Fannie Mae employees are under investigation by Federal law-enforcement officials.

Although it is isn’t clear what exactly is being examined by Federal law-enforcement officials, whether any wrong doing is being investigated, whit is known is that the inspector general of the Federal Housing Finance Agency is the one carrying out the investigation. The FHFA is the agency that regulates Fannie and Freddie.

The investigation appears to be focusing on a single transaction involving distressed apartments; however, the investigation doesn’t involve the issuance of debt or securities by Fannie.

A spokesperson for Fannie Mae stated that the scope of the investigation isn’t very broad and that Fannie is fully cooperating. The employees placed on administrative leave was in accordance with regular practice pending a review’s outcome.

An inventory of distressed apartments was being delivered to an existing joint venture between Fannie and a New York developer. Earlier this year, Fannie sold a stake in many foreclosed apartments to the same developer who, as part of the deal, is maintaining and managing the properties.

Fannie increased its inventory of foreclosed properties, 232 over the previous year; this is more than twice what it held in 2009. Additionally, it held over 480 properties with seriously delinquent loans.

The investigation occurs while officials at Fannie and the FHFA consider similar joint ventures on single-family properties that are foreclosed.

Fannie and Freddie are tasked with unloading hundreds of thousands of foreclosure in the upcoming years.
As you’ll remember, Fannie and Freddie were taken over in conservatorship by the U.S. government about three years ago. The bailout has cost the taxpayers over $140 billion.

See also:
FNMA Home Path Incentive Program
Alt-A Securities Sought by Investors
Fannie Mae and Freddie Mac Will Continue to Cost Us Money

Government takes a back seat in hopes that the private sector will help stimulate the mortgage market.

This move concerns those in the housing industry who feel that pulling back will renew the pain in many areas that has not yet recovered amid the ailing economy.

The issue involves loan limits that were expanded by Congress three years ago, which allowed Fannie and Fannie to purchase mortgages that exceeded the national cap.

After the mortgage market meltdown of four years ago, private mortgagers retreated and interest rates jumped on mortgages that were too large to be backed by Fannie, Freddie, or the FHA. This expedited price declines in high-end markets where expensive homes couldn’t be purchased with a loan backed by the government.

To check the prices fallout, loan caps were raised by Congress in these-end markets. Extensions were passed to keep these higher limits in place each year since, but not this year. This resulted in limits dropping by more than ten percent in many areas.

The reasoning behind the decision by policy makers to allow limits to fall is the hope that private owners would begin to hold more mortgage risk; bringing down loan limits is a way to open up to these investors.

The loan limits, however, don’t seem capable of impacting the overall housing market very much. In the end, the loan limit issue simply underscores the larger challenge in restoring private capital and reducing the weight on taxpayers: housing markets remain unstable and the government continues to offer better terms than private companies.

Any move that increases borrowing costs could bring in private investors; the problem, however, is that this could push home prices down, which may do more harm to the economy than good.

See also:
Government-Backed Loans: House to Decide Fate of Loan Limits
Government’s Role in Mortgage Finance System
Government Grants for Homeownership

Small Lenders Argue that Government Intervention is Helping Industry Giants to Further Increase their Already Dominant Share of the Market

The nation’s smaller lending institutions have found themselves in a battle to keep the U.S. government supporting the mortgage market. Their argument is essentially that efforts to scale back the government’s support would allow the industry’s giants to solidify and increase their already dominant share of the market.

As it stands, 90 percent of mortgages in the U.S. are backed by either federal agencies or by government-controlled Fannie Mae and Freddie Mac. These two mortgage giants purchase mortgages, package them into loans, then sell them as securities. Since they nearly failed two and a half years ago, taxpayers have forked over more than $100 billion in aid. Now the push has been on to have them eliminated, or have them retreat from the marketplace in order to reduce taxpayer liabilities.

Small banks are afraid that any such moves would lead to inordinately increased market share for the already dominant Wells Fargo. Bank of America, J.P. Morgan chase, and Citigroup, who have all markedly increased in power in the midst of the financial crisis.

These four banks have increased in market share to around 60% of U.S. mortgage loans last year, up 24% since 2007.

