risks involved and if you can afford to loose the entire principle loan amount. Understand that partial or subordinate lean holders rarely collect on recovered assets or forfeiture. The system works like this. I promise you huge intrest on say 10,000 as a part owner or investor in a certain instrument. I also promise this to 10 other investors. I loan 30,000. In The event of default my claim to assets supersedes yours and all others since I loaned a larger amount of money I am the largest creditor. I get first option on assets available upon default of the loan. I hold a greater intrest in the equity than other investors as a single entity. I choose to take the highest valued assets and likely all the assets and you get zero. You got 14 percent for a year or two and I walk away with the assets undervalued by fire sale prices. Scams such as this are the problem. Bankruptcy scams as i call them work this way. A developer or realtor pools money and builds model homes knowing his intent is to fail. The realtor mmarkets the homes but offers them to buyers who either will not qualify for the loan or a person or group of people who they assume will not buy the home. A few accidental sales happen but all in all the 10 model homes remain vacant. The development fails and the bank foreclose action forces an unexpected bankruptcy that was actually planned all along. The developers wife has a rich friend who buys the development out of bankruptcy from the bank at fire sale prices defrauding the creditors or subordinate investors intentionally. None of this is illegal unless you can proove it. The group of 5 the bank, the developer, realtor, the rich friend, and the bankruptcy lawyers wife make off with the huge profits. The creditors take the loss, and we now know why Fannie Mae and Freddie Mac took so many losses at taxpayer exspense. The city or county gets free houses to sell and collect taxes on. Yes this really happens and yes it is deliberate but cannot be prooven.ReferencesYes it is worth reading Monroe's opinion. In my opinion the 5th circuit got it wrong. Creating a situation of bankruptcy protected legal fraud.Fifth Circuit Rules on Bradley Appeal; Lazarus Trust Is Not Resurrected From Bankruptcy Court JudgmentBankruptcy Lawyer's BlogCase updates and commentary for insolvency professionals in Texas and beyond.Monday, September 24, 2007Fifth Circuit Rules on Bradley Appeal; Lazarus Trust Is Not Resurrected From Bankruptcy Court Judgment“This is the way the world ends/Not with a bang but a whimper.”--T.S. ElliottThe long-running bankruptcy case of flamboyant Austin developer Gary Bradley came one step closer to its end with a dissertation by the Fifth Circuit Court of Appeals on . . . burden of proof. Matter of Bradley, No. 05-51626 (5th Cir. 9/20/07). The Court’s ruling upheld the decisions by the lower courts with the result that bankruptcy trustee Ronald Ingalls was able to recover certain traceable assets from the Lazarus Exempt Trust but not others, while Mr. Bradley lost his discharge.Once Upon A Time . . .The roots of this case go back decades. Gary Bradley and James Gressett were involved in a number of investments, including the Circle C real estate development in Southwest Austin. While Circle C was ultimately very successful, it got caught up in the real estate bust of the 1980s and proved to be financially devastating for its owners. Circle C Development Joint Venture was able to reorganize in a chapter 11 proceeding, but Mr. Bradley and Mr. Gressett were left with tens of millions of dollars of liability to the FDIC. Gressett filed for chapter 7 protection and received a discharge in the early 1990s, while Gary Bradley resolutely tried to recover without the benefit of bankruptcy.One strategy that Mr. Bradley allegedly employed to resurrect his finances while keeping his creditors at bay involved an entity known as the Lazarus Exempt Trust. While this trust was formed by his sister, who contributed $1,000 to it, the trust came to own many assets which had been connected with Bradley and his associates in the past. Within two years, the trust had grown from its initial seed capital of $1,000 to own over $40 million in assets. The Trust and its entities paid Bradley a salary of $15,000 per month.Finally, facing pressure from the FDIC (which was reportedly receiving pressure from Austin’s zealous environmental community) and a family court judge who found that he could afford to pay large amounts of child support, Bradley filed for chapter 7 bankruptcy protection in 2002. Trustee Ronald Ingalls focused on the Lazarus Exempt Trust and sought to recover its assets for the benefit of creditors.The Bankruptcy Court RulingAfter a trial in April 2004, Bankruptcy Judge Frank Monroe issued a 145 page opinion in which he found that Bradley and his associates had engaged in an elaborate plan to transfer assets controlled by Bradley into the trust. Memorandum Opinion, Ingalls vs. Bradley, Adv. No. 02-1183 (Bankr. W.D. Tex. 10/28/04). Despite the fact that none of the “self-settled” assets were directly transferred into the trust by Bradley, the court found that Bradley maintained ownership of these assets through a set of informal and largely unwritten agreements. This ownership was established through memorandums, prior deposition testimony and the way that certain transactions were structured.Of particular importance to Judge Monroe was an understanding between Bradley and Gressett