The most recent Federal Housing and Finance Agency (FHFA) Foreclosure Prevention and Refinance Report came out last week, and there was a wealth of statistical data contained in the reports, none of which paints a particularly pretty picture of the housing market. I am going to present some of the information in list form, because if there is anything I’ve learned from David Letterman (other than the G.E. handshake) it is that everything is better in list form. And if you’re thinking I was just looking for an excuse to link to the G.E. handshake video, you are absolutely correct. Without further adieu:
Mortgage Rates & Trends: Mortgage Blog
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Top 9 Fun Foreclosure Facts From the FHFA’s Foreclosure Prevention Report*
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Freddie Mac Loses $4.7b in 2Q, Requests $1.8b From Treasury
Freddie Mac issued its second quarter report today, and it showed that the government controlled mortgage giant lost $4.7b in the last quarter and will be requesting an additional $1.8 billion of our money from the Treasury in order to make ends meet. This is a decrease from the previous quarter when Freddie lost $6.7 billion. Last week Fannie Mae requested $1.5 billion from the Treasury, bringing the total tab for bailing out Fannie Mae and Freddie Mac to just shy of $150 billion.Fannie Mae and Freddie Mac were seized by the government in 2008 to ward off their financial collapse. Since that time there has been considerable debate about the future of Fannie and Freddie. Most agree that the current cash-hemorrhaging model is unsustainable, but nobody seems to quite know what shape reform should take.
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California Sues Fannie, Freddie, FHFA Over Green Energy PACE Program
A few weeks back, I wrote about the Property Assessed Clean Energy (PACE) program, which is designed to allow homeowners to take out special loans in order to outfit their homes with solar panels or other energy efficient devices. The funds to pay for these loans would be raised through municipal bonds which would be paid back in the form of tax assessments over the course of 20 years. The tax assessments would be secured through property liens that would follow the property in the event of a sale. These liens would take a senior position over existing mortgage loans.The program seems well intentioned enough, but hit a snag when government sponsored entities (GSEs) Fannie Mae and Freddie Mac said they would not purchase mortgages with PACE liens attached to them, effectively killing the PACE program. In a statement to the press, Edward J. DeMarco, Acting Director of the Federal Housing Finance Agency (FHFA) said: “In keeping with our safety and soundness obligations, the Federal Housing Finance Agency will defend vigorously its actions that aim to protect taxpayers, lenders, Fannie Mae and Freddie Mac. Homeowners should not be placed at risk by programs that alter lien priorities and fail to operate with sound underwriting guidelines and consumer protections. Mortgage holders should not be forced to absorb new credit risks after they have already purchased or guaranteed a mortgage.”
Now the state of California has filed a lawsuit against the GSEs and the FHFA because of their rejection of PACE. You can read the specific allegations of the lawsuit here. California Attorney General Jerry Brown said of the GSEs and the lawsuit: “Fannie Mae and Freddie Mac received enormous federal bailouts, but now they’re throwing up impermeable barriers to bank lending that creates jobs, stimulates the economy and boosts clean energy.”
It will be interesting to see what the outcome of the case is. As I hear of any updates to the story, I will post them here.
What do you think about the PACE program? Let us know in the comments section below.
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Mortgage Rates Could Be Affected by FHFA Subpoenas
The Federal Housing Finance Authority (FHFA) is the major group that oversees the government sponsored entities Fannie Mae and Freddie Mac. Today, the FHFA has issued 64 subpoenas to a variety of entities; the purpose of these subpoenas is to gather documents regarding certain private-label mortgage-backed securities that both Fannie Mae and Freddie Mac invested in.
The FHFA is hoping that these documents will determine whether PLS issuers are liable to Fannie and Freddie for losses they have incurred on these securities. The Federal Housing Finance Authority is hoping to recoup some of the funds that were lost in these transactions.
If the government sponsored entities do in fact recover funds they would have to use those funds to payback some of the money they have borrowed from the U.S. Treasury.
Fannie Mae (FNMA) is currently being traded at $.34 while Freddie Mac (FMCC) is being traded at $.40.
If these mortgage giants begin to recover it will be interesting to see what if any effect this has on mortgage rates and the housing industry as a whole.
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Look to Canada for Housing Reform?
An article by James Hagerty from today’s Wall Street Journal details a speech made by Patrick Lawler, the Chief Economist for the Federal Housing Finance Agency who spoke at a panel discussing housing policy hosted by the Federal Reserve Bank of Cleveland.He expressed some very interesting ideas about how to reform the housing market, specifically 30-year fixed rate mortgages, among other things.
In the United States, we take for granted that there are long-term fixed rate mortgages that can be refinanced at any time, and generally paid off early with little or no penalty for the borrower. This stands in stark contrast to Canada, which has a system where loans are adjustable, and only run for a short term before adjusting. In the United States the interest rate risk falls upon the lender. In Canada the risk falls upon the borrower. According to Lawler, this causes two problems:
- Our mortgage system causes mortgage rates to be higher than they might be under an alternate system. Lawler said that Americans pay as much as an additional 1/4 to 1/2 percentage point because borrowers are allowed to pay off mortgages early. He adds that we pay at least a full point extra on our mortgages because we make lenders assume interest rate risk.
