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.”
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.
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 billion. Bloomberg 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 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
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Some communities will likely be hit harder by mortgage loan limits
A plan to lower the cap on federally backed mortgages may hit home buyers particularly hard in several pockets of the country, new data shows.
The Federal Housing Finance Agency plans to reduce the maximum size of mortgages backed by Fannie Mae and Freddie Mac this January. The current limits are $417,000 in most parts of the country and up to $625,500 in more expensive markets. The agency hasn’t announced how much it will lower loan caps, but data compiled for MarketWatch by Lender Processing Services, a mortgage-data tracking firm, shows that a decline of just $25,000 from the current caps would impact hundreds of thousands of home buyers in middle-priced and upper-middle-priced housing markets — areas that are relatively upscale but far from the most expensive. “You are really talking about communities that are comfortably well-to-do; you’re not talking about communities with large numbers of hedge fund managers and the like,” says Robert Hockett, a professor of law at Cornell Law School with expertise in real estate finance.
In total, more than 214,000 of the agency-backed mortgages originated last year were within $25,000 of the current caps, according to LPS. For the first six months of this year, the number was just over 95,000. By one measure, they’re most in demand in Cook County, Ill., where 10,510 mortgages originated in 2012 and 4,137 during the first six months of this year were within $25,000 of current cap levels — the highest number in any county nationwide, according to LPS. In contrast, Manhattan, which has some of the most expensive real estate in the country, had just 1,187 and 460 of such large loans, respectively, for each time frame.
Nationally, these loans have accounted for less than 3% of all Fannie Mae and Freddie Mac mortgages given to borrowers during this time, though the share is much higher in some regions. In Colorado, North Carolina and South Carolina as well as in the District of Columbia, they account for more than 5% of agency mortgages that borrowers signed up for last year. They had over a 10% share in three Colorado counties, Boulder, Denver and Gunnison, during the first half of this year.
A greater number of borrowers could be impacted if mortgage caps drop by a larger amount. Housing experts say a $25,000 drop is likely conservative, and if the real cut is bigger, more borrowers will be left with fewer mortgage options going forward.
Fannie Mae and Freddie Mac mortgages weren’t always so generous. They were mostly capped at $417,000 until 2008, when legislation increased their loan limits in more expensive markets, and by late 2011 they settled at the levels currently still in place. The moves were meant to stimulate home buying and lending in the wake of the housing downturn. As private investors fled the mortgage market, Fannie Mae and Freddie Mac took their place and have since been buying most of the mortgages that lenders have been providing to borrowers. Higher caps on federally backed mortgages allowed more buyers, who might have otherwise been unable to buy a home, to qualify for those loans.
Now that the housing recovery is gaining steam, the government is trying to reduce its role in the mortgage market. A spokesperson for the FHFA says that the agency “shares the administration’s view that a gradual reduction in loan limits is an appropriate and effective approach to reducing taxpayers’ mortgage risk exposure, shrinking the footprint of Fannie Mae and Freddie Mac in the marketplace, and expanding the role of private capital in mortgage finance.”
But analysts caution that lowering their caps could have a domino effect on home sales. Many borrowers who use the maximum dollar amount of Fannie Mae and Freddie Mac loans tend to live in high-cost areas and rely on these mortgages to buy homes. If they’re unable to get financing, given that the private mortgage market is more selective, sales could stall and prices as a result may drop, says Jack McCabe, an independent housing analyst in Deerfield Beach, Fla. “This will be a real eye-opener,” he says.
In some areas, it would take just a small number of buyers to shake up home sales: In Cape May County, N.J., just 313 mortgages within $25,000 of the agency caps were given out during the first six months of the year, and they accounted for nearly 11% of all agency mortgages given in that time in the county. In Garrett County, Md., it was just 26 mortgages, which accounted for almost 8%.
The change would also come at an inopportune time for buyers: With home prices rising in many markets, experts say, it’s likely that a growing number of buyers will need larger-size mortgages.
To get a mortgage, most of these buyers will have to turn to private lenders, which include banks, credit unions, and independent mortgage lenders, who originate mortgages to borrowers on their own terms and either hold them on their books or sell them to a small number of private investors. But private lenders have been very selective over the past few years, lending mostly to affluent borrowers with large down payments who are buying multi-million-dollar homes. In many cases, these borrowers have the cash to buy their home outright.
It remains to be seen whether these lenders will open up to more borrowers. “If the private market doesn’t step in to take borrowers who are less than perfect, then those are the people who are going to be on the losing end of this,” says Georgette Chapman Phillips, professor of real estate at the University of Pennsylvania’s Wharton School.