that Bradley would own an 80% interest in their joint real estate investments, while Gressett would own 80% of the non-real estate investments. While Messrs. Bradley and Gressett contended that this split was more of a guideline than an agreement, Judge Monroe determined that it made sense out of a number of transactions which would have been nonsensical otherwise. Judge Monroe found that it was this 80% interest in real estate investments which was contributed to the Lazarus Exempt Trust.Judge Monroe was not circumspect in offering his assessment about what had occurred, making comments such as “Can anyone play the shell game better than Bradley and Gresset?” and “Backdating was a way for life for them . . . .” Memorandum Opinion, pp. 58 and 71. However, despite his obvious disdain for Bradley and company, he did not give the trustee all that he requested. The Court found that certain specific assets, which could be traced into the trust and which remained within the trust, could be determined to self-settled assets and awarded them to the bankruptcy estate. However, he declined to invalidate the trust in toto. He also declined to award a remedy for self-settled assets which could be traced into the trust, but which had been subsequently dissipated. As a result, the trust lost many but not all of its assets. Judge Monroe also denied Mr. Bradley’s discharge on the grounds that he had transferred or concealed property within one year prior to bankruptcy.Appeal to the Fifth CircuitBoth parties appealed to the Fifth Circuit, which rendered its decision on September 20, 2007. The Court spent most of its opinion explaining why Trustee Ingalls was not entitled to more relief than he received below. The Court of Appeals acknowledged that the burden of proof for tracing assets into a self-settled trust was res nova in Texas. However, based upon general principles of trust law, the Court ruled that the party seeking to recover trust assets had the burden of proof to both trace assets into the trust and to prove that those assets or their proceeds remained within the trust. The Court of Appeals declined to assign any burden of proof to the trust. The Trustee’s two-fold burden had two consequences for his ultimate recovery. The first was that where assets could be traced into the trust, but their provenance remained uncertain, that the trust could retain these assets. Second, where self-settled assets could be traced into the trust, but had been sold or dissipated such that their current form could not be determined, that the trust would not be held liable for these assets which had passed through it. In making its ruling, the Court of Appeals was careful to note that the bankruptcy trustee had been given full access to the trust’s records. Presumably, the result could have been different in a case where the transferee was less cooperative.The Court of Appeals also affirmed the Bankruptcy Court’s decision to reject two global challenges to the trust. The Court of Appeals agreed with Judge Monroe that Texas courts have not recognized the concept of sham or illusory trust except in cases involving marital property rights. Thus, although Judge Monroe indicated that he would have found the trust to be a sham or illusory trust, there was no legal remedy available for this finding. The Fifth Circuit also found that the Bankruptcy Court properly denied an 11th hour attempt to amend the adversary proceeding to assert a constructive trust claim over the trust assets. Thus, the trust remained intact but wounded.The Court of Appeals was fairly dismissive of the arguments raised by the Trust and the Debtor, devoting just 3 ½ pages to these issues. The Fifth Circuit rejected the argument that it would be necessary to pierce the corporate veil in order to consider transfers to entities controlled by the trust to be self-settled assets. The Court found that a trust is not a legal entity separate from its trustee. Apparently this led to the conclusion that an asset transferred to a corporation owned by the trust was the same as a transfer to the trust itself. Next, it found that the trust had waived its argument that Mr. Bradley was not a “settlor” of the trust (as opposed to his sister who made the original contribution) for the reason that this argument was not made to the District Court. Finally, the Circuit Court noted that “when the bankruptcy court’s weighing of the evidence is plausible in light of the record taken as a whole, a find of clear error is precluded, even if we would have weighed the evidence differently.” Fifth Circuit opinion, p. 17. This generic finding of plausibility avoided the need to examine the evidence in depth as Judge Monroe did.What Does It All Mean?While the opinion from the Court of Appeals turned out to be somewhat dry and technical and largely anticlimactic, there are several lessons which can be learned from the larger saga.1. It is better to file sooner rather than later.In some respects, this is a tale of two partners. James Gressett took his medicine and filed bankruptcy in the early 1990s. He received a discharge and was able to start over again. Gary Bradley, on the other hand, tried to tough it out. When he filed bankruptcy some ten years later, he succeeded in attracting much more attention than if he had filed more promptly. It has long been rumored that environmental activists who did not like Bradley’s development activities exerted political pressure on