Congress faults FHA on risk control

Is congress expecting more financial problems at FHA?

FHA's role in the mortgage market has grown since the housing bubble burst in 2007 and private financing options for homebuyers grew scarce. The housing agency provides private lenders with a guarantee against defaults on certain mortgages. About a third of all new loans for home purchases are guaranteed by FHA.

"The recent increased reliance on FHA mortgage insurance highlights the need for FHA to better ensure that it has the proper controls in place to minimize financial risks," the report stated

Left unaddressed, there is an increased possibility that FHA "will require additional funds to help cover its costs on insurance issued to date" if the performance on FHA-backed loans weakens, the GAO found.

Read it all

Credit getting tighter as Banks become more responsible for bad loans

Lenders are insisting on higher credit scores and more documents than required by the Federal Housing Administration and government-backed Fannie Mae and Freddie Mac. Quicken Loans Inc. and Vision Mortgage Capital are among firms saying they are increasing scrutiny of would-be borrowers in response to pressure to cover losses incurred on U.S.-backed housing debt.

And main reason is that Fannie Mae is making banks cover the cost of bad loans.

You’ve got to take measures now to protect yourself,” John B. Johnson, chief executive officer of Birmingham, Alabama- based MortgageAmerica Inc., said during a panel discussion this month. Demands that lenders repurchase bad mortgages from Fannie Mae and Freddie Mac are “casting a pall over the market. I fear that it will face a much longer recovery because of this.

Lenders’ contracts with Fannie Mae and Freddie Mac allow them to force buybacks of mortgages if the loan originators fail to properly vet debt, such as by accepting inflated borrower incomes or appraisals. Flawed paperwork can lead to pressure from Fannie Mae and Freddie Mac even on performing mortgages.

This is having ripples all over industry, but it's what was required to get a loan in 1998.

Pressure from the GSEs has “definitely stanched the flow of credit to the mortgage market, but we had clearly gone too far,” said Richard Eckert, an analyst in San Francisco at securities firm B. Riley & Co. who wrote research on subprime lenders during the housing boom and then joined a hedge fund betting against property loans during the collapse. “We’ve got to return to some kind of happy balance.”

Bank of America Corp. (BAC) has scaled back mortgage lending as CEO Brian T. Moynihan prepares for new capital requirements and grapples with demands that it compensate investors including Fannie Mae and Freddie for losses.

Read it all

Obama administration ramps up mortgage refinancing effort

HARP, which launched in March 2009, helped 838,000 Fannie Mae and Freddie Mac borrowers with loan-to-value ratios between 80% and 125% refinance. But roughly 7% of those held LTVs above 105%.

In order to assist more of the estimated 11 million borrowers who owe more on their mortgage than their home is worth, the FHFA removed the 125% LTV ceiling on the program.

And....

Underwater borrowers can't qualify for new loans or refinancings even if they are current on payments. And many would-be buyers are sitting on their hands, spooked by the high numbers of foreclosures and vast tracts of vacant homes.

In the meantime, banks are stepping up efforts to foreclose on borrowers in default. In the three months that ended Sept. 30, notices of default, the first formal step in the foreclosure process, jumped nearly 26% from the previous quarter, according to DataQuick, a San Diego real estate information service.

Even with this plan there still will be a large shadow inventory out there

And even with changes, the program won't do anything for the 3.5 million homeowners who are at least 120 days late on their payments or in default.

The administration is working on another plan that could convert a large number of vacant homes to rental properties. The effort, floated by Fed officials and people in the housing industry, could reduce the number of empty houses that are blighting communities.

With demand for rental housing relatively strong, small investors have been buying foreclosures and other homes to turn them into rentals. But Fed Gov. Elizabeth Duke said at a recent forum that large-scale conversions haven't happened because it's expensive to manage single-family home rentals and that the standard practice for the government and the industry has been to prepare vacant properties for sale to new homeowners.

Read it all

Federal Government's Housing Inspector General Under Fire: Olick

Again another reason why they should be privatized and be regulatory agency at best.

Given that the conservator of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA) has been wielding incredible power of late in deciding how much the two mortgage giants can and cannot charge in guarantee fees and whom they can and cannot refinance, it was particularly disturbing to learn the that same FHFA has been deemed, dare I say it, incompetent, at least in one of its oversight capacities.

FHFA-OIG has identified shortfalls in the Agency's examination coverage, particularly in the areas of Real Estate Owned (REO) and default-related legal services," the report begins. Translation: "Robo-signing" paperwork issues.

