Posts Tagged ‘Fannie Mae’
Tuesday, January 24th, 2012
The Obama administration plans to work closely with federal regulators, Fannie Mae and Freddie Mac to start a pilot program to sell government-owned foreclosures in bulk to investors as rentals, according to administration officials.
There currently are approximately 250,000 foreclosed properties on the books of Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), and millions more are expected. Last year’s foreclosure processing delays created an enormous backlog of properties yet to be processed and are just now being restarted. One of the program’s initiatives is for the federal government to mitigate and manage new foreclosures. Late-stage delinquencies still number close to two million, according to a report from Lending Processing Services (LPS). Foreclosure starts are double foreclosure sales and “the trend toward fewer loans becoming delinquent, which dominated 2010 and the 1st quarter of 2011, appears to have halted,” according to LPS.
“I think there is a fair amount of money in the wings waiting to buy, investors doing cash raises to buy properties on a large scale,” said Laurie Goodman of Amherst Securities. “But that means they have to build out a rental organization; it means they build out a management company, because if you’re accumulating a hundred homes in Dallas that’s very different than running a multifamily building.”
This is good advice. The recession began with housing, and is one of the main things holding back the recovery. The most recent unemployment numbers — which showed that non-farm payrolls grew by 200,000 in December, and the jobless rate declined to 8.5 percent from 8.7 percent — join other cautious signs of an improving economy, although the housing situation is worsening. There’s still a serious risk it might put a halt to and not just delay expansion.
“Foreclosed homes are a complex problem. We need some creative thinking and new processes to solve the problem of so many distressed homeowners. I would love to see the market handle it on its own but what makes sense for a single home is likely to destroy confidence in the housing market in aggregate,” said Jafer Hasnain, Partner at Lifeline Assets. “Housing distress needs a Michael Dell to think about streamlining process details, and a Steve Jobs to make it elegant and human.”
House prices fell again in October, according to the S&P/Case-Shiller index. The pipeline of delinquencies and future foreclosures is full, which continues to dim the prospects of a quick recovery. Efforts so far, such as the Home Affordable Modification Program (HAMP), have helped, but less than hoped.
According to the Federal Reserve, there are no simple answers, but it makes several suggestions that Congress should examine. One is to encourage conversions from owner-occupied to rental because that market has strengthened in recent months: Rents have risen and vacancies have declined. A faster conversion rate would hold down rents and ease the pressure of unsold homes on house prices. Fannie, Freddie and the Federal Housing Administration account for about 50 percent of the inventory of foreclosed properties. Many of these are viable as rentals. A government-sponsored foreclosure-to-rental program to clear away regulatory hurdles would make a big difference.
A second suggestion is to encourage refinancings. The administration tweaked the existing HAMP program in October, easing some of the earlier restrictions on eligibility. Even more could be done, according to the Fed. One possibility involves the fees that lenders pay to Fannie and Freddie for assuming new risks when loans to distressed borrowers are refinanced. These charges could be cut or eliminated, even though Congress just voted to increase them to help pay for the payroll-tax extension.
Some institutional investors have shown interest in bulk REO deals, but the plan has to incorporate ways to help facilitate financing. That has been one of the biggest barriers to deals already in the works between hedge funds and the major banks. There is plenty of cash to buy properties, but creating a management structure for the rentals is costly, and some investors are finding the math doesn’t add up to make it worth their while.
Larger investors want to get real scale in any government program, in the range of 50, 100, 500 properties per deal, or $1 billion-plus in assets. That’s why the government is looking to test several different approaches. Fannie Mae did a $50 million sale in June, although that was on the small side. Officials are evaluating what larger asset sales would look like.
“We expect several pilots that will involve both local investors and institutional investors. The goal here is to reduce supply by converting foreclosed homes into rental units,” says Jaret Seiberg of Guggenheim Securities. “Less supply – even less fear about a flood of foreclosed homes hitting the market – could stabilize (home) prices.”
Tags: congress, Fannie Mae, Federal Housing Administration, federal regulators, Federal Reserve, foreclosures, Freddie Mac, hedge funds, Home Affordable Modification Program, institutional investors, Obama administration, Payroll-tax extension, refinancing, Rental market, REO deals, S&P/Case-Shiller index
Posted in Economics, Financing, General, Residential | No Comments »
Thursday, November 10th, 2011
Is a 20 percent downpayment on a house or condominium on the horizon? If some federal regulators get their way, buyers may have to put down $60,000 on a $300,000 house to get the best possible mortgage interest rate. Although this sets the bar high, regulators believe it will prevent the risky lending practices that ended in a rash of foreclosures.
Numerous groups immediately announced their opposition to the proposal, contending that a 20 percent downpayment is too burdensome for many working class would-be homebuyers. If the proposal goes into effect in summer, it is not likely to have a major impact on the housing market for a while because the majority of mortgages are insured by federal agencies and are exempt from the rule. John Taylor, chief executive of the National Community Reinvestment Coalition, said “If we require 20 percent downpayments to get a loan, we will ensure broad swaths of working- and middle-class people will not be able to get a loan.” According to Tom Deutsch, executive director of the American Securitization Forum, believes the 20 percent requirement will do little to encourage banks to make loans without federal backing. “The extremely rigid proposals…will further prolong the U.S. government’s 95 percent market share of the credit risk of newly originated mortgages,” he said.