Smaller lenders argue that these financial giants would act in a way similar to Fannie and Freddie, by issuing their own mortgage-backed securities and imposing higher rates on smaller competitors who are unable to securitize their own loans.

The issue becomes a balancing act for legislators who would like to eliminate Fannie and Freddie, yet need to keep the interests of small lenders in mind. With such competing interests and complexity in infrastructure, the reworking of the U.S. mortgage system will no doubt be a long and arduous process.

The President’s administration called earlier this year for Fannie and Freddie to be done away with; however, they cautioned that some government institution was necessary to back mortgages, other than the FHA.

At the heart of the FDIC proposal for new lending rules is the “qualified residential mortgage” (QRM), a term coined in the Dodd-Frank financial reform bill that was legislated to be defined by a basket of federal finance and housing agencies. Last week’s FDIC decision defined the QRM as a prime mortgage for borrowers who put at least 20 percent down on a home purchase. The definition is important, because mortgages that adhere to the QRM standard would be exempt from rules requiring lenders to hold at least 5 percent of the credit on their issued loans. This “risk-retention mechanism” is intended to ensure sane lending practices by forcing lenders to keep a financial stake in their own lending decisions.

The strict QRM definition, according to supporters, will strengthen confidence in the securitization market—which ultimately provides the funding for mortgages—and thereby loosen the tight lending conditions which have hindered real estate sales. Critics of the FDIC proposals have been swift and loud in their opposition, suggesting that the QRM creates a tiered mortgage lending system that puts affordable mortgages out of the reach of average Americans. The National Association of Home Builders (NAHB) released a statement saying that overly-strict lending rules would torpedo recovery in the real estate markets by reducing the pool of eligible buyers, and create insurmountable barriers to homeownership because of the 20 percent downpayment requirement, as well as the increased borrowing costs associated with non-QRM loans.

Federally-backed mortgages—such as those issued through Fannie Mae and Freddie Mac—would be exempt from the new rules. As loans underwritten by the government currently constitute 90 percent of new mortgage loans, the impact of proposed lending rules is unlikely to have a large impact in the near future.

A reveling report came out in mid December of 2009 listing the salary packages the top executives will receive at both Fannie Mae and Freddie Mac. The “compensation packages” total in the millions. This information comes on the heels of the Obama administration’s public admonishment on “Fat Cat” bankers who received millions in pay in one hand, while the other was extended begging for bailout funds.

While many Americans are struggling to just keep a roof over their head, the government is allowing unbelievable salaries to be paid to what is essentially two companies that are now extensions of the Federal Government. In a political maneuver that is typical of this day and age, the public was reassured initially by preliminary reports that stated a $900,000 cap was being placed on executive level positions within the two companies. This amount alone gave good reason to pause considering that the President of the United States only makes about $390,000 per year, plus $50,000 in expenses. The extra funding for Fannie and Freddie’s execs were hidden from the general public in the fine print. The base salaries were pushed out front, while the total of “compensation packages” was not revealed until their December reports came out.

Below is a listing of some of the executives and their pay.

Fannie Mae Executives
Michael Williams                   CEO                                        $6,000,000
David M. Johnson                  CFO                                        $3,600,000
Kenneth Bacon                      Unit Head                              $2,400,000
David Benson                        Capital Markets Chief          $2,800,000
David Hisey                            Dept-CFO                               $2,200,000
Timothy Mayopoulos            General Counsel                  $3,000,000
Keneth Phelan                      Chief Risk Officer                  $2,800,000
TOTAL $22,800,000

Freddie Mac Executives
Charles Haldeman               CEO                                        $6,000,000
Bruce Witherell                      COO                                        $4,500,000
Ross Kari                                CFO                                        $3,500,000
Robert Bostrom                    General Counsel                  $2,800,000
Paul George                          Human Resources Head    $2,000,000
TOTAL $19,500,000

The public outcry at the extravagant salaries was met by representatives of the Federal Housing Finance Agency who stated “Freddie and Fannie must be able to attract and retain the talent needed”.

