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Fannie and Freddie Overhaul Mortgage Insurance Master Policy Requirements

Fannie Mae and Freddie Mac have completed a major overhaul of their master policy requirements for private mortgage insurance the Federal Housing Finance Agency (FHFA) announced today.  The changes meet one of FHFA’s 2013 Conservatorship Scorecard goals for the two government sponsored enterprises (GSEs), aligning their individual policy requirements.  The changes are the first made to the master policies in many years FHFA said

 

Private mortgage insurance is required of borrowers who provide less than a 20 percent downpayment on a home purchase.   While the premiums are paid by the borrower, the insurance covers losses for the lender or the loan’s owner should the homeowner default on payments.  Mortgage insurance master policies specify the terms of business interaction between seller-servicers and mortgage insurers.  FHFA said the GSEs have worked with the mortgage insurance industry to identify and fix gaps in the existing master policies and the new policies will, among other things, facilitate timely and consistent claims processing.

 

The changes include a requirement that the master policies support various loss mitigation strategies that were developed during the housing crisis to help troubled homeowners and establishes specific timelines for processing claims, including requests of additional documentation.  The changes also seek to address a frequent source of complaints from homeowners, setting standards for determining when and under what circumstances the mortgage insurance must be maintained or can be terminated.  The changes are also designed to promote better communication among insurers, servicers, and the GSEs.

 

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

 

The changes will be incorporated by mortgage insurance companies into new master policies which will be filed with state insurance regulations for review and approval.  FHFA said it expects the master policies will go into effect in 2014.

 

Andrew Bon Salle, Fannie Mae’s Executive Vice President, Single-Family Underwriting, Pricing, and Capital Markets said of the changes, “Mortgage insurers are an important part of the mortgage finance system and these changes help lay the foundation for a stronger system going forward. These updates will help us better manage our credit risk, which we believe will ultimately benefit Fannie Mae, mortgage insurers, homeowners and taxpayers.”

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New York Home Price’s Rise As Well As Equity At A Record Pace

The number of Americans who owe more on their mortgages than their homes are worth fell at the fastest pace on record in the third quarter as prices rose, a sign supply shortages may ease as more owners are able to sell.

The percentage of homes with mortgages that had negative equity dropped to 21 percent from 23.8 percent in the second quarter, according to a report today from Seattle-based Zillow Inc. The share of owners with at least 20 percent equity climbed to 60.8 percent from 58.1 percent, making it easier for them to list properties and buy a new place.

“Home sales will pick up very nicely when people gain the equity they need to sell their house and have a down payment for the next one,” said Neal Soss, chief economist at Credit Suisse Group AG in New York. “There’s a magnifying effect on sales — people are able to list their home and sell it, and odds are they’re going to go on and buy another one.”

A shortage of inventory has forced homebuyers to compete, driving up prices and leaving some shoppers out of the market, said Thomas Lawler, a former Fannie Mae economist who now is a housing consultant. The number of homes for sale reached a low of 1.8 million in early 2013, the fewest in more than a decade, according to data from the National Association of Realtors.

“The pent-up demand from people who now have enough equity to sell their homes will help next year,” said Lawler, president of Lawler Economic & Housing Consulting LLC in Leesburg, Virginia. “We’ll see the effect during the spring selling season. Not a lot of people put their homes on the market during the holidays.”

While the supply of homes limited sales, it boosted price growth, said Michelle Meyer, a senior U.S. economist at Bank of America Corp. in New York. Shortages have caused buyers to compete for properties by raising the price they offer, she said. The median price of an existing home rose 12.8 percent last month, the Realtors’ group reported yesterday. In August, it jumped 13.4 percent, the fastest rate since the height of the real estate boom in 2005.

“We’ll see the pace of price growth moderate next year,” said Meyer. She estimates prices will gain 8 percent in 2014, compared with 10 percent in 2013.

