to date. As usual it was cast in glowing terms. It is clear that FHFA
is doing something. In my view that ‘something’ is consistently the
wrong thing. From the report:
Washington,
DC – Fannie Mae and Freddie Mac refinanced more than 2.9 million
mortgage loans in 2009 through July of this year. Since the inception
of the Making Home Affordable Refinance Program (HARP) in April, Fannie
Mae and Freddie Mac refinanced almost 1.9 million mortgage loans
through July.
A little clarity. This first
paragraph reads as if the Agencies have addressed and restructured
2.9mm loans under the Harp program. That is not correct. Of the total
of 2.9mm only 190k were under the HARP program. The balance were ReFi’s
where the borrower got a lower rate and likely took some additional
money in a cash out.
In the first seven months of the year
Fannie and Freddie did all the ReFi's that they could at lower interest
rates. During this period the D.C. lenders were 90% of the mortgage
market. The opportunity to lower a mortgage interest rate had a very
beneficial impact on those lucky borrowers. The claimed ‘savings’ of
1.3% on 2.7mm mortgages with an average balance of $200k comes to $7
billion a year. An effective stimulus for sure. But now the rates for
mortgages have risen. On a mark to market basis those new mortgages are
underwater. Because the folks at F/F do not have to bother with
trivialities like mark to market there is no reported loss from this
activity. But it will be a drag on future income for the next decade.
We again follow a policy that steals from the future to pay for current
excesses.
Anyone can make cheap loans. That is not success. This
is a policy decision by the federal government to stimulate consumer
demand. If F/F are tools of government policy their status should be
resolved so that role can be debated. Making low interest rate loans
and then having the Fed buy $1.25 trillion of these loans is a subsidy.
It has a current and future expense. This needs to be understood and
accounted for.
Mr.
Lockhart said. “Importantly, over 60,000 borrowers with mortgage loans
that exceed 80 percent of the house value up to 105 percent have been
refinanced. We are now seeing significant results from the HARP and the
Home Affordable Modification Program (HAMP), but much more work needs
to be done. I commend the Fannie Mae and Freddie Mac teams for helping
drive this effort.”
Historical data shows that the
bulk of mortgage defaults occur when the borrower has a change of
circumstance (illness, death of spouse, loss of job) and not high LTV
loans. The Agencies are relying on this with these new high LTV loans.
That is terrible policy. Up until 2007 there had never been a year
where there were nationwide declines in RE values greater than 5%. So
relying on old reasoning does not apply when prices can decline by 25%
in just one year. The most significant cause for default today is that
borrowers are ‘upside down’. When the Agencies make high LTV loans they
put all of us at risk. High LTV loans have default rates in the 20%+
range. We need to stop policies that encourage defaults. Mr. Lockhart
lauds these results. He is just writing a taxpayer check.
Under
HARP, borrowers whose loan-to-value (LTV) ratio is above 80 percent up
to 105 percent are able to refinance without added mortgage insurance
requirements, a previous key barrier to refinancing.
The
Charter of both Fannie and Freddie spell this out in their definition
of Conforming Loans. It is simple. 80% LTV to a borrower who can
demonstrate they can make the payments. Insurance industry lobbyists
created a carve-out to this rule with Mortgage Insurance. This allowed
F/F to buy 103% LTV loans and avoid their own restrictions. It has
proven to be a disaster. The ‘enhanced’ loans are one of the largest
contributors to the pool of busted mortgages. Now they are just waiving
those Charter restrictions away. By what authority do they do that?
Congress is supposed to be looking after this mess. Who is minding the
store here? Is Barney Frank still involved with this? Is he writing
taxpayer checks too?
Through
July, Fannie Mae had refinanced 1.7 million loans. Of that total,
approximately 138,000 loans were refinanced under the company’s DU Refi
Plus and Refi Plus flexibilities that were put in place to support the
HARP. Freddie Mac refinanced 1.2 million loans through July. Of that
total, approximately 53,000 loans were refinanced under the company’s
Relief Refinance program that was put in place to support HARP.
The
190k loans restructured under HARP guidelines are the problem loans.
While FHFA crows about this success they fail to mention that they have
a backlog of more than one million borrowers that are seriously
delinquent. Nor do they mention that as many as 50% of these ReFi's
will go back into default in less than six months.
The
Federal Housing Finance Agency recently announced the expansion of HARP
to allow borrowers with LTVs up to 125 percent to participate. Fannie
Mae will begin accepting deliveries of refinanced loans with LTVs over
105 percent up to 125 percent as of September 1. Freddie Mac will begin
accepting deliveries of these loans on October 1.
This
is insane. No private lender in their right mind would make a 125%
loan. These are just losses to be. The FHFA is perpetuating the cycle
of default. They are making things worse, not better.
###
The
Federal Housing Finance Agency regulates Fannie Mae, Freddie Mac and
the 12 Federal Home Loan Banks. These government-sponsored enterprises
provide more than $6.3 trillion in funding for the U.S. mortgage
markets and financial institutions.
The FHFA
always ends its communications with this sentence. I do not know if
they are proud of this number or whether they point this out to remind
us of how powerful they are. No single entity should have this much
exposure to the credit market. It defines systemic risk.
Gov't simple equation for savings - Net income minus expenditures - the nuts think we don't buy groceries or gas or clothes et al . So the 8% lie about current savings rate is more like -8% still - or do the Gov't figures really lie about savings -
http://tinyurl.com/qsj68v
Why Standard US Savings Rate Calculations are Completely Wrong
Who said helocs are dead? Semantics! Now I want some, the sob's stole my retirement,so now I want a 125%ltv, sign on for a new car and give them a junker and don't pay that either. I can't hardly wait to walk away, make that drive away in my new suv, what the hell, I'll take a dozen new credit cards and have a good time, it's the new american way! Don't worry, be happy! Who thinks that you can actually own land anyway? I paid a house off when I was 30, the NEXT month I got a bill from the county tax assesor, spelling out the rules, don't pay for 3 years and the property is theirs! I learned from the indians and the gypsy's. To a Gypsy, a rich man is not someone who holds a million dollars, a rich man is one who borrowed and spent a million dollars, you can't take none of it with you, I'm to the point where I'm ready to play by the real rules! Thanks, Tyler, Marla and excellant crew, waiting for my ZI T-shirt! love you man, Frank
"Household savings" is actually paying down debts, NOT saving. All the money going into "savings" is going to Visa, Mastercard, Discover, etc, NOT into money markets or even plain old savings accounts.
Re 80 LTV, you are correct, it is illegal for them to take over 80LