Posts Tagged ‘ federal home loan banks ’

FHFA Calls Eminent Domain ‘Threat’ to GSEs, May Consider Legal Action

FHFA Calls Eminent Domain ‘Threat’ to GSEs, May Consider Legal Action

08/08/2013BY: ESTHER CHO

As local governments consider the use of eminent domain to seize underwater mortgages, they may have to deal with the Federal Housing Finance Agency (FHFA) before moving forward with the plan.

In a statement Thursday, FHFA stated it may “initiate legal challenges” to local or state actions that authorize the use of eminent domain to restructure mortgage contracts impacting Fannie Mae and Freddie Mac.

Another action the GSEs’ regulator might take is limit or stop business activity in jurisdictions that authorize the use of eminent domain to restructure mortgages.

According to the statement, the conclusion was based on the law and input received. In an analysis of the input, Alfred M. Pollard, FHFA general counsel, wrote “there is rational basis to conclude that the use of eminent domain by localities to restructure loans for borrowers that are ‘underwater’ on their mortgages presents a clear threat to the safe and sound operations of Fannie Mae, Freddie Mac and the Federal Home Loan Banks.”

Pollard also stated the use of eminent domain “would run contrary to the goals set forth by Congress for the operation of conservatorships by FHFA.”

The statement follows reports that Freddie Mac might take legal action to stop Richmond, California, from using eminent domain to seize underwater mortgages. Recently, officials in the city approved adoption of the controversial approach, but the city was hit with a lawsuit Wednesday from an institutional investor group, according to a report from Reuters.

Mortgage Resolution Partners is the firm that has been actively approaching different cities to propose the use of eminent domain as a solution to address underwater mortgages. As part of the plan, MRP would provide the funds to refinance the mortgages, then take a government-approved flat fee per mortgage, according to the firm’s website.

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Bipartisan Group Proposes Formula for Sustainable Homeownership

Bipartisan Group Proposes Formula for Sustainable Homeownership

02/25/2013 BY: ESTHER CHO

Although some argue the push for homeownership was the root cause leading to the housing downturn, a report from the Bipartisan Policy Center’s (BPC) Housing Commission argued it was actually a wide range of factors that converged to create the crisis and offered its own formula for encouraging “sustainable” homeownership for those with modest incomes.

After the collapse of the housing market and the hundreds of thousands of foreclosures that came with it, many questioned “the elevated status of homeownership,” the commission explained in a report titled Housing America’s Future: New Directions for National Policy.

But, according to the report, policies encouraging homeownership weren’t the main problem, though “overly exuberant home buying provided an important stimulant.”

A few of the real culprits named in the report included factors such as the relaxation of underwriting standards, emergence of abusive and predatory mortgage products, and activities of unqualified borrowers who submitted false or inadequate credit information.

While the Consumer Financial Protection Bureau (CFPB) has offered up new rules to prevent risky lending practices, the commission believes “the pendulum has swung too far from the excesses of the pre-bust era” and stated “today’s credit box is tighter and more restrictive than underwriting practice and experience justify.”

With past mistakes in mind, the commission argued sustainable homeownership should be encouraged among lower-income borrowers and can be achieved through broad availability of prime, fixed-rate mortgage financing and adjustable-rate mortgages with clear terms and limits on adjustments and maximum payments. The commission also recommended counseling for those who may need it.

To make its point, the report cited a study from the North Carolina’s Center for Community Capital that assessed 46,000 low-income homeowners who received traditional 30-year fixed-rate mortgages between 1999 and 2009 through a program. The study found 95 percent of those homeowners were continuing to make mortgage payments at the end of the decade, even surviving the housing crisis. The default rate among the loans was also less than one-quarter the default rate of subprime loans that the borrowers might have otherwise received, but the default rate was still higher compared to prime loans not part of the program.

The households in the study had a median income of $30,000 and oftentimes put down less than 5 percent on their home purchase. Overall, the researchers in the study found low-income households with mortgages that were properly serviced and without risky features can perform “quite” well.

The commission also advised requiring housing counseling for certain situations.

“Housing counseling can and should play an important role as a credit enhancer, mitigating the risk of lending to borrowers on the margins of creditworthiness,” the report stated.

Providing an example of the impact of counseling, the report noted a study from the Federal Home Loan Banks on foreclosure rates within FHLBanks’ homeownership programs that required counseling. The program was for lower-income and first-time homebuyers. Between 2003 and 2008, 1,177 out of 70,163, buyers in the program were in foreclosure, which translates to only 1.7 percent.

“Clearly, as indicated by the numbers, homeownership counseling works,” the report concluded.

Lastly, the commission also acknowledged the importance of “a strong, vibrant system of housing finance that can ensure a steady flow of mortgage funds to prospective homeowners and those seeking to refinance.”

FHFA Expresses ‘Significant’ Concern Over Eminent Domain Proposal

FHFA Expresses ‘Significant’ Concern Over Eminent Domain Proposal

08/08/2012BY: ESTHER CHO

FHFA issued a notice Wednesday to warn of the controversial use of eminent domain recently proposed in San Bernardino County.