"FHFA has too few examiners overall to ensure the efficiency and effectiveness of its examination program," the report continues. Apparently just about a third of the FHFA's 120 non-executive examiners are accredited federal financial examiners, and there is nothing in the works there to "improve this condition."

But wait, there's more: "FHFA, to its credit, has sought to address these challenges. Although this is a positive response, FHFA has expressed concern that its current hiring initiative will neither enable it to overcome its examination capacity shortfalls nor ensure the effectiveness of its 2011 reorganization."

Read it all

FHA loans have the most fees and are the costly loans

What this article left out is that the default rate on these loans are high, so mortgage insurance portion must be increased to cover the costs of these defaults.

"Like the conventional universe, the 4.5% coupon has now moved completely into the 40bp refinancing window," said Scott Buchta, managing director at Sandler O'Neill. "Higher (mortgage insurance) fees and a lack of a HARP-like program may prevent some FHA borrowers from refinancing."

There is strong possibility that most of these FHA borrower will strategically default.

Read it all

Housing Slump Hits New Mortgage Loans

In its annual analysis of mortgage data provided by thousands of financial institutions, the Fed found that lenders originated 7.9 million mortgages in 2010, down 12% from 2009. The only year they were lower in the past decade was 2008, when they hit 7.2 million. The Fed analyzed data from more than 7,900 mortgage lenders that are reported to regulators under the Home Mortgage Disclosure Act

The lending drop in distressed areas stems in part from declines in loans to borrowers who don't use the homes as their primary residences, often investors. But the report also found a rising concentration of lower-income borrowers in those communities. Higher-income borrowers accounted for just 29% of all loans in those distressed neighborhoods last year, compared with 52% of loans in those neighborhoods in 2005. In less-distressed neighborhoods, higher-income borrowers accounted for half of all loans in 2005 and 43% of loans last year.

And

Refinancing has been particularly limited in five states that have seen the biggest home-price declines: Arizona, California, Florida, Michigan and Nevada. In those states, some 6.4% of borrowers with credit scores between 680 and 719 refinanced last year, compared with 9.7% of borrowers in the remaining 45 states

And this is the incredible part.  Traditionally, FHA were no more than 2% to 5% of the home loans for purchases.

The study illustrates the mortgage market's continued heavy reliance on government-backed mortgages. Federal agencies such as the Federal Housing Administration, which allows borrowers to make down payments of just 3.5%, accounted for more than half of all loans for home purchases in 2010. Fannie Mae and Freddie Mac accounted for nearly one-quarter of purchase loans and more than half of refinances.

Any increase in FHA down payment requirements or the privatization of Fannie or Freddie means that these borrowers will have to tougher standards to get a loan.  The long term goal is to privatize the government agencies and FHA is in financial trouble.

Read it all

Home prices hit 2004 levels

House prices inched higher in July, but are down 3.3% for the year ended July 31 and 18.4% lower than the April 2007 peak, according to the Federal Housing Finance Agency.

The regulator, which holds Fannie Mae and Freddie Mac in conservatorship, said July home prices increased 0.8% and are at levels last seen in March 2004. The agency lowered June's gain to 0.7% from a previously reported 0.9% increase.

The FHFA index includes the price of properties backing mortgages sold to or guaranteed by the government-sponsored enterprises.

Prices rose 3.6% in July in the West North Central Census region, according to the FHFA, while prices in the South Atlantic region fell 0.4% in July.

The agency said the West North Central region, which includes the Plains States west of the Mississippi River, was the only area of the country to see home prices rise in the 12 months through the end of July.

Read it all

PMI could be required on more types of Fannie Mae and Freddie Mac loans

The government-sponsored enterprises often require private mortgage insurance on mortgages with loan-to-value ratios above 80%. The coverage is often deeper than is even required by law and there are hints it could go to a lower LTV.

His first example was requiring private mortgage insurance on more loans guaranteed by the GSEs.

"A traditional way that the Enterprises shared risk with the private sector was through the use of private mortgage insurance," DeMarco said. "Consideration could be given to requiring greater mortgage insurance coverage, but doing so would need to be weighed against the financial condition of individual mortgage insurers."

Where the PMI then goes against the Frank-Dodd rule.

If the FHFA adopted such a policy, it would clash against the current risk-retention proposal. According to a still pending rule proposed by federal regulators, lenders would not have to maintain the credit risk on a mortgage after securitization if the borrower puts 20% down and if other requirements are met as part of the qualified residential mortgage exemption. But no room was made for mortgage insurance under the QRM.