The real estate recovery has supported economic growth for almost two years as buyers make ancillary purchases such as home decor and appliances, Meyers said. Consumer spending accounts for about 70 percent of the economy. Gross domestic product grew at a 2.8 percent pace in the third quarter, up from 2.5 percent in the prior period.

Freddie Mac Signs $77 million Risk Share Agreement

 

Freddie Mac has signed a risk sharing agreement with Arch Reinsurance Ltd. Which will cover up to $77.4 million in possible credit losses from a pool of single family loans.  The agreement is similar to one announced last month between Fannie Mae and National Mortgage Insurance Corporation to cover $5.0 billion in risk.

 

This new insurance coverage is another initiative by Freddie Mac to meet a strategic goal set for it and Fannie Mae (the GSEs) to transfer at least $30 billion of its single-family mortgage risk to private sources of capital.  The Freddie Mac/Arch contract involves a portion of the credit risk of loans funded in the third quarter of 2012.

 

“This is part of our business strategy to expand risk-sharing with private firms, thus reducing taxpayers’ exposure to losses from mortgage foreclosures,” said David Lowman, executive vice president of single-family business for Freddie Mac. “We have brought to the market new sources of capital for transferring mortgage credit risk away from taxpayers. We’ve tapped into the global insurance community’s appetite for U.S. mortgage credit exposure, and would like to do more of these policies in the future.”

 

Freddie Mac has sought to further meet the strategic goals, set for the GSEs by the Federal Housing Finance Agency (FHFA) with two STACR debt offerings, the first of which closed in July and the second of which was priced last week.

Wells Fargo Rumored to Have Wrapped up Bond Claims

 

According to sources speaking to Bloomberg, an agreement has been reached between Wells Fargo Bank and the Federal Housing Finance Agency (FHFA) to resolve claims that the bank sold faulty mortgage bonds to Fannie Mae and Freddie Mac.  The amount of the settlement has not been disclosed but is reported to be less than $1 billionBloomberg said the settlement was subject to a confidentiality agreement and thus the source of their story asked not to be named.

 

Dow Jones Business News said that FHFA had filed 18 lawsuits in 2011 against a number of large financial institutions over $200 billion in mortgage securities sold to the GSEs but never filed suit against Wells Fargo.  The parties instead reached an agreement which extended the statute of limitations beyond September 2011 in the event the parties could not reach a settlement.

 

The FHFA settlement is apparent independent of one Wells Fargo reached with Freddie Mac in October for $780 million.  Last spring the bank stated in an SEC filing that it had settled Fannie Mae’s claims over mortgage bonds and stated that the unspecified amount was covered by its reserves.  Dow Jones said the bank will likely disclose the terms if not the amount of this settlement in the same manner.

 

Spokespersons for both Wells Fargo and FHFA refused comment on the story.

Home Prices Rise for 19th Straight Month; Pace Decelerating

Home prices posted a 19th consecutive monthly gain in August the Federal Housing Finance Agency (FHFA) said on Wednesday.  FHFA’s purchase only Home Price Index (HPI) rose 0.3 percent on a seasonally adjusted basis from July but the 1.0 percent increase previously reported for July was revised down to 0.8 percent.

On a year-over-year basis the August index was up 8.5 percent.  Prices have now returned to the April 2005 index level but remain 9.4 percent below the home price peak attained in April 2007.

The index increased in seven of the nine U.S. Census Divisions in August with the South Atlantic and East North Central divisions experiencing declines.  The South Atlantic region, which encompasses all coastal states from Delaware to Florida plus West Virginia, was down 0.5 percent and the East North Central (Michigan, Wisconsin, Illinois, Indiana, and Ohio) division saw prices go down 0.3 percent.

The largest month-over-month increases were in the Mountain (Utah, Montana, Colorado, Nevada, Arizona, New Mexico, Idaho) and West North Central (Minnesota, both Dakotas, Nebraska, Iowa, Kansas, Missouri) divisions which rose 1.3 percent and 1.2 percent respectively.

