Posts Tagged ‘Federal Housing Finance Agency’

Fannie Mae Asks Uncle Sam For More Money

Wednesday, March 21st, 2012

In an attempt to dig itself out of a deepening hole, Fannie Mae has requested $4.6 billion in additional federal aid. “We think that we have reserved for and recognized substantially all of the credit losses associated with the legacy book,” Chief Financial Officer Susan McFarland said.  “We’re very focused on returning to profitability so we don’t have to draw (from Treasury) to cover operating losses.”

Although the nation’s banks seem to be recovering nicely, the same cannot be said for mortgage giants Fannie Mae and Freddie Mac.  Writing in Forbes, Steve Schaefer notes that “The mortgage finance giants have taken on a greater share of supporting the U.S. housing market as private players pared back their exposure in recent years, and the result has been billions of losses on the taxpayer dime.  Fannie Mae reported booking a $16.9 billion 2011 loss capped off by the loss of $2.4 billion in the 4th quarter.  Fannie Mae’s losses are still coming largely from its legacy book of business (from before 2009), which led to $5.5 billion in credit-related expenses tied to declining home prices.

“The black holes of Fannie and Freddie – Fannie’s Q4 report shows it has requested to draw $116.2 billion since being placed under conservatorship Sept. 6, 2008 while paying back $19.9 billion in preferred stock dividends – are the biggest black eyes of the 2008 bailouts.  Plenty of critics of the Troubled Asset Relief Program (TARP) have made their voices heard over the years, but at least most of the banks that received TARP injections – the biggest of which went to Bank of America and Citigroup – have paid back the government’s loans and are back to making profits, if modest ones. Even American Intl Group and the automakers  that received bailouts – General Motors and Chrysler – have moved beyond needing additional government dollars.  Fannie and Freddie, on the other hand, show few signs of becoming anything resembling productive companies until the housing market turns around or the pre-2009 assets are completely wiped off the books or new policies are necessary to encourage new refinancing beyond those currently in place that have had limited impact.”

“While economic factors such as falling home prices and high unemployment produced strong headwinds for our business again in 2011, we continued to grow a very strong new book of business as we have since 2009, “said CEO Michael Williams, who handed in his resignation in January but is still on board while the government-sponsored enterprise (GSE) looks for his replacement.

Bank of America last week announced that it had stopped selling some mortgages to Fannie Mae because of a dispute over requests from the government-run company to buy back defective loans.  “If Fannie Mae collects less than the amount it expects from Bank of America, Fannie Mae may be required to seek additional funds from Treasury,” the company said.

Fannie Mae blamed its loss primarily on pre-2009 loans and falling home prices, which pushed up the company’s credit-related expenses.  In the 4th quarter of 2010, Fannie Mae posted a slight profit to end a streak of 13 consecutive quarterly losses, though the company was back in the red in the following quarter and each since.  The net cost to taxpayers for bailing out Fannie and Freddie stands at more than $152 billion.

During the 4th quarter, Fannie Mae acquired 47,256 single family homes through foreclosure compared with 45,194 in the 3rd quarter.  The company disposed of 51,344 REO properties in the quarter, down from 58,297 in the 3rd quarter.  As of the end of 2011, Fannie Mae was holding 118,528 REO properties, a reduction from the 122,616 at the end of September and 162,489 on December 31, 2010.  The value of the single-family REO was $9.7 billion compared with $11.0 billion at the end of the 3rd quarter and $15.0 billion at the end of 2010.  The single family foreclosure rate in the 3rd quarter was 1.13 percent annualized compared with 1.15 for the first three quarters of the year and 1.46 percent for 2010.

Meanwhile, the federal government wants to sell approximately 2,500 distressed properties in eight locations to investors who buy them in bulk and rent them out for a predetermined period.  The properties, located in Atlanta, Phoenix, Las Vegas, Los Angeles/Riverside, and three Florida regions, include single-family homes and co-op apartment buildings.  “This is another important milestone in our initiative designed to reduce taxpayer losses, stabilize neighborhoods and home values, shift to more private management of properties, and reduce the supply of REO properties in the marketplace,” said Edward J. DeMarco, the acting director of the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae.

Obama Bypasses Congress to Boost Housing

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.”

Foreclosures Appear to Be Stabilizing

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.

Fannie, Freddie Bailouts Could Cost the Taxpayers $154 Billion

Monday, November 8th, 2010

Taxpayer bill for Fannie, Freddie bailout could reach $154 billion. The ultimate cost of bailing out Fannie Mae and Freddie Mac could cost as much as $154 billion unless the economy improves, according to a government report.  The mortgage giants rescue – which has kept the housing market on life supports – already has cost $135 billion to cover losses on home loans in default.  The Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, says the most likely scenario is that house prices will have to fall slightly during a slow economic recovery, then rise a bit.  If that occurs, the Fannie and Freddie bailout will cost taxpayers an additional $19 billion.  A more upbeat prediction sees the housing market recovering sooner, which would require just $6 billion more for a total bill of $141 billion.

Washington, D.C., research firm Federal Financial Analytics believes the FHFA projection provides a sound indication of what the bailout will cost, but “nowhere near a definitive picture of it.”  Fannie and Freddie issued a joint statement that said “It’s simply impossible to forecast reliably now how much foreclosuregate will cost.”  Fannie and Freddie’s plight stands in sharp contrast to the success of the Trouble Asset Relief Program (TARP), which is now expected to cost just 10 percent of the $700 billion originally forecast.

Federal regulators seized Fannie and Freddie in September of 2008 in the wake of the financial crisis.  Since then, the government has kept the agencies solvent, with President Obama pledging unlimited support.  “From the beginning, the Obama administration has made it clear that the current structure of the government’s role in housing finance, while necessary in the short-term to provide critical support to a still-fragile housing market, is simply not acceptable for the long term,” said Jeffrey Goldstein, Treasury Department undersecretary for domestic finance.

Next Up on the Presidential Agenda? Reforming Fannie and Freddie

Thursday, August 5th, 2010

Reforming Fannie Mae and Freddie Mac is next on President Obama’s to do list.  The next item on President Barack Obama’s ambitious agenda is likely to be overhauling Fannie Mae and Freddie Mac, the government-backed mortgage firms that so far have cost American taxpayers $145 billion to keep afloat.  The two firms, which own more than half of the nation’s $11 trillion in home mortgages, collapsed along with the housing market and were taken over by the federal government in September of 2008.

Many Congressional Republicans believe that scrapping Fannie and Freddie is mandatory; Democrats disagree and President Obama is expected to support reforms backed by consumer, real estate and banking groups.  The core of the emerging consensus is to preserve the 30-year, fixed-rate mortgage.  Susan Woodward, former chief economist at the Department of Housing and Urban Development (HUD) and a founder of Sand Hill Econometrics, said “People regard it as a right as Americans to get a 30-year, fixed-rate loan.”

Banks and builders agree with consumer advocates representing homebuyers that it’s good for the government to promote residential lending by supporting what Fannie and Freddie have done for years – purchasing mortgages and bundle them into securities that they sell to investors.  When the system works as intended, the MBS market creates additional money that is funneled back into the market to make new affordable loans.  The task is to determine how to accomplish this without the lax practices that the taxpayers had to pay for when catastrophic losses occurred in 2008.

The Obama Administration and leading Democrats strongly believe that the federal government should have a role in promoting homeownership.  Shaun Donovan, HUD Secretary, said “We should not compromise any of our core policy goals in the decisions we make in structuring our house financing system.”