Sheila C. Bair, chairman of the Federal Deposit Insurance Corporation, disagrees. “Properly aligned economic incentives are the best check against lax underwriting,” she said. The Federal Reserve and Treasury Department also support the move, and other federal regulators are expected to get behind the new requirement. The move comes as the Obama administration is working to end Fannie Mae and Freddie Mac, the government-backed mortgage companies, by reducing the competitive advantage they have over banks. One proposal is to require the agencies to charge higher fees to draw private firms back into the mortgage market.
Mortgage Bankers Association CEO John Courson warns that the 20 percent downpayment requirement would further damage already sluggish housing demand. “We believe that such a narrow construct of the risk retention exemption would limit mortgage opportunities for qualified borrowers more than it would reduce the number of problem loans,” Courson said. Ron Phipps, president of the National Association of Realtors, said the new rules will further restrict mortgage credit and housing recovery overall. “Adding unnecessarily high minimum downpayment requirements will only exclude hundreds of thousands of buyers from home ownership, despite their creditworthiness and proven ability to afford the monthly payment, because of the dramatic increase in the wealth required to purchase a home,” Phipps said.
Treasury Secretary Timothy Geithner, who is leading the regulatory effort, said “Risk retention will help promote better standards for underwriting and securitizing mortgages, which is good for the long-term health of the housing market and for our nation’s economy.” An element of the Dodd-Frank Act that impacts the residential market, known as “risk retention”, is a rule that requires that mortgage lenders and securitizers to invest a minimum of five percent of the risk on qualified residential mortgages. The rule will play a crucial role in determining how much risk banks have to retain from mortgages they originate or package into bonds known as mortgage backed securities (MBS) and then subsequently sell into the market. “If this proposal goes through, the way it’s written, I think the housing market will not recover for years to come,” says Joe Murin, chairman of consulting firm The Collingwood Group.
Tags: 20 percent downpayments, American Securitization Forum, Dodd-Frank Act, Fannie Mae, Federal Deposit Insurance Corporation, federal regulators, Federal Reserve, foreclosures, Freddie Mac, Mortgage Bankers Association, Mortgage interest rate, mortgage-backed securities, National Association of Realtors, National Community Reinvestment Coalition, Obama administration, Qualified residential mortgages, residential market, Risk retention, Risky lending practices, Timothy Geithner, Treasury Department
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Monday, October 31st, 2011
President Barack Obama executed an end run around Congress when he announced a significant retooling of a plan designed to help homeowners who are paying their mortgages, but still underwater, refinance their loans at a more affordable interest rate. Administration officials said the changes will streamline the government’s Home Affordable Refinance Program (HARP) and could dramatically increase the number of borrowers who have refinanced their loans under the program past the current 894,000. They did not specify how many borrowers might be eligible or likely to participate. The program, which is voluntary to lenders, will be available only to homeowners whose mortgages were sold to Fannie Mae and Freddie Mac on or before May 31, 2009, and who have a loan-to-value ratio above 80 percent.
The downside is that hundreds of thousands more could not qualify – primarily because of the previous 125 percent loan-to-value limit on the program or because banks refused to take on the risk. Raising the loan-to-value restrictions may help a limited number of borrowers, according to Jaret Seiberg, an analyst for MF Global Inc.’s Washington Research Group, which analyzes public policy for institutional investors. The difficulty is that mortgage holders still must be up-to-date on their payments for the past six months — with no more than one missed payment in the past year. Additionally, they also must qualify for a new loan.
Qualifying homeowners will be able to refinance their mortgages at the current low rates, which are currently near four percent. Obama’s move comes at a time when there is a fast-growing consensus that the nation’s declining housing market is negatively impacting the economic recovery. Home values are at eight-year lows; and more than 10 million people are underwater, meaning that they owe more than their homes are worth. “It’s a painful burden for middle-class families,” Obama said. “And it’s a drag on our economy.” The administration’s proposal underscores the scale of the problem, as well as the limits of public policy in resolving it. By cutting monthly payments, the Obama administration hopes to make cash available for consumers to spend elsewhere.
According to housing regulators, one million borrowers might be eligible to participate in the program. Unfortunately, that is just 10 percent of the number of homeowners who need help. Although the Obama administration’s estimates say the average homeowner could save $2,500 per year, other projections said savings would be in the range of $312 annually. This depends on the upfront fees the borrower pays, which can include thousands of dollars in closing costs.
Obama promoted the plan under his “We Can’t Wait” campaign, in which he will use the executive branch’s existing tools to improve the economy while Congress debates further legislation. “We can’t wait for an increasingly dysfunctional Congress to do its job,” he said. “Where they won’t act, I will.”
“We know there are many homeowners who are eligible to refinance under HARP and those are the borrowers we want to reach,” said Edward DeMarco, acting director of the Federal Housing Finance Agency (FHFA), which administers Fannie Mae and Freddie Mac. The program expires at the end of 2013. “We believe these changes will make it easier for more people to refinance their mortgage,” DeMarco said. “Breaking this vicious cycle is one of the most pressing issues facing policy makers,” Federal Reserve Bank of New York President William C. Dudley said. The HARP revamp is part of multiple efforts the government is making to boost home prices and consumer spending. “It’s the equivalent of a tax cut for these families,” HUD’s Donovan said.