Similar Stories:
NY Times
CNN Money
Washington Examiner

Many of the problems being experienced in the economy, especially the housing market, are being blamed on the poor decisions made by the Federal Home Loan Banks, also known as FHL Banks. Fourteen banks, including Fannie Mae and Freddie Mac, comprise the FHL Banks, and a combination of questionable practices and bad business decisions has this group a combined $1.25 trillion in debt. The U.S. government is the only entity currently with a larger debt than the FHL Bank system. As a result, a new housing agency finance plan is being proposed that will attempt to increase regulations on the FHL Bank system and begin to correct many of the current issues.

The new housing agency finance plan has been designed by the Federal Housing Finance Agency. The director of this regulatory agency is former Chief Operating Officer of the Social Security Administration James Lockhart. He was appointed by former President George W. Bush in July of 2008. The ultimate goal of the agency is to restructure the requirements for the capital of the 14 FHL Banks as well as place the investment regulations on them in an attempt to correct the problems that have led to the systems substantial debt and subsequent strain on the housing market.

The focus of the new housing agency finance plan will be FHL Banks Fannie Mae and Freddie Mac. The companies have portfolios that combined value approximately $1.7 trillion. The two companies are also the largest home mortgage providers in the U.S. The Federal Government had already taken control of both companies, after financial trouble was putting the future of both in jeopardy. Combined, Freddie Mac and Fannie Mae lost almost $70 million in just over a year. After a $14 million bailout from the Treasury Department failed to improve the situation, control of both was given to Lockhart’s agency.

In order to achieve the desired results, the main area that the new housing finance agency plan will attempt to address is the capital requirements of the 14 FHL Banks. Essentially, these banks must keep a certain percentage of capital to cushion against losses. When failing to meet these requirements, banks are limited on the number and types of loans they can make. The plan is to classify these banks based on the condition of their capital and to then introduce new regulations and requirements. By catering specifically to the situation faced by each bank in the system, the effectiveness of the plan should increase.

See more:
Federal Housing Finance Agency (FHFA) Boss James Lockhart on Fixing the Housing Market
Federal Housing Finance Agency’s Fiscal Year 2009 Financial Statements
Judicial Watch v. U.S. Federal Housing Finance Agency

On the 19th of October the Obama administration announced the use of a new program made available to support local and state finance agencies.

This program will assist those local and state agencies by helping them finance mortgages for first-time home buyers.

Many of these state and local agencies have had difficulty raising funds to assist with morgages because of the nation’s housing crisis and credit crunch.

This past year, these agencies have only been able to obtain about a quarter of the funds that they usually gain through the sale of tax-exempt bonds ($4 billion).

Because of the large reduction of funds made available to these agencies, the number of morgage loans for first-time home builders have been limited.

This program that was just recently unveiled uses the morgage finance giants Fannie Mae and Freddie Mac to aid in the repair of the financing crunch.

This is accomplished by Fannie Mae and Freddie Mac packaging mortgages put together by state and local agencies and selling those mortgage packages as bonds to the United States Treasury Department.

See more:
$8k Tax Credit for First Time Home Buyers
Fannie Mae to Allow Borrowers in Foreclosure to Lease Back Homes
Loan Modification Reporting Changes

New Refinance Rules to Aid Borrowers

The federal government has recently eased up on some of the eligibility requirements for its home loan refinancing program. In the beginning of July 2009, the U.S. Department of Housing and Urban Development extended the Home Affordable Refinance Program to borrowers who are up to 25% more in debt to their home than the property is worth as long as their mortgages are guaranteed by Fannie Mae and Freddie Mac.

The previous threshold was 105% of the homes value, or owing 5% more than the home is actually worth.

Under the Making Home Affordable Program, there are two available options to eligible borrowers: (i) they can refinance their mortgage; or (ii) they can modify their loan by lowering their interest rate, extending the duration of the loan or reduce the principal on the loan.

It is currently estimated that only 200,000 of the 4 to 5 million Americans that are having difficulty saving their homes are enrolled in the program. Furthermore it is estimated that 10 percent, or 20,000 of these program participants are refinancing.

Only borrowers who have not missed a payment by more than 30 days in the last year, and are backed by a government sponsored lender, are eligible for the program.

Fannie Mae and Freddie Mac normally do not allow borrowers who owe more than 80% of the value of their home to refinance. These two lenders constitute around 50% of the outstanding mortgages in the country, and about 20% of all the seriously delinquent loans, on which no payment has been made during the past two months.

Here are the eligibility requirements:

-          To qualify for refinancing under the Making Home Affordable Program, the borrower must have their loan secured by Fannie Mae or Freddie Mac. To find out if your loan is secured through either of these entities, contact your lender.

-          The home must have no more than four single-family units, as some multifamily properties are able to qualify.

-          All mortgage payments must be current. The borrower cannot have any late payments more than 30 days past due.

-          The outstanding primary mortgage loan principal cannot exceed more than 125% of the home’s current market value that is up from the 105% limit in February.

See more:
If You Need to Refinance A Mortgage There Are New Rules
What You Should Know About Refinance
Should You Refinance? See if You Can Hit the Trifecta

Refinancing Your Mortgage

If you are behind on your mortgage and your payments are difficult to keep up with, you’re not alone: One in five homeowners now owes more money on their home that the house is worth, according to First American Core Logic. When it gets to this point, the goal here shouldn’t be to lock in the lowest interest rate; it should be to attempt to qualify for refinancing into a mortgage you can afford. Here are a couple options providing that you have a job and meet certain qualifications.

The first option is the Making Home Affordable program. This program was announced in March by the Obama administration and is intended for homeowners who owe more money on their home than the house is worth and need a more affordable payment. One feature of refinancing with the Making Home Affordable program is an interest rate that is fixed for at least five years.

The Making Home Affordable program is no cure-all. You’ll only qualify for the program if Fannie Mae or Freddie Mac owns the current loan on your home and the balance on your first mortgage can’t exceed the value of your home by more than five percent. That five percent limit disqualifies many in troubled markets in Arizona, California, Florida, and Nevada, where home values have dropped considerably. The Making Home Affordable program ends in June 2010.

The second option is called the Hope for Homeowners program. The Hope for Homeowners program may help if you’re at risk of default or are in bankruptcy or foreclosure. Because of the high cost to both the lenders and borrowers, very few of these FHA-insured loans have had any takers.

The Obama administration has proposed fixes to the Hope for Homeowners program to make it more effective. This includes the easing of eligibility requirements for borrowers and reducing their costs.

See more:
Obama’s Loan Modification Program
Fannie Mae, Freddie Mac, What to do?
www.makinghomeaffordable.gov
www.hud.gov/hopeforhomeowners

In light of the recent liquidity crisis involving the financial institutions in the mortgage lending arena, a home buyer or homeowner must know the difference between the two. The current conforming loan limit is $417,000 and below. Conforming loan limits change annually. Fannie Mae Freddie Mac establish the loan limits for their guidelines to establish a standard in which they will purchase loans. These government institutions are continuously in the market for conforming loans so the banks have greater liquidity originating these loans.

Jumbo loans are considered nonconforming and the ability to sell these loans in the secondary market have caused liquidity issues for banks. Anything over $417,000 must abide by different set of standards and the quality of these loans has been scrutinized in underwriting. The banks understand that these loans will more than likely become a portfolio loan because the secondary market does not currently have an appetite for jumbo loans. In addition to stricter underwriting standards, the rates are much higher than in the previous years. It is a simple supply and demand issue and in order to make these loans saleable they have to carry a higher interest rate and thus a higher yield to the investor that buys the loan. This is now one of the major reasons to avoid a jumbo loan if possible.

There are a couple of strategies to keep the loan amount at or less than $417,000. The obvious strategy is to buy a house less than the limit or make sure you put down enough money to keep the loan conforming. One of the most popular strategies is to split up the debt into a first and second mortgage. For example, if the loan amount was $650,000 the first mortgage would be $417,000 and the second mortgage would be $233,000. Since the bulk of the debt is on the first mortgage it yields an overall lower payment. The lower payment can help the borrower qualify with a lower debt to income and also allow the borrower the freedom of selecting from a wider variety of loan programs.

Keep in mind that these limits go up annually and the reports should be out soon if Fannie Mae and Freddie Mac have decided to raise the loan limits. States like California have been pushing for them to raise the limits because most of the states median value is over the conforming limit. Make sure you keep this in mind the next time you are house hunting or looking to refinance. You could end up saving yourself a lot of money.

Ben Hawkins

President

Home Loans in Arizona

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