the FDIC to attempt to collect from Bradley rather than settle with him. This led to Bradley’s ill-advised decision to attend a post-judgment deposition without the benefit of counsel. By the time that Bradley filed for bankruptcy, newspaper articles and the FDIC deposition provided the Trustee with a road map for his investigation.2. The concept of a self-settled trust just got larger.In some respects, the Fifth Circuit’s opinion on the Bradley matter is like Arthur Conan Doyle’s dog which didn’t bark (that is, the remarkable thing is what was never discussed). The Fifth Circuit never really explained how assets which had never been held in the name of the debtor could be treated as self-settled assets in the hands of the trust. Normally, a self-settled trust is easy to determine. The Debtor owns an asset and then contributes that asset to a trust under which he is the beneficiary. At this point, the trust is determined to be self-settled and any spendthrift trust restriction is unenforceable.In the Bradley case, Judge Monroe took a very expansive view of what constituted a self-settled asset. Although his opinion is quite detailed, he still had to buy into the trustee’s theory of the debtor as puppet-master pulling the strings of his associates and their entities. Based upon the opinions, it appears that there was never a legally enforceable agreement for third parties to hold property for Mr. Bradley, but that they acted as if there was such an agreement. Whether the other parties to the alleged scheme acted out of fear, loyalty or foolishness, it doesn’t seem as though they had an obligation to act at Bradley’s direction. This raises the question of whether the fact that the parties acted as though they were dealing with Gary Bradley’s property is sufficient to establish that they were in fact dealing with Gary Bradley’s property. The Fifth Circuit responded to this tantalizing question with a shrug, dismissing the issues as mere fact finding to be upheld so long as they were plausible. The Fifth Circuit also punted on the issue of whether someone who was not the named settler of a trust could make a self-settled contribution to the trust, finding that although this issue was presented to the bankruptcy court, it had not been presented to the district court. While the court of appeals did not expressly rule on this issue, the clear implication is that they would have agreed with the bankruptcy court that anyone who contributes an asset to a trust is a settler; otherwise, the entire case would turn on a technicality of appellate procedure (namely, whether an issue raised in the bankruptcy court but not the district court is waived).The potentially expansive reach of this case is shown by the following hypothetical. Assume that parents own a business and their children work in the business. When the children reach adulthood, the parents sell the business to the children at a favorable price with an “understanding” that the children will take care of the parents in their old age. More than four years later, the children decide to form a trust for their parents’ support. They sell the business to the trust at the same favorable price that they paid and name the parents as primary beneficiaries. Prior to the Bradley case, this transaction would have been untouchable. The original transfer occurred outside of the four year period for recovering a fraudulent transfer and the property was transferred to the trust by the children, not the parents. However, following the logic of the Bradley opinion, it could be argued that the parents retained ownership of the business through their “understanding” with the children such that the asset was self-settled when it was contributed to the trust. The main difference between this hypothetical and the Bradley case is that the parents and children would be considered sympathetic parties, while Gary Bradley failed to attract much sympathy for himself. Of course, this should not be determinative when resolving legal issues.3. Documents are important.In discussing one of the many transactions in his Memorandum Opinion, Judge Monroe states, “None of the trial testimony makes sense. The documents do.” Memorandum Opinion, p. 55. Although the Trustee did not win on every issue, it is clear that his success was due to his ability to process large quantities of documents and sort out the ones which helped his case. The proof of the conspiracy emerged from prior deposition testimony (which can be considered low-hanging fruit), notes from meetings and analysis of the details of a myriad of transactions. Without these documents, the Trustee would not have had a case, since the witnesses on the Bradley side all testified to a different version of the facts. Conversely, the fact that the Lazarus Trust cooperated and provided the Bankruptcy Trustee with massive amounts of documents allowed the Court to apportion the burden of proof to the Trustee with the result that the Trustee did not prevail on all of his arguments.https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.austinchronicle.com/m/archives/search/keywords:gary%2Bbradley/&ved=2ahUKEwjOxOzq87PaAhVp_IMKHUFtBFEQFjAIegQIBxAB&usg=AOvVaw34HNJ66c4dzOu8NEU01b-Chttps://www.google.com/url?sa=t&source=web&rct=j&url=https://www.justice.gov/usao-sdtx/pr/former-it-director-and-wife-convicted-embezzling-more-1-million-employer&ved=2ahUKEwixq6Wr9LPaAhXm54MKHdtoD8gQFjAJegQICBAB&usg=AOvVaw2UmjJItll4iuixoe13lEUS