Mortgage lenders are “particularly gratified” at the revised plan, said David H. Stevens, president and chief executive officer of the Mortgage Bankers Association. “These changes alone should encourage lenders to more actively participate.”
Writing in The Atlantic, Daniel Indiviglio believes that the revised program has potential. “The administration appears to have accounted for all of the major obstacles to refinancing and eliminated them. A home’s value no longer matters. The cost should be less prohibitive to borrowers. Much legal red tape has been cut. Other loans tied to the home won’t stand in the way. Ample time to refinance is provided. This should help to allow at least a million Americans to refinance who haven’t had the opportunity to do so in the past. If this works as hoped, then those consumers will have more money in their pockets each month. Borrowers who see their mortgage interest rates drop from five percent or six percent to near four percent will often have a few hundred dollars more per month to spend or save. If they spend that money, then it will stimulate the economy and create jobs. If they save it or pay down their current debt, then their personal balance sheets will be healthier sooner and their spending will rise sooner than it would have otherwise. The effort may even prevent some strategic defaults, as underwater borrowers won’t feel as bad about their mortgages if their payment is reduced significantly,” Indiviglio said.
Felix Salmon, writing in Reuters, could not disagree more. “For many reasons, it is very difficult to project the number of mortgages that may be refinanced under the enhancements to HARP, including the future path of interest rates, borrower willingness to undertake a refinance transaction and the number of lenders and servicers who choose to offer the program. Given current market interest rates, our best estimate is that by the end of 2013 HARP refinances may roughly double or more from their current amount but such forward-looking projections are inherently uncertain. First, by the end of 2013? Never mind mortgage relief now, we’ll try and get you mortgage relief in two years’ time? Secondly, the current pace of HARP refinancing is pathetic. We’ve been managing to do less than 30,000 HARP refinancing a month. And in the 28-month history of HARP, we’ve managed a grand total of 894,000 HARP refinancing, which works out to about 32,000 per month. The FHFA is projecting that the pace of HARP refinancing won’t increase at all as a result of this plan. We’ll still average out at about 30,000 per month — maybe a bit more, maybe a bit less, but you’re never going to make a dent in the mountain of 11 million underwater mortgages at that rate.”
Tags: congress, Department of Housing and Urban Development, Executive orders, Fannie Mae, Federal Housing Finance Agency, Federal Reserve Bank of New York, foreclosure, Freddie Mac, Gene Sperling, HARP program, Home Affordable Modification Program, Home Affordable Refinance Program, loan-to-value ratio, MF Global Inc.'s Washington Research Group, Mortgage Bankers Association, mortgage modifications, President Barack Obama, Shaun Donovan, underwater, “We Can’t Wait”
Posted in Economics, Financing, General, Residential | 1 Comment »
Wednesday, October 26th, 2011
Federal officials and some of the nation’s largest banks are collaborating on a plan that would make refinancing available to some borrowers whose houses are worth less than their loans, with the caveat that they must be up-to-date on mortgage payments. Typically, these borrowers can’t refinance because they don’t have enough equity in their homes. The plan would apply only to bank-owned mortgages.
Federal officials have been trying to negotiate a deal with the five largest mortgage servicers – Ally Financial, Inc, Bank of America, Citigroup Inc, J.P. Morgan Chase and Wells Fargo & Co. Officials favor a plan that would break a legal impasse with big banks over alleged foreclosure abuses such as robo signing and ease problems in the housing market. Discussions are still underway and the final outcome is not yet known.
Pressure is building in Washington, D.C., to help underwater homeowners with a generous refinance plan. President Barack Obama told Congress that he wants to help “responsible homeowners” refinance, saying it would “give a lift to an economy still burdened by the drop in housing prices.” A bipartisan coalition of 16 senators wrote to the administration urging swift action on a refinance plan.
“A huge floodgate would open up” if underwater refinancing were broadly available, said Fif Ghobadian, a broker at Guarantee Mortgage in San Francisco. “It would provide the help that lowering interest rates cannot do alone. Someone who’s been making payments at 7.5 percent religiously but cannot qualify to refi – boy, would that four percent make a huge difference in their life.”
A program has existed for some time that provides guidelines to lenders for refinancing some Fannie Mae- and Freddie Mac-backed underwater mortgages. The program is called HARP (Home Affordable Refinance Program), it’s two years old and has resulted in approximately 800,000 refinances, far short of the five million originally envisioned. Only a fraction of those homeowners were deeply underwater. HARP’s main impediment has been the lenders themselves. Concerns about issues such as being forced to take responsibility for refinances that default (known in the industry as “buybacks”) has made lenders reluctant to issue HARP mortgages. The proposed new plan would likely expand HARP to make it more acceptable to lenders and more usable by a broader swath of homeowners. “Changes (being contemplated) would address several HARP obstacles,” said Erin Lantz, director of the mortgage marketplace for Zillow. “The industry now makes it hard for people to qualify. The process would be more streamlined.”
According to a recent Harvard study, approximately 11 million homeowners with mortgages are underwater. This accounts for roughly one-fourth of all homes with mortgages in the nation. An additional five percent have near-negative equity (<five percent home equity).