In San Bernardino County, officials are considering the use of eminent domain to seize underwater mortgages. The mortgages would be taken at fair market value, and then restructured into new loans with terms reflecting the current market. Chicago and Berkeley are also exploring the proposed use of eminent domain.

In the notice, which was sent to the Federal Register, FHFAstated it had “significant concerns about the use of eminent domain to revise existing financial contracts and the alteration of the value of Enterprise or Bank securities holdings.”

FHFA said that in relation to the Fannie Mae and Freddie Mac, the use of an eminent domain program could result in a cost to taxpayers.

FHFA also stated it had significant concerns regarding a “chilling effect on the extension of credit to borrowers seeking to become homeowners and on investors that support the
housing market.”

As conservator for the GSEs and as a regulator for Federal Home Loan Banks, FHFA stated it may need to take action “to avoid a risk to safe and sound operations and to avoid taxpayer expense.”

Along with concerns, the agency also raised several questions, including the constitutionality of the proposed use of eminent domain; the effects on holders of existing securities; and the impact on millions of negotiated and performing mortgage contracts.

FHFA said it is accepting input on topic through its Office of General Counsel (OGC) no later than September 7, 2012.

Views on the topic may be emailed to eminentdomainOGC@fhfa.gov or sent to FHFA OGC, 400 Seventh Street SW., Eighth Floor, Washington, D.C. 20024. Input may be made public.

U.S. Downgrade: How Will It Impact Housing Fundamentals?

U.S. Downgrade: How Will It Impact Housing Fundamentals?

08/08/2011 By: Carrie Bay

UPDATED to reflect S&P’s Monday morning rating downgrades of Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.

Congress’ last-minute accord to raise the nation’s debt ceiling and avert a default wasn’t enough to save the United States’ AAA rating from Standard & Poor’s. The market’s reaction to the news could have an impact on Treasury yields and with these yields closely tied to mortgage rates, on homebuyers’ borrowing costs.

[Editor’s Note: As the day unfolded, following publication of this article, investors responded to the news with a Treasury bond buying spree, resulting in a 13 basis point drop in 10-year Treasury yields.]

The international ratings agency downgraded the long-term sovereign credit rating of the United States to AA+ late Friday night. That’s a grade level just below the AAA rating the U.S. had held for 70 years, going back to 1941 when S&P began assigning ratings to countries.

S&P said the fiscal plan that Congress and the administration agreed to last week “falls short” of what its analysts believe is “necessary to stabilize the general government debt burden by the middle of the decade.”

The agency also said the wrangling that went on in Washington – namely the use of the impending threat of default as a political bargaining chip – makes near-term progress on curbing public spending or reaching an agreement to raise revenues “less likely than we previously assumed.” S&P says the debate “will remain a contentious and fitful process.”

White House and Treasury officials fired back at S&P for basing the downgrade on what they said was a “math error of significant consequence.” The administration says S&P misquoted estimates from the Congressional Budget Office by $2 trillion in projecting the deficit over the next 10 years. S&P has since acknowledged the error but says that doesn’t change its decision.

So what does all this mean for the housing and mortgage markets?

Mortgage financiers Fannie Mae, Freddie Mac, and 10 of the 12 Federal Home Loan Banks also had their senior debt

issue ratings cut from AAA to AA+ by S&P Monday morning. (The Federal Home Loan Banks of Chicago and Seattle were already rated AA+ prior to the U.S. sovereign downgrade.)

S&P says the downgrades were the result of the institutions’ “direct reliance on the U.S. government.” The agency warned back in April that the rating of the U.S. would have a direct impact on the ratings attached to the debt of these government-sponsored entities.

Reuters notes that a downgrade of Fannie Mae and Freddie Mac could also affect billions of dollars of debt issued by public housing authorities, debt that is secured by federally guaranteed mortgages.

The markets are bracing for an eventful week ahead, with expectations that the value of the dollar will slip and Treasury yields will begin to rise. The trajectory of mortgage rates typically goes hand-in-hand with Treasury yields.

But market participants point out that mortgage rates are already at historical lows, and it still hasn’t done much to boost demand from homebuyers.

Economists and housing experts alike were expecting mortgage rates to head higher later this year, even before the rating downgrade.

According to Paul Dales, senior U.S. economist for the research firm Capital Economics, “[A]ny spike in Treasury yields and/or fall in the dollar should be relatively short-lived. Once the dust settles, attention will turn back to the economic fundamentals, which are certainly consistent with low Treasury yields.”

The analysts at Barclays Capital don’t expect the ensuing shock to the market to run very deep.

“Treasuries are not going to sell off…but longer-run the fiscal problems are likely to mean a weaker dollar,” Barclays said.

The firm also stressed that for many observers, it was really a question of when the downgrade would happen rather than if it would since S&P had been very clear about its expectations.

“But it is yet another milestone in the ongoing financial crisis: another once-unthinkable event has taken place,” Barclays said. “For decades the 10-year U.S. government bond yield was the definition of the long-run risk-free interest rate; now that has been declared a less than top-notch credit risk.”

S&P is the only one of the three major ratings agencies to downgrade the United States.

Moody’s Investors Service and Fitch Ratings both confirmed their AAA ratings after the debt deal was reached last week.

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