Finally, fees are going up too.

He said the past degree of cross subsidization of certain product types will not be present in a private-dominant model. The FHFA will also take into account local economic conditions and state laws, specifically foreclosure timelines, when pricing the g-fees. Meaning, in places where it is more expensive and longer to foreclose, lenders could see g-fees go up. DeMarco also added that the fee competition between the GSEs would not be appropriate in the future, signaling an alignment of the fees between the two giants.

 Read it all

Obama looks to increase Fannie and Freddie guarantee fees

As posted earlier.  And how is he going to do this?

Jim Vogel with FTN Financial studied the plan and found the administration wants a 10-basis point increase in guarantee fees at Fannie Mae and Freddie Mac by next year. He added, the "FHFA is going to look for creative ways to gradually raise fees in 2012 with a combo of fewer discounts, geographic differentiation, and a reduction of cross-product subsidies." The Treasury Department believes the change could result in savings of $28 billion over a period of 10 years.

This have impact on the mortgage of the loan obtain by the borrower, 10 basis points is .1% mortgage rate increase.  

Read it all

Fannie Mae and Freddie Mac raising loan guarantee fees

According to Diana Olick at CNBC, the FHFA Director will raise the loan guarantee fees that both Fannie Mae and Freddie Mac charge.  When a loan is backed by Fannie Mae or Freddie Mac and it defaults, then Fannie or Freddie Mac must compensate the investor that purchase the loan.  If too many loans fail then Fannie and Freddie start losing money and therefore the tax payers lose money, since 79.9% of both companies are owned by the Federal government.  This increase in fees will keep the bill off the taxpayers, so what would happen in 100% privately ran system.

It is believed that both companies will eventually go back to being 100% private.  And the loan guarantee by the US government will decrease or disappear entirety.  This will have the affect of raise the mortgage rates, which is what FHFA is trying to do.

Lenders are Looking More at the Condition of the Property

Lenders are just making sure that aren't lending to home that has major issues.

I am not talking about the value of the property -- those kinds of appraisal issues have been with us for some time now. Today, I am referring to the physical condition of the property.

FHA and VA have historically been more stringent than conventional lenders with respect to issues such as peeling paint, unpermitted additions, and non-fully functioning appliances. Nowadays, though, it seems just as likely that a real or perceived deficiency in the property’s physical condition may cause as much of a problem for a conventional loan as for one that is FHA or VA.

Wow, look at the issues this can create, especially in California.

In California it has become common for a buyer to ask a seller to provide a four-page form known as the Seller Property Questionnaire (SPQ). The SPQ was created by the California Association of Realtors® (CAR). It is considerably more detailed and informative than the state-mandated Real Estate Transfer Disclosure Statement (TDS). Although not required by law, provision of an SPQ is often called for as part of the purchase agreement between buyer and seller. What is happening now is that, sometimes, underwriters are asking for a copy of the SPQ.

Why might this be a problem? Suppose the disclosure revealed a roof leak in one corner of the three-car garage. It would cost $1,500 to fix. The buyer appreciates the disclosure, but he doesn’t care because he is going to remodel the garage and put a loft room –with a new roof – over that corner. The underwriter says, “No, it must be fixed before we will approve the loan.”

It's will only put more pressure on the  home prices.  If the seller is upside on equity and is doing a shortsale they won't be spending money to improve the property.  It will probably result in: a) drop in prices b) more negative equity sellers just walking away.

Read it all

Feds sue biggest US banks over risky mortgages

Funny, if the suit forces bankruptcy on the bank, then does the FDIC (with also federal backing) come in a bail the depositors, probably with tax money?  This lawsuit is very illogical.

In a sweeping move, the government on Friday sued 17 financial firms, including the largest U.S. banks, for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed.

Among the 17 targeted by the lawsuits were Bank of America Corp., Citigroup Inc., JP Morgan Chase & Co., Goldman Sachs.

The lawsuits were filed Friday by the Federal Housing Finance Agency which oversees Fannie and Freddie, the two agencies that buy mortgages loans and mortgage securities issued by the lenders.

The total price tag for the securities bought by Fannie and Freddie affected by the lawsuits: $196 billion.

The government didn't provide a dollar amount of how much it seeks in damages. It said that it wants to have the purchases of the securities canceled, be compensated for lost principal and interest payments as well as attorney fees and costs. The lawsuits allege the financial firms broke federal and state laws with the sales.

Home mortgage-backed securities were risky investments that collapsed after the real-estate bust and helped fuel the financial crisis in late 2008.

Finally, what is the ultimate purchase of this lawsuit.

Read it all

Wells Fargo closes 704,000 loan mods over past two years

In the past two years, Wells Fargo (WFC: 24.20 -4.08%) offered more than 4.4 million homeowners new low-rate loans and did more than 704,000 loan modifications for mortgages in its servicing portfolio, the bank said this week.

About 85% of its loan modifications were completed through Wells Fargo programs, while 105,404 modifications were handled through the government's Home Affordable Modification Program.

As of the second quarter, 93% of home loans in the company's servicing portfolio were current on payments. Fewer than 2% of owner-occupied loans in the  servicing portfolio proceeded to foreclosure sale in the past year.

During July, 404,000 distressed borrowers received some type of counseling, with 10.9 million borrowers underwater, or owing more than the property is worth, nationwide, according to the Obama administration's August housing scorecard.

The government cited statistics showing prime mortgages with a delinquency rate of 4.5%, compared to 33.2% among subprime loans and 12.2% for FHA loans. About 3.65 million existing homes were on the sales block in July.

Read it all

U.S. to sue big banks over mortgage securities: report

Fannie Mae and Freddie Mac lost more than $30 billion, due partly to their purchases of mortgage-backed securities, when the housing bubble burst in late 2008. Those losses were covered mostly with taxpayers' money.

The agency filed suit against UBS in July, seeking to recover at least $900 million for taxpayers, and the individuals told the Times the new suits would be similar in scope.

A spokesman for the Federal Housing Finance Agency was not immediately available for comment.

The Times said Bank of America, JP Morgan and Goldman Sachs all declined comment. A Deutsche Bank spokesman told the Times, "We can't comment on a suit that we haven't seen and hasn't been filed yet."

Read it all

U.S. Government Struggles As The Biggest Seller of Homes

Activists of all sort are pushing the Federal government to lease out foreclosed home, but there are some major problems with that.

Moreover, it remains to be seen whether converting REO to rental will work. Leasing requires money to bring properties up to code, adds to liability costs and requires an infrastructure to manage the inventory. It also delays the government’s ability to recover anything from their repossessed properties, said FHA Acting Commissioner Carol Galante.

“It isn’t necessarily our preference that FHA is going to itself continue to hold these properties,” Galante said in an interview. “We want to move homes through the system so we can recover.”

At the same time, the agency can’t maximize returns if it sells too many houses at once.

“If you’re putting too much through that system you are helping to drive down prices,” Galante said. “If there’s some siphoning off of some of that stock, it can help stabilize the prices. We could be better off. The proof will be in the pudding.”

 And this regards to refinancing homeowners with negative equity.

Current low interest rates offer an opportunity, with 30- year-fixed loans hovering just above 4 percent. The administration is weighing ways to allow distressed or underwater borrowers to refinance into a lower-rate mortgage, freeing up billions of dollars to boost consumer spending.

The complexity of mortgage finance promises to make any housing fix difficult to implement, as the administration discovered when it launched a mosaic of loan-modification programs three years ago.

Since the 2008 financial collapse, Obama and his aides have focused housing efforts on extricating borrowers from high-cost loans, aiding delinquent homeowners, and stabilizing neighborhoods. Now the most pressing problem has shifted to what to do with properties left by borrowers who couldn’t be helped.

Read it all

FHA mortgage delinquencies resurge in second quarter

This is important since, the FHA program is the main source of low downpayment loans and about 30% of all home sales.  Also, private mortgage insurance (PMI) companies are having financial troubles and can't write as much insurance for these low downpayment loans.

"We believe that an increase in delinquencies in the FHA program was the biggest contributor to the pickup in overall national delinquencies in the second quarter," KBW said.

And

But in the second quarter, the delinquency rate jumped to 11.7%. Seasonally adjusted, the increase was 59 bps to 12.62%.

Mirroring the MBA report, the FHA second-quarter delinquencies increased the most in the early stages of default, according to KBW. For instance, 30-day delinquencies increased 87 bps to 5.27% in the second quarter, while those in 90-day delinquency dropped 5 bps to 4.55%. Seriously delinquent loans, those in 90-plus day delinquency or foreclosure dropped 13 bps to 7.65%.