Writing for Reuters, Felix Salmon doesn’t think much of the potential mortgage plan. “It’s pretty weak tea: under the terms of the deal, if (a) you’re underwater on your mortgage, and (b) you’re current on your mortgage payments, and (c) your mortgage is owned by the bank outright, rather than having been securitized, then you would be given the opportunity to refinance your mortgage at prevailing market rates. It’s worth remembering, at this point, that mortgages are by their nature pre-payable. When you write a fixed-rate mortgage, you make a general assumption that if mortgage rates fall substantially, the borrower is going to pay you off and refinance. The underwater questions we’re talking about here were written during the housing boom, when banks simply assumed that house prices always went up; those banks cared massively about prepayment risk at the time, and spent huge amounts of money and effort trying to hedge it. As it happened, mortgage rates did fall substantially — with the result that the banks’ hedges paid off. But then the banks realized that they could make money on both legs of the deal — that they could collect on their mortgage-rate hedges, without having to worry about prepayment. Because now the borrowers are underwater, they’re not allowed to refinance. So the banks continue to cash above-market mortgage payments every month — something they never expected that they would be able to do.
“It’s not inconceivable at all. In fact, wholesale mortgage refinance for underwater borrowers is a major part of Barack Obama’s jobs bill, and the Congressional Budget Office (CBO) has been costing it in various ways. At heart, it’s a way of rectifying a market failure, and thus makes perfect sense. But that’s precisely why I don’t think that this plan deserves a place in the mortgage-settlement talks. For one thing, it’s downright unfair and invidious to allow 20 percent of underwater homeowners to refinance while ignoring the other 80 percent. More to the point, giving homeowners the ability to refinance their mortgages is what you do, if you’re a bank. It’s not some kind of gruesome punishment.”
Tags: Ally Financial, Bank of America, Citigroup Inc, congress, Congressional Budget Office, Fannie Mae, Fixed-rate mortgage, Freddie Mac, Harvard, Home Affordable Refinance Program, Inc., J P Morgan Chase, Mortgage refinancing plan, President Barack Obama, refinancing, underwater mortgages, Wells Fargo & Co., Zillow
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Monday, August 29th, 2011
Foreclosure filings fell a dramatic 35 percent in July to the lowest level in nearly four years as lenders and state and federal agencies ramped up their efforts to keep delinquent borrowers in their homes, according to RealtyTrac Inc. A total of 212,764 properties received default, auction or repossession notices, the lowest number in 44 months. Filings declined on a year- over-year basis for the 10th consecutive month, and were down four percent when compared with June. One in every 611 households across the country received a notice. “The downward trend in foreclosure activity has now taken on a life of its own,” RealtyTrac Chief Executive Officer James J. Saccacio said. “Unfortunately, the fall-off in foreclosures is not based on a robust recovery in the housing market but on short-term interventions and delays that will extend the current housing market woes into 2012 and beyond. It appears that processing delays, combined with the smorgasbord of national and state-level foreclosure prevention efforts, may be allowing more distressed homeowners to stave off foreclosure.”
Nevada leads the nation with the highest foreclosure rate of any state, one filing for every 115 homes. California, with one foreclosure for every 239 homes came in second, while Arizona, with one in every 273 homes, was third. Las Vegas continued to record the nation’s highest foreclosure rate, with one in every 99 homes getting a foreclosure filing in July.
Foreclosure auctions, the final step in the agonizing foreclosure process were also scheduled on five percent fewer properties in July. The month’s auction total hit a three-year low and was nearly half (46 percent) below the March, 2010, peak. An estimated four million vacant homes not yet accounted for by lenders constitute an immense inventory of residential properties, approximately 2.2-million of which are in default and have not yet been formally foreclosed known as the “shadow inventory” weigh down the marketplace.
The Obama administration is proactively seeking ways to dispose of foreclosed homes that are under government control. The goal is to “bring stability and liquidity” to the housing market, Edward J. DeMarco, acting director of the Federal Housing Finance Agency (FHFA), said. The FHFA regulates Fannie Mae and Freddie Mac, which guarantee approximately 90 percent of American mortgages. President Obama has proposed a program to encourage the rental of foreclosed homes owned by the Federal Housing Administration, Fannie Mae, and Freddie Mac. Banks could adopt similar programs and offer homes at steep discounts to get residential real estate off their books. Financial institutions typically get lucrative write-offs from these and so might prefer to rent some properties. Other federal attempts to prop up the housing market have not been successful to date. The Making Home Affordable Program operation was launched in March of 2009 with the main component the Home Affordable Modification Program. This was created to cut mortgage payments for families who couldn’t afford them, but wanted to keep their houses. A Congressional Oversight Panel report said the programs had failed and fell far short of its goal to modify mortgages for three million to four million homes. The new Obama plan to rent foreclosed homes has the potential to positively impact home prices.
Writing on MSNBC, John W. Schoen says that “A sharp slowdown in the pace of home foreclosures may help ease the financial burden on bankers by helping them unload a glut of repossessed homes more slowly and delay booking losses from the sale of distressed properties. But it will do little to help millions of Americans families at risk of being tossed from their homes in the next few years. The slowdown follows a wave of legal challenges by homeowners that has all but shut down the machinery of bank repossession in some states. Some homeowners are disputing the widespread practice of ‘robo-signing’, in which lenders process batches of foreclosure fillings with little or no formal review. Other homeowners have successfully halted repossessions by questioning shoddy paperwork or broken paper trails that don’t establish clear title to a property. The slowdown has left millions of American households in legal limbo, prolonged the housing market’s four-year recession and delayed hopes for a broader economic recovery.”
