Archive for the ‘ Housing FInance ’ Category

GSEs Announce New Mortgage Insurance Requirements

GSEs Announce New Mortgage Insurance Requirements


Moving forward on another of its performance goals for 2013, the Federal Housing Finance Agency (FHFA) announced Monday that Fannie Mae and Freddie Mac have completed a major overhaul of mortgage insurance master policy requirements.

Earlier in the year, FHFA laid out its 2013 Conservatorship Scorecard, which—among other things—calls for the GSEs to develop aligned requirements for master policies. Through an ongoing effort, FHFA says both enterprises have worked with the mortgage insurance industry “to address and update gaps in the existing master policy framework.”

“Updating the mortgage insurance master policy requirements is a significant accomplishment for Fannie Mae and Freddie Mac,” said FHFA acting director Ed DeMarco. “The new standards update and clarify the responsibilities of insurers, originators, and servicers, and they enhance the insurance protection provided to Fannie Mae and Freddie Mac, which ultimately benefits taxpayers.”

The new requirements include a number of provisions intended to facilitate faster and more consistent claims processing, establishing specific timeframes, and creating standards for the circumstances under which coverage must be maintained and when it may be revoked.

Also included are requirements for master policies to support recently developed loss mitigation strategies and guidelines to promote information sharing among mortgage insurers, servicers, and the GSEs.

FHFA anticipates the master policies will go into effect in 2014 pending review and approval by state insurance regulators. Both enterprises will provide guidance to lenders and servicers in the coming weeks regarding specific effective dates.

For their parts, Fannie Mae and Freddie Mac both put their support behind the new master policies.

“The updated master policy for mortgage insurance announced today builds on the market reforms of the past five years, and we were happy to work with FHFA to bring about this latest step toward greater operational efficiency and transparency in the mortgage market,” said Paige Wisdom, EVP and chief enterprise risk officer at Freddie Mac. “We look forward to working with our servicers and the nation’s mortgage insurers as they adopt the new master policy.”

“Mortgage insurers are an important part of the mortgage finance system and these changes help lay the foundation for a stronger system going forward,” added Andrew Bon Salle, EVP of single-family underwriting, pricing, and capital markets at Fannie Mae. “These updates will help us better manage our credit risk, which we believe will ultimately benefit Fannie Mae, mortgage insurers, homeowners and taxpayers.”


JPMorgan Chase Reaches $13B RMBS Settlement with U.S. Government

JPMorgan Chase Reaches $13B RMBS Settlement with U.S. Government


JPMorgan Chase has struck a deal with the U.S. Department of Justice to resolve civil claims from both federal and state officials over residential mortgage-backed securities (RMBS) issued prior to January 1, 2009, by the bank and two financial institutions it acquired in 2008–-Bear Stearns and Washington Mutual.

The $13 billion settlement is the largest in American history between the U.S. government and a single entity.

Under the agreement reached, JPMorgan will pay $9 billion in restitution and provide an additional $4 billion in relief for homeowners at risk of foreclosure and communities impacted by the housing crisis. Federal officials say the relief funding could benefit more than 100,000 borrowers.

According to JPMorgan, the cash portion of the settlement payment consists of a $2 billion civil monetary penalty and $7 billion in compensatory payments, including a previously announced $4 billion payment to resolve litigation claims from the Federal Housing Finance Agency.

Borrower relief will be in the form of principal reduction, forbearance, and other direct benefits from various relief programs, the bank explained. JPMorgan Chase has committed to complete delivery of the promised relief to borrowers before the end of 2017.

The settlement was negotiated through the Residential Mortgage-Backed Securities Working Group, a joint state and federal unit formed in 2012 by President Obama to investigate wrongdoing within the mortgage-backed securities market that helped to trigger, contribute to, or exacerbate the U.S. financial crisis.

New York Attorney General Eric T. Schneiderman co-chairs the RMBS Working Group. Tuesday’s settlement comes 13 months after Schneiderman sued JPMorgan for fraudulent RMBS packaged and sold by Bear Stearns before it was acquired by JPMorgan at the behest of government officials at the Federal Reserve, FDIC, and U.S. Treasury.

In announcing the unprecedented settlement, Schneiderman said, “Since my first day in office, I have insisted that there must be accountability for the misconduct that led to the crash of the housing market and the collapse of the American economy. This historic deal … is exactly what our working group was created to do.”

He continued, “We refused to allow systemic frauds that harmed so many New York homeowners and investors to simply be forgotten, and as a result we’ve won a major victory today in the fight to hold those who caused the financial crisis accountable.”

Separately, the FDIC announced Tuesday that it also reached a settlement with JPMorgan Chase and its affiliates in relation to the failure of six banks. The FDIC, acting as receiver for the failed institutions, says misrepresentations where made in the offering documents for 40 RMBS purchased by the now-defunct banks.