"FHA delinquency rates fell in 2010 as the FHA loans outstanding grew very sharply. We believe that the moderation in FHA loan growth will likely result in further increases in delinquencies on this portfolio which will likely push up the national averages," KBW analysts said. "However, this credit risk resides with the government since these loans are guaranteed by FHA."

At what point can the government keep financing these losess.

Read it all

FHA/VA insured bonds are in trouble

I hate to post articles that are too technical, but this one is revealing.  FHA/VA bonds are failing, which means FHA and VA mortgages are defaulting.  All of these defaults cost these programs losses, since they insure loans for lenders.  If these defaults continue to grow, then these program might not be able to insure any additional loans.

Moody's admits FHA/VA loan delinquency levels have been relatively stable, but analysts believe that could change with home prices still falling and unemployment consistently high.

"FHA/VA borrowers are typically low-income borrowers with poor credit histories who have been affected by the weak economy and housing market," Moody's said. "Securitized FHA/VA pools typically have high delinquency levels at inception, with the majority of loans being 90-days late or more. Because of the insurance coverage loss severities and overall losses have been fairly low. Loss severities, which have been rising, are now currently around 12% on average."

Read it all

Redwood: Government can't keep paying for mortgages and housing programs

I little background here.  One reason that mortgage rates are so, is that the Federal government nearly all mortgages.  This puts the tax prayers on the hook for any losses from the agencies.  Redwood is arguing that system is can't go on, and we should return private mortgage market, set by supply and demand.  This federal support also makes housing more expensive than people can afford.

Through Fannie Mae, Freddie Mac and Ginnie Mae, the government finances more than 95% of the mortgages currently being written in the U.S. When Congress comes back from recess in September, it will have a chance to begin unwinding its lifeline. The conforming loan limits, or the maximum amount of a loan that can be guaranteed by Fannie, Freddie or insured by the Federal Housing Administration, expires Oct. 1.

Already the industry is pushing its support of a bill in the House and another in the Senate to extend these limits. Other reforms remain on the distant horizon, including the reform of Fannie and Freddie.

And....

"Many real estate agents, homebuilders and banks appear to benefit from such a status quo. Our strategic outlook, however, is that over time the current outsized role of government support for the $9.6 trillion residential mortgage market is simply not sustainable, especially in light of the painfully heated debates throughout 2011 over raising the $14.3 trillion federal debt ceiling," Redwood said.

Link Here

Obama administration expects new push for REO rentals

It's more mission drift.  Now Fannie and Freddie are going to become landlords.  Their original mission was to provide secondary market so lenders could sell their loans and free up capital to originate more loans.

The Obama administration will begin working on new strategies for how to better sell previously foreclosed homes held by Fannie Mae, Freddie Mac and the Federal Housing Administration, which may include renting more REO.

The Federal Housing Finance Agency, the Treasury Department and the Department of Housing and Urban Development put out a request for information, seeking new ideas from market participants for selling REO. Currently, the government owns roughly half of the REO inventory in the U.S.

The agencies called on private property managers to submit ideas on how to reduce the REO portfolios at the GSEs and the FHA in a cost-effective manner. They also seek new ideas on property repair, sales strategies in specific hard-hit areas and new analysis of when to sell or even rent these properties.

Read it all

Fannie, Freddie pressured to rent more foreclosures

I know of two people that are renting from the Bank.  Question when did bank go into the Real Estate Investment business?

Sen. Jack Reed (D-R.I.) sent a letter to the chief regulator of Fannie Mae and Freddie Mac, urging the two companies to convert their repossessed properties into rental units and pool them for sales to investors.

Fannie Mae repossessed 53,697 properties through foreclosure in the second quarter, roughly flat from the previous quarter. While that is down from more than 68,800 repossessions one year ago, Fannie said the total was artificially depressed due to extended delays in the foreclosure process.

These delays will continue to push expenses up and delinquency rates elevated for a company that has already pulled more than $104 billion in bailouts from the Treasury Department and reported another $5 billion in losses for the quarter.

"Moreover, Fannie Mae believes these changes in the foreclosure environment will delay the recovery of the housing market because it will take longer to clear the housing market’s supply of distressed homes, which typically sell at a discount to nondistressed homes and, therefore, negatively affect overall home prices," the company said in its financial report released Friday.

In his letter to Federal Housing Finance Agency Acting Director Edward DeMarco, Reed said the government-sponsored enterprises could install a major rental program that could milk at least some revenue out of properties otherwise sitting vacant.

In Rhode Island, alone, Reed wrote, the average monthly rent for a two-bedroom apartment increased 54% since 2000.

Read it all