“The process has more or less ground to a halt in a lot of states that do foreclosures through the court system,” said Rick Sharga, a senior vice president at RealtyTrac.
Tags: Arizona, California, Congressional Oversight Panel, Fannie Mae, Federal Housing Finance Agency, Foreclosure auctions, foreclosures, Freddie Mac, Home Affordable Modification Program, Inc., Las Vegas, Making Home Affordable Program, Nevada, Obama administration, RealtyTrac, robo-signing, “Shadow inventory”
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Wednesday, August 17th, 2011
Several banks have found a new solution to the glut of foreclosed houses – many of them in poor condition. It’s the bulldozer. Bank of America (BoA) owns a glut of abandoned houses that no one wants to purchase. As a result, the nation’s largest mortgage servicer is bulldozing some of its most uninhabitable inventory. Additionally, Wells Fargo, CitiCorp, JP Morgan Chase and Fannie Mae have been demolishing a few of their repossessed houses. BoA is donating 100 foreclosed houses in the Cleveland area and in some cases will contribute to the cost of their demolition in partnership with a local agency that manages blighted property. The bank has similar plans impacting houses in Detroit and Chicago, and more cities tare expected to be added.
“There is way too much supply,” said Gus Frangos, president of the Cleveland-based Cuyahoga County Land Reutilization Corporation, which works with lenders, government officials and homeowners to salvage abandoned homes. “The best thing we can do to stabilize the market is to get the garbage off.” Detroit mayor Dave Bing is in the process of ” right-sizing” the motor city by razing entire neighborhoods.
BoA plans to donate and bulldoze 100 houses in Cleveland, 100 in Detroit, and 150 in Chicago. The lender will pay up to $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program. Uses for the land include development, open space and urban farming. “No one needs these homes, no one is going to buy them,” said Christopher Thornberg, founding partner at the Los Angeles office of Beacon Economics LLC. “Bank of America is not going to be able to cover its losses, so it might as well give them away and get a little write-off and some nice public relations.”
Some foreclosed properties are so uninhabitable that the bank is willing pay to have them destroyed. A bank spokesman said some in this category are worth less than $10,000.
Writing in The Atlantic, Daniel Indiviglio says that “The motivation here is pretty straightforward. They get out of ongoing maintenance costs and taxes that they would have to pay as long as the property remains on the market. But the even better news is that the banks can often write-off these properties as a result. In some cases, banks can deduct as much as the homes’ fair market value from their income taxes. From the real estate market’s standpoint this strategy is also positive. With less supply, prices will stabilize more quickly. Disposing of these foreclosures will make the market clear sooner. And yet, the idea of bulldozing homes does seem rather unsavory, does it not? Perhaps some of these homes are condemned and/or beyond repair. In those cases, it might turn out to be more expensive to try to get them back up to code than it would be to knock them down and start over. But does this really describe all of the cases? This is reportedly happening to thousands of homes across the U.S. My concern is that banks are using this as an easy out to minimize their loss with little concern about what’s best for the U.S. economy. If some of these homes could be converted to perfectly adequate rental properties at minimal additional cost at some point in the future, for example, then this would make a lot more sense than knocking them down and building new homes from scratch.”
According to a Time magazine article, “After multi-billion dollar legislative efforts in the form of the Stimulus, Dodd-Frank and stand-alone legislation, President Obama declared failure earlier this month and said he’s going back to the drawing board on a housing fix. Negotiations between the 50 state attorneys general and the big mortgage lenders, rather than clearing the air for banks and borrowers, has become an enormous wet blanket as negotiations drag out and banks refuse to make any move without knowing how much of the reported $20 billion settlement will fall on them. Economists argue that the failure to clear the housing market is a primary cause of the stunted recovery: continued household debt weighs on consumer spending, home ownership and excessive debt puts a drag on labor mobility, and banks fear the consequences of increased lending.”
Tags: Bank of America, Beacon Economics LLC, Chicago, CitiCorp, Cleveland, Cuyahoga County Land Reutilization Corporation, Dave Bing, Detroit, Dodd-Frank Act, Fannie Mae, Foreclosed houses, home ownership, JP Morgan Chase, Mortgage servicer, Neighborhood Stabilization Program, President Barack Obama, Right-sizing, stimulus bill, Wells Fargo
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Tuesday, August 2nd, 2011
Mortgage finance giants Fannie Mae and Freddie Mac might find themselves merged into a single government-run entity. Representative Gary Miller (R-CA) is set to unveil a bill that would create a utility-like entity and phase out government-controlled Fannie Mae and Freddie Mac. The new company would buy mortgages and repackage them as government-backed securities. The major difference from Fannie and Freddie lies in the fact that it would not have shareholder investors. The National Association of Homebuilders and the National Association of Realtors are expected to support the proposal, which reflects concerns by the industry, consumer groups and some policymakers that a complete withdrawal of government support for home lending could make the housing recession go further downhill.