JPMorgan agreed to pay $515.4 million, which will be distributed among the receiverships for the failed Citizens National Bank (failed May 22, 2009), Strategic Capital Bank (May 22, 2009), Colonial Bank (August 14, 2009), Guaranty Bank (August 21, 2009), Irwin Union Bank and Trust Company (September 18, 2009), and United Western Bank (January 21, 2011).

From May 2012 to September 2012, the FDIC as receiver for five of the failed banks filed 10 lawsuits against JPMorgan, its affiliates, and other defendants for violations of federal and state securities laws in connection with the sale of RMBS.

As part of the global settlement reached, JPMorgan acknowledged it made serious, material misrepresentations to the public—including the investing public—about numerous RMBS transactions, according to a statement on the New York attorney general’s website.

JPMorgan Chase says it is fully reserved for this settlement.

New Head of FHFA Expected

New Head of FHFA Expected

11/25/2013 BY: CARRIE BAY

Analysts expect to see a new face at the helm of the agency overseeing Fannie Mae and Freddie Mac now that Democrats in the Senate have changed the rules, eliminating the use of the filibuster to block presidential appointments.

The Senate majority’s instatement of the so-called nuclear option “has cleared the path for Mel Watt’s confirmation” as director of the Federal Housing Finance Agency (FHFA), according to secondary market analysts at Barclays.

Under the chamber’s new rules, the president’s nominees for all positions except Supreme Court judge can be approved with a simple majority vote, rather than the previous requirement of 60 “yay” votes.

Rep. Mel Watt (D-North Carolina) received 56 votes in favor of his confirmation on October 31st, just 4 votes shy of the number needed under the old rules but enough to be confirmed under the new simple-majority requirement.

“[H]e has the required votes and should be confirmed as the new FHFA director. In our view, this raises the level of policy risk,” Barclays said, “as we would generally expect him to be more supportive of the administration’s policies. … [K]ey areas of concern would be principal forgiveness for the GSEs and potential expansion of the HARP [Home Affordable Refinance Program] eligibility date.”

Watt and the administration have previously expressed support for using principal forgiveness as part of the Home Affordable Modification Program (HAMP) waterfall for GSE loans, Barclays notes. While Acting Director Edward DeMarco has resisted its implementation to date on the argument that the taxpayer benefits would be too small, under Watt’s direction, Barclays expects the FHFA to “take a fresh look at the administration’s proposal and be more amenable to implement it.”

In addition, with Watt’s confirmation, Barclays says the administration may renew its push to expand the HARPcut-off date by a year. An extension of the HARP eligibility date would significantly increase the pool of HARP-eligible loans from the 2009 and 2010 vintages carrying interest rates above the 4.5 to 5 percent range, according to Barclays’ analysts.

“We estimate that these cohorts would likely see as much as a 50 percent increase in borrower eligibility,” they said.

While the immediate attention upon Watt’s confirmation will be on potential changes to HARP or decisions surrounding principal forgiveness and will likely spark some near-term uncertainty, analysts with FBR Capital Markets & Co. believe Watt will be “very beneficial to mortgage credit availability.”

“As director, we expect him to focus on removing barriers for well-qualified homeowners from receiving mortgage credit on loans securitized by Fannie and Freddie, and he is unlikely to lower loan limits, increase g-fees [guarantee fees], or implement new limits on multifamily lending,” according to FBR.

Though his confirmation will probably further complicate housing finance reform, it makes it more likely there will be a continued government backstop, FBR said, adding, “We view this confirmation as positive for mortgage originators, homebuilders, and mortgage insurers and as a negative for private-label securitizers and REITS [real estate investment trusts].”

“It should be noted there is some chance his confirmation will not take place until after the Thanksgiving recess, but that is not a reflection of his lacking the necessary votes,” Barclays said.

Report: Recovery Hampered Until Lawmakers Focus on Housing Policy

Report: Recovery Hampered Until Lawmakers Focus on Housing Policy

11/15/2013 BY: ASHLEY R. HARRIS

According to some, there are many issues with the U.S. government, but housing policy ranks highest. A new report published by the Opportunity AgendaNational Fair Housing Alliance, and the National Association of Real Estate Brokers (NAREB) claims that the U.S. housing policy is broken, denying millions of would-be homeowners the credit and financing they need to achieve the American Dream. This broken system can be repaired with immediate executive and administrative action in Washington, D.C., sidestepping a glacially slow and highly partisan Congress, according to the authors of the study.

The report includes ten administrative actions that the Federal Housing Finance Agency (FHFA) should take. These actions would require no legislative support and still achieve housing finance reform, according to the organization.

“Credit worthy American families, currently barred from the conventional market unnecessarily, should not be forced to wait for a legislative process that could take years,” said Jim Carr, author of the policy report and fellow at the Opportunity Agenda, a national organization that works to expand opportunity in housing and homeownership.

An in-depth look at the new roles of the GSEs should also be a key focus of the government as the recovery continues. According to the report, the elimination of Fannie Mae and Freddie Mac is at the core of almost every major proposal aimed at revamping the mortgage finance system. Yet, housing finance reform that requires the wholesale replacement of the government-sponsored enterprises (GSEs), will take many years to approve and to establish. The report suggests a five-year time horizon is a reasonable estimate even under the best circumstances.

“The recent news that Freddie Mac will repay the government next month more than it received in bailout funds drives home the point that the need for FHFA as a conservator is over. Both Fannie Mae and Freddie Mac are generating huge earnings and FHFA’s primary role now should be to rebuild the housing finance market,” Carr said.

What sustainable recovery boils down to is for a concerted effort from regulators to enforce the fair housing laws.

“We do not need legislative action for regulators to effectively enforce the nations’ fair housing laws or expand

access to credit for qualified borrowers,” said Lisa Rice, VP of the National Fair Housing Alliance. “If the GSEs were allowed to effectively serve all borrowers who are willing and more than able to pay their mortgage obligations, our economy would be improving at a greater pace.”

“It is clear that we cannot maintain the status quo. This report contains significant steps that can be taken now to change the status quo and help improve our economy,” she said.

Among the report’s suggested administrative actions are providing a liquid and reliable source of credit for housing in all geographies, including urban, suburban, and rural locations, to all credit-worthy borrowers. Equally important goals include ensuring that the nation’s fair housing and equal credit opportunity laws are strictly followed and that adequate reserves are set aside to protect taxpayers from future bailouts.

“Conventional home lending for people of color has collapsed since the onset of the housing crisis. The result is a near credit shutdown making it more than difficult for African American and Latino borrowers to obtain mortgage financing,” said Donnell Spivey, president of NAREB, a real estate trade association focused on fairness in all aspects of sustainable homeownership for African Americans, in particular, and other minorities, in general.

“The time for thinking about and debating housing finance reform is over. Now is the time to take every action possible to open the housing finance market for all Americans, not just a few,” Spivey added.

“Our nation’s housing crisis severely deteriorated the wealth of Latino families as well as devastated many of the neighborhoods they live in, and five years later, many of these families are still waiting for mortgage relief,” said Enrique Lopezlira, senior policy advisor at National Council of La Raza (NCLR). “However, through administrative actions these families can get the relief they need and deserve. Creditworthy Latinos and other communities of color should not have to wait for new legislation to make sure they have access to mortgage credit.”

Earlier this month, partisan opponents in the Senate blocked the nomination of Rep. Mel Watt to become the new head of the Federal Housing Finance Agency (FHFA), which regulates the government-backed mortgage finance firms and has broad power to make meaningful policy changes. At the moment, the acting head of FHFA is Ed DeMarco, and Watt supporters say DeMarco continues to pursue a range of policies that are neither in the best interest of homeowners nor the housing market, including refusal to permit principal adjustments to loans backed by Fannie Mae and Freddie Mac, rigid underwriting requirements, and unnecessarily high guarantee fees.

“The confirmation of Mel Watt as Director of the FHFA would represent a major step toward establishing the administrative foundation to reform the housing finance system. That action should occur now,” Carr concluded.

What Does Fannie Mae’s New LTV Threshold Accomplish?

What Does Fannie Mae’s New LTV Threshold Accomplish?


As of November 1, Fannie Mae is no longer purchasing loans without minimum down payments of at least 5 percent. Industry experts with the Urban Institute’s Housing Finance Policy Center argue this move is arbitrary and likely to provide little benefit to the GSE or to taxpayers.

Fannie Mae’s decision to lower its maximum threshold for loan-to-value (LTV) ratios from 97 percent to 95 percent follows a similar decision by Freddie Mac a few years ago. While neither GSE will support loans with LTVs higher than 95 percent now, the Federal Housing Administration,Veterans Administration, and U.S. Department of Agriculture (USDA) will.

“Fannie’s policy change isn’t limiting taxpayer risk-rather it’s limiting options for borrowers,” according to Laurie Goodman and Taz George of the Housing Finance Policy Center.

In a blog post on the Urban Institute’s Metro Trends Blog site, Goodman and George said, “This change places yet another barrier in front of low- and moderate-income families, who are already facing a tightening credit box.”

While it would seem Fannie’s objective in lowering the LTV requirement would be to reduce risk, the two authors say this action would be a misguided attempt. They say, “If the intent was to reduce risk, this was a crude way to accomplish it,” mainly because among loans with LTVs of 80 percent or higher, credit scores are a better default forecaster than LTV ratios.

In fact, the default rate on loans with LTVs of 95 to 97 percent and high FICO scores is lower than the default rate for loans with LTVs of 90 to 95 percent and lower FICOscores, according to the Urban Institute.