The August 2012 to August 2013 changes were largest in the Pacific Region (California, Oregon, Washington, Hawaii, and Alaska) where prices appreciated 18.2 percent and the Mountain division with a 13.8 gain.  The smallest annual increase was in the Middle Atlantic division which consists of New York, New Jersey, and Pennsylvania and where prices were up 4.0 percent.

The FHFA index is calculated using home sales price information from mortgages sold to or guaranteed by the government sponsored enterprises Fannie Mae and Freddie May.

 

Article by Jann Swanson http://www.mortgagenewsdaily.com/10232013_fhfa_hpi.asp

For more information please visit http://www.mortgagessiny.com

Pre-Qualifications vs. Pre-Approvals When Purchasing a Home

The first thing a home shopper should do PRIOR to starting a serious home search is to look at mortgage options.  An experienced realtor will encourage buyers to speak with a lender and get “pre-approved.”  This benefits all parties involved by ensuring that prospective buyers can actually qualify for a mortgage on the homes they’re interested in.  Failure to do so WILL cause frustration and disappointment for any agent or buyer who naively regards today’s stringent mortgage process as a minor detail to be addressed after a sales contract is accepted.  No one likes surprises during the purchase process!
Two terms that are often (and incorrectly) used interchangeably are “pre-qualified” and “pre-approved”.  While their exact meanings will vary by lender, in most cases a pre-qualification is far less desirable and less clearly defined.
A Pre-Qualification typically means a buyer has spoken with a lender (who may or may not have pulled a credit report) and verbally discussed employment, liabilities, payment histories, and assets.  Actual verification of assets, income, and credit may not occur with a pre-qualification, and an automated underwriting system (Desktop Underwriter or Loan Prospector in most cases) likely has not been run.  While better than nothing, Pre-Qualification remains entirely dependent on a far more thorough process of verification and examination of a borrower’s credit, assets, and income.  At best, it’s a “probably.”
A true Pre-Approval, on the other hand, entails a strict review of the client’s credit, down payment capacity, income, and asset documentation.  Credit reports are thoroughly dissected, rather than just credit scores verified.  Veteran loan officers run prospective buyers though underwriting engines if they have any doubts concerning debt ratios, derogatory credit items, or employment history/income verification.  Once the system returns an approval, it too needs to be read in detail, as it will list specific requirements for final loan approval.  A lender who bases his pre-approval on mere credit scores and underwriting engine approval without fully examining it, risks his reputation and the satisfaction of the other parties involved.
Unfortunately, the ambiguity between Pre-Approvals and Pre-Qualifications can cause mismanaged expectations.  For example, a client that came to me recently, saying he was pre-approved with another lender, and that his salary was $X/yr.  He had already identified a home and written a sales offer.  His debt ratios were tight, but, based on the information he provided, he met Fannie Mae’s requirements.  Once his W2, paystubs, and tax returns were received, it became apparent that his “salary” included a number of incentives and other non-guaranteed items.  When I said we’d need to verify that the extra income was likely to continue with his employer, his comment was “the other loan officer didn’t ask me to break my income down.”  He also had two liabilities on his credit report that didn’t show monthly payments, and needed to be determined.  When asked about those, he remarked that the prior lender hadn’t mentioned them. Ideally, these issues are caught early enough in the process to address them, if not; they can result in extra processing time that delays closing.
If all parties involved are aware of the distinction, it helps everyone play their role to the best of their ability.  The listing agent who calls the mortgage originator to ask if the buyer’s income and asset docs have been examined clearly understands the differences between pre-qualifications and pre-approvals.  Conversely, the originator who contacts the realtor can better manage expectations by clearly defining their pre-qualification or pre-approval process.  Even clients, armed with this information, can request a thorough pre-approval rather than a cursory pre-qualification, and play a role in ensuring the best possible handling of their transaction.