A competing proposal by Representatives Gary Peters (D-MI) and John Campbell (R-CA) would create a minimum of five private companies to replace the two co-called government-sponsored enterprises, or GSEs. The point of contention for many lawmakers is whether to provide a government backstop for mortgages and on what terms to provide the guarantee. House Financial Services Committee Chairman Spencer Bachus (R-AL) is trying to forge a consensus among Republican members. Any bill that is generated by Bachus’ committee and is passed by the Republican-led House would likely still be in jeopardy once it reaches the Democratic-controlled Senate.
“There was the idea that people were so tired of taxpayer losses related to housing that the traditional housing lobby would not be able to retaliate effectively,” said Jim Vogel, chief of agency debt research at Memphis-based FTN Financial. “It’s time to start waving the housing flag again.”
That would represent a sea change from February, when the Treasury Department recommended selling off Fannie Mae and Freddie Mac holdings within 10 years; Jeb Hensarling (R-TX) wanted to do it in half that time. Since then, homebuilders, real estate agents, investment banks, civil rights leaders and consumer advocates have lobbied to retain a government role — including the unspoken federal guarantee behind Fannie Mae and Freddie Mac. Congress created the programs as private companies to expand home ownership.
Already, the government is slowing its efforts to prop up the housing market. Beginning this fall, the cap on Fannie and Freddie-backed mortgages — loans where taxpayers are on the hook if borrowers don’t pay — will decline in some regions. At the height of the housing crisis, Congress raised the cap to $729,750 in areas where homes are most expensive. After October, that will fall to $625,500. The limit varies by county. Mortgages that are too expensive to get backing from Fannie and Freddie are called jumbo loans and usually have higher interest rates and require larger downpayments. That maximum was set by Congress in 2008 in an attempt to ensure that borrowers could continue to obtain loans in particularly expensive housing markets during the credit crunch, especially in prime real estate locations, such as New York, Los Angeles and Washington, D.C.
The Deal Book column in the New York Times thinks that the idea of merging Fannie and Freddie is not as outrageous as it may at first seem. “Consider the math: For the first six months of this year, both companies spent $1.825 billion in overhead costs combined; on an annualized basis, that means the companies are spending about $3.65 billion. Given that the companies do pretty much the same thing – buying mortgages from banks, insuring them and creating mortgage-backed securities – there might be opportunities for savings if many of their managers and staff are, to put it politely, redundant. Conservatively, a combined Fannie and Freddie could probably cut a third of its overhead and staff, saving some $1.2 billion annually. The way Wall Street values companies, that means – presto – billions more in value, perhaps as much as $18 billion or $19 billion, could be created overnight.”
“It would instill a huge amount of confidence. The market will know that both entities combined will have much more consistent, stable margins,” John Lekas, chief executive of Leader Capital, an investment firm, said on CNBC last week. He added that it “doesn’t cost taxpayers one nickel.”
Additionally, Fannie and Freddie are on track in 2011 to spend about $1.8 billion on what is known as “foreclosure costs,” which means maintaining and selling thousands of homes that became part of their ownership portfolios after the owners were unable to pay the mortgage. The costs are staggering, given that Fannie and Freddie together own approximately 153,000 foreclosed homes. “This is just one of the costs that Fannie and the rest of us will pay to dig out of a very big hole,” says Karen Petrou, of Federal Financial Analytics. When she says “the rest of us,” she is telling the truth. Fannie Mae’s tab to American taxpayers is up to $86 billion since September 2008 when it was taken into government conservatorship. During the 1st quarter of 2011, Fannie racked up $488 million in foreclosure-related expenses, including holding costs (insurance, taxes and maintenance); valuation adjustments for changes in market value; gains/loss when the property is sold; legal fees; eviction costs; weatherization costs to prevent pipes from bursting; costs to secure the property; and repair costs.
“We want to make sure that we’re comparable with the market or with the neighborhood,” said Elonda Crocket, a Fannie Mae executives who is part of the management team of its massive portfolio of foreclosed properties. The goal is to stabilize the neighborhoods where there are foreclosed homes and get the properties to a condition where first-time homebuyers want to purchase them. “We want to make sure that we can maximize our return on the investment,” she said. In 2010, Fannie Mae repaired 87,000 foreclosed homes.
“It makes them — I think — indisputably the largest purchaser of paint and general appliances for these homes they’re fixing up,” said Guy Cecala, publisher of Inside Mortgage Finance. “If they don’t maintain the houses, then the neighborhoods go downhill, other people are put at risk and the housing crisis gets worse because you have still more downward pressure on overall house prices,” Petrou said.
Tags: congress, Department of the Treasury, Downpayments, Fannie Mae, Federal Financial Analytics, foreclosure, Freddie Mac, FTN Financial, Government-backed securities, GSEs, House Financial Services Committee, Inside Mortgage Finance, mortgages, National Association of Homebuilders, National Association of Realtors, Representative Gary Miller, Representative Gary Peters, Representative Jeb Hensarling, Representative John Campbell, Senate, Spencer Bachus, Wall Street
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Thursday, June 2nd, 2011
The initial steps to dismantle Fannie Mae and Freddie Mac are underway with the introduction of a bipartisan bill in the House of Representatives that would replace the mortgage giants with a minimum of five companies that would issue mortgage-backed securities with significant federal regulation. The compromise legislation proposed by Representative John Campbell (R-CA) and Representative Gary Peters (D-MI) is likely to be the only plan that will attract sufficient support from both parties on a politically volatile subject, especially at a time when gridlock looms over issues such as how to curb federal spending. The bailout of the two companies has cost taxpayers upwards of $100 billion.