Goodman and George also point out that historically, Fannie Mae has purchased very few loans with LTVs in the 95 to 97 percent range. From 1999 to 2012, these loans made up less than 1 percent of Fannie Mae’s purchases, and since 2005, the percentage drops even further.

“We would have hoped that the rich data provided by the Great Recession would give the GSEs the confidence to underwrite higher LTV loans with compensating factors, as the importance of these factors has been well tested and documented,” Goodman and George stated.

“Instead, Fannie Mae has chosen to draw sharp lines around a smaller permissible credit box without accounting for compensating factors,” they concluded.

FHFA Still Piloted by ‘Acting’ Head as Watts Vote Blocked

FHFA Still Piloted by ‘Acting’ Head as Watts Vote Blocked


Senate Republicans blocked a vote on the nomination of Rep. Mel Watt (D-North Carolina) to head up the Federal Housing Finance Agency (FHFA).

Watt’s nomination was stopped in a 56-42 vote to end the debate over his confirmation. Sixty votes were needed to invoke cloture and move forward.

Watt’s proponents say the former real estate lawyer would support stronger consumer protections and greater assistance for at-risk homeowners. Critics, though, say acting director Edward DeMarco has dutifully protected taxpayers, pursued policies that promote a healthy housing economy, and should get the nod for the director spot.

DeMarco has led the agency in an “acting” capacity since August 2009 following his appointment by President Obama when James B. Lockhart stepped down. Throughout his tenure, DeMarco has attracted criticism from Democrats and consumer advocates who say he hasn’t gone far enough to help distressed homeowners. One

of the bigger controversies surrounding DeMarco is his steadfast opposition to the use of principal forgiveness by the GSEs, which he believes would be too costly to taxpayers.

While he has said he would have to further investigate before making a move as FHFA director, Watt has in the past urged for principal reduction. (He asserted at a Senate Banking Committee hearing in June that he was advocating for his constituents in North Carolina at the time and not necessarily the country at large.)

The topic of principal forgiveness isn’t the only point where Watt and DeMarco diverge, however.

“A Watt-led FHFA would be a considerable departure from DeMarco’s tenure,” said FBR Capital Markets in an analysis released before the vote. “He would be less likely to lower the loan limits at Fannie and Freddie and would be unlikely to make aggressive changes to their multi-family lending programs. We believe that Congressman Watt could change the course of some of DeMarco’s strategic goals and could be more accommodative to lender concerns on clarity for representations and warranties.”

FBR also noted that Thursday’s failed vote could throw a wrench in Watt’s plans, with February 28, 2014, being the deadline for the congressman to file for re-election should his nomination not work out.

“Practically speaking, he would likely need to make a decision well before the deadline,” the firm said.

Should Watt take his name out of the hat, FBR has its eye on Sandra Thompson, who is currently FHFA’s deputy director of housing mission and goals, as the next potential nominee.

Serious Delinquencies Hit Five-Year Milestone

Serious Delinquencies Hit Five-Year Milestone


Mortgage delinquencies are on the decline, according to a report from Equifax. Home finance write-offs so far this year total $96.3 billion, down 22 percent compared to the same time period last year, the company says.

“We’re now back to where we were in mid-2008 in terms of severely delinquent first mortgages and current trends suggest we will be at pre-recession levels of severe delinquencies by the end of 2014,” said Amy Crew Cutts, chief economist at Equifax.

She credits “improvements in labor markets and rising home values” for the recent declines in delinquencies, adding that “the outlook is very positive for continued improvement.”

Delinquencies on first mortgages declined 24.5 percent year-over-year in September, according to Equifax.

Severe delinquencies—those 90 or more days past due—also declined, falling about 29 percent over the year. In

fact, Equifax points out that the balance of mortgages in severe delinquency is less than $300 million for the first time in five years.

Loans originated between 2005 and 2007—the bubble years—make up 64 percent of the loans in severe delinquency, according to Equifax.

REO rates also declined over the year in September, declining 27.9 percent, reaching a low not seen in more than five years. The current REO rate is 1.71 percent, according to Equifax.

“Generally speaking, transitions to deeper stages of delinquency are slowing, so for example, fewer loans that are now 30 days late are transitioning to 60 days late,” Crew Cutts said.

Crew Cutts also pointed out that Equifax has witnessed “acceleration in the transition rates from loans that have started the foreclosure process to being bank-owned in REO status.”

This trend she attributes to “reductions in judicial timelines in states where foreclosures have to go through court review.”

Delinquencies among home equity installment loans and home equity revolving loans also declined over the year, falling 21.9 percent and 17.6 percent, respectively, according to Equifax.

The amount of severely delinquent home equity installment loans decreased 8.4 percent annually in September, while severe delinquencies among home equity revolving loans fell 24 percent, Equifax reported.


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