- The second problem is that in order to make our mortgage system sustainable, we were forced to create Fannie, Freddie, and FHA. Typically private investors do not want to assume long-term interest rate risk, so it falls to the government to help finance/insure mortgages. This has been particularly expensive for taxpayers of late, we have spent $145 billion bailing out Fannie and Freddie, and some estimate that the final cost of the bailout could be as much as $500 billion to $1 trillion dollars.
Eliminating the long-term fixed rate mortgage would be an extremely radical idea, and would represent a fundamental shift in the housing market that seems unlikely to happen any time soon. Possibly the best argument for doing so is the state of Canada’s mortgage market compared to our own. Currently 0.44 percent of Canadian borrowers are seriously delinquent on their mortgages. Nearly 10 percent of U.S. borrowers are seriously delinquent. Possibly it is time to more seriously consider fundamental shifts to the way we look at mortgages.
What do you think? Let us know in the comments section below.
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Fannie Mae, Freddie Mac endure more losses and need additional aid
United States mortgage giants Fannie Mae and Freddie Mac are continuing to absorb additional losses as real estate prices keep dropping nationally, and are in need of further financial assistance from taxpayers says the country’s housing regulator.Edward DeMarco, the acting director of the Federal Housing Finance Agency, reported to Congress that the two mortgage companies operating under U.S. conservatorship would be unable to survive without any additional aid. The FHFA report acknowledges that Fannie and Freddie will continue to endure losses over the next several years due to mortgages which were originated prior to the U.S. government taking control of the companies in May 2008.
“Fannie Mae and Freddie Mac each remain critical supervisory concerns,” DeMarco wrote to Congress. “Throughout 2009, each company remained active in supporting the secondary mortgage market and, together, the Enterprises’ mortgage purchase and guarantee activity in 2009 represented more than 76 percent of total single-family originations. While critical to supporting the ongoing functioning of the nation’s housing finance system, the Enterprises would be unable to serve the mortage market in the absence of the ongoing financial support provided by the U.S. Department of the Treasury.”
The FHFA report conveyed that Fannie Mae and Freddie Mac both remained critical supervisory concerns in 2009, and that the enterprises continue to play a major role in providing liquidity and stability to the mortgage market, while carrying out foreclosure prevention efforts. The two enterprises own or guarantee half of the loans in the $11 trillion U.S. mortgage market, and have already received $145 billion in Treasury Department funding to this point in time.
Additionally, the FHFA report also outlined that while the Federal Home Loan Bank System met its public purpose during the financial crisis, advances steadily declined to $631 billion at the end of 2009. Also, the 2009 financial performance of half of the 12 FHLBanks was less than adequate due to investments in private-label mortgage-backed securities, and the Seattle FHLBank was deemed “undercapitalized.”
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Too Late To Refinance?
While many mortgage analysts believe that the refinance wave generated by historically low current mortgage rates had crested months ago, the Federal Housing Finance Agency (FHFA) nonetheless announced the Home Affordable Refinance Program (HARP) will be extended for an additional year to June 30, 2011. Fortunately, borrowers who may be eligible for Fannie Mae’s DU Refi Plus or Freddie Mac’s Relief Refinance Mortgage have been given a reprieve and can still benefit from today’s incredibly low current mortgage rates.
That said, it must also be noted that the Federal Reserve will complete its commitment to purchase $1.25 trillion in mortgage-backed securities by the end of March. It is no secret that this program has kept mortgage rates artificially low for more than a year. Mortgage analysts believe mortgage rates will begin to rise when the Federal Reserve completes its purchase by the end of the month. If refinances seem to be drying up now, it is unlikely the mortgage industry will witness a refinance revival if mortgage rates climb back to the 6% range.
With approximately 1 million homeowners eligible for the HARP program, it is estimated that roughly less than 120,000 homeowners have taken advantage of the program and the extraordinarily low current mortgage rates. The remaining 900,000 or so homeowners who were originally believed to be eligible for the HARP program are either underwater (owe more on their mortgage loan than their home is worth) or do not qualify for the HARP program based on stricter lender guidelines. Others simply have not completed the necessary paperwork. Additionally, some homeowners are so far underwater, even the support offered from HARP program eliminates their possibility of refinancing. Another major factor for borrowers failing to qualify for the HARP program is unemployment. Although recent unemployment figures have shown signs of improvement, there are still too many homeowners out of work.
Unfortunately, for a large number of homeowners, the prospect of refinancing remains out of the question. Although, for a significant amount of homeowners that do qualify, time is of the essence if mortgage rates do begin to rise.
Robert Hyder
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