According to Representative Campbell, “Rather than putting out a political marker, we can move a piece of legislation that is significant…and can actually become law. The only other approach that’s out there in a bill is one that replaces Fannie and Freddie with nothing.” Other policymakers, such as Treasury Secretary Timothy Geithner, have discussed the merits of a limited but unambiguous government guarantee of securities backed by certain types of mortgages. The new entities – similar to Fannie and Freddie — would be limited to purchasing loans that meet certain standards, including size caps. The difference would be that the firms would be required to hold much more capital than Fannie and Freddie. Only the mortgage-backed securities that they issue –not the companies themselves — would enjoy federal guarantees. The companies would operate similarly to public utilities and likely will not have exchange-listed shares.
Critics say the proposal risks recreating the same dynamics that led Fannie and Freddie to use their government ties to take risks that harmed taxpayers. “In reality, this is almost surely going to be terrible,” said Dwight Jaffee, finance professor at the University of California, Berkeley. Government insurance programs, he says, inevitably lead to “a catastrophe.” Advocates argue that taxpayers will be less exposed to losses because borrowers will have to make significant downpayments. Additionally, the new firms will have to hold more capital. Additionally, the firms will be required pay a fee for government backing to finance a catastrophic insurance fund, much as the Federal Deposit Insurance Corporation levies fees and handles bank failures.
The mortgage and housing industry support a continued government role in supporting mortgage lending, including the Mortgage Bankers Association, National Association of Realtors and National Association of Home Builders.
The agencies are still hemorrhaging money. For example, Fannie Mae reported a loss of $8.7 billion for the 1st quarter of 2011, which included a $2.2 billion dividend payment to the Treasury Department. The loss was significantly less than the $13 billion reported one year ago. “We need to manage our credit book — our old legacy book very vigorously,” said Fannie Mae President and CEO Michael Williams. But that is not in conflict with helping distressed homeowners. “Helping people to avoid foreclosure is a good thing,” Williams said.
Action must be taken to keep the mortgage market afloat and provide securitization for investments. According to a Washington Post editorial, “The housing market is still in deep trouble. Prices nationwide have fallen by about a third since the peak in 2006 — and they appear to be trending down again. The resulting hit to household wealth may hinder the recovery, which is already sluggish. Small wonder that various advocates for housing are once again asking Washington for help. But in at least one area, the prescription would be worse than the disease. We refer to calls for extending the current elevated limit on the size of loans eligible for securitization by Fannie Mae and Freddie Mac, the mortgage-finance giants operating under government control. Congress ‘temporarily’ raised the limit to a maximum of $729,759 in certain markets in response to the sudden evaporation of private liquidity during the 2008 crisis, but that measure is set to lapse at the end of September. At that point, the limit will not revert to the pre-crisis maximum of $417,000 in most of the country but to a level set in relation to local medians — and capped at $625,000. But the Obama administration has supported a reversion to lower loan limits as the first step in gradually reforming the mortgage security market and reducing taxpayer exposure to Fannie and Freddie. The administration’s goal is to lure cash-rich would-be mortgage securitizers back into the market, starting with the high end. Treasury Secretary Timothy F. Geithner has described this as “crowding in” private capital, and it is the rare housing policy proposal that has enjoyed a measure of bipartisan support.”
Tags: Bipartisanship, Department of the Treasury, Fannie Mae, Federal Deposit Insurance Company, Freddie Mac, house of representatives, mortgages, National Association of Home Builders, National Association of Realtors, Obama administration, Representative Gary Peters, Representative John Campbell, Timothy Geithner
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Wednesday, May 25th, 2011
American renters who pay more than 50 percent of their income on housing has peaked at the highest level in 50 years, according to a report from the Harvard Joint Center for Housing Studies. Approximately 26 percent of renters – that’s more than 10 million people – are spending more than 50 percent of their pre-tax income on rent and utilities because salaries have fallen significantly amid rising rents. An analysis conducted by the Washington Post found that rents in the nation’s capital, for example, had risen 22 percent in 2009 over the past 10 years.
“It’s a real squeeze for the lower-income and moderate-income families, and we’re even starting to see it affecting middle-income families, too,” according to Erick Belsky, managing director of Harvard’s Joint Center for Housing Studies. “The prospects for improvement any time soon are dim.” In other words, finding an affordable house or apartment to rent can be difficult.
When the economy went south in 2008, developers stopped building new apartments at a time when foreclosures were pushing many Americans into the rental market. Because supply and demand were at odds with each other, rental rates climbed and are expected to remain high for the foreseeable future. “In real terms, it means more people have less money to spend on household necessities such as food, healthcare, or savings,” Belsky, said. Households that spend half or more of their income on rent also spend almost 40 percent less on food and more than 50 percent less on healthcare than households with more affordable rent. “In the last decade, rental housing affordability problems went through the roof,” Belsky said. “And these affordability problems are marching up the income scale.”
The report notes that – in a perfect world – renters should not have to pay more than 30 percent of their income on housing. Over the last 10 years, low-income renters have experienced difficulty staying within that limit. In 2009, 7.5 percent of moderate-income renters had to spend more than 50 percent of their salaries on rent, double the number reported in 2001.
According to the report, 28.6 percent of metropolitan Chicago renters are severely burdened by their rental costs. Ten years ago, only 20.4 percent of area renters paid that high a percentage of their incomes.
With the number of renters growing, the Low Income Housing Coalition says it’s time for policymakers to put more money into rental assistance and affordable housing. Throughout the housing crisis and recession, lawmakers have placed resources primarily on helping troubled homeowners avoid foreclosure; but approximately 40 percent of foreclosures also displace renter households. The coalition has asked Congress to fund the National Housing Trust Fund, which creates a permanent funding source to construct, renovate and preserve 1.5 million units of rental housing for low-income families over the next 10 years. Although the trust fund legislation passed in 2008, Congress hasn’t funded it because of the economic downturn. The fund will not increase government spending or taxes because it was designed to be funded through contributions from Fannie Mae, Freddie Mac and the Federal Housing Administration.
Sheila Crowley, the president of the coalition, said now was the time to act. “Providing $1 billion for the National Housing Trust Fund will help address the growing shortage of affordable housing, which is one of the most serious economic problems facing the country,” she said. Crowley expects the House of Representatives to begin debating the Section 8 Voucher Reform Act, which passed the House Financial Services Committee last summer. “We are very much hoping that the Senate will take it up as well,” she said. The bill would provide rent subsidies for 150,000 low-income families, , and the coalition is seeking another 2 million Section 8 housing vouchers over the next decade, doubling the current number.
Tags: congress, Department of Housing and Urban Development, Fannie Mae, Federal Housing Administration, foreclosures, Freddie Mac, Harvard Joint Center for Housing Studies, House Financial Services Committee, Income, Low Income Housing Coalition, National Housing Trust Fund, Pre-tax income, Rent, Rental Assistance, Renters, Section 8 Voucher Reform Act, Utilities
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Thursday, May 12th, 2011
New home sales rose in March, with the number of properties on the market at its lowest since the 1960s. Additional gains will be stymied by competition from the market’s glut of previously owned houses. Single-family home sales rose 11.1 percent to a seasonally adjusted 300,000 unit annual rate, according to the Department of Commerce, during a month when economists had expected a 280,000-unit pace. Even with the March uptick, new home sales are just bouncing along the bottom. Despite the good news, the number of houses sold still is 21.88 percent less than the level achieved one year ago. The news was released by the U.S. Census in its monthly New Residential Home Sales Report for March.
“Investors continue to drive the market and were about 22 percent of the purchasers in March, up from 19 percent a year ago,” said economist Joel Naroff, of Naroff Economic Advisors, in Holland, PA. Investors typically look for foreclosures or short sales. “They love those cheap distressed homes, which now make up 40 percent of the market,” Naroff said. “Given the tight lending standards cash buyers are more than welcome. To get a Fannie or Freddie loan, which are the only games in town, a borrower has to have a credit score of about 760. Before anyone gets excited and thinks housing is on the rebound, understand that we need to more than double the March sales pace to reach decent sales levels,” Naroff said. “Prices remain soft and are down by about five percent over the year.”
According to Dirk van Dijk of the Wall Street Pit, “The March level was substantially better than the expected rate of 280,000. The 11 lowest months on record (back to 1963) for new home sales have all been in the last 11 months. We are down sharply from a year ago, and it is not like a year ago was a great time in the homebuilding industry either. Relative to the peak of the housing bubble (July ’05, 1.389 million) new home sales are down 78.4 percent. Inventories of new homes were down 1.1 percent on the month and are down 19.7 percent from a year ago. Supply is at 7.3 months, down from 8.0 months in February, but up from 7.1 months a year ago. While that is well off the peak of 12.0 months, it is still above normal. A healthy market has about a six month supply of new houses and during the bubble, four months was the norm.”
The median price of new houses sold in March was $213,800, according to the Census Bureau. “It’s a decent start to the spring selling season, but we’re coming off all-time lows here, so we’re not going to get too excited,” said Brett Ryan, economist with Deutsche Bank Securities. “The overhang of foreclosures drags on new home sales. Builders are waiting for a clearing process to take place.”
The housing market was either “little changed from low levels” or weaker across the country, the Federal Reserve said in its most recent Beige Book report. The absence of a continued housing rebound is one of the reasons why policymakers will complete their $600 billion asset purchase plan and keep borrowing costs at nearly zero to encourage growth.
Last year was the fifth consecutive year of declining new-home sales. According to economists, it could take years before sales return to a healthy pace. Slow new-home sales add up to fewer jobs in construction, which normally powers economic recoveries following recessions. Each new home creates an average of three jobs for a year and adds $90,000 to the local tax base, according to the National Association of Home Builders.
Tags: Beige Book, Credit scores, Department of Commerce, Deutsche Bank Securities, economic recovery, Fannie Mae, Federal Reserve, foreclosures, Freddie Mac, Housing bubble, National Association of Home Builders, New home sales, New Residential Home Sales Report for March, Previously owned homes, recession, short sales, U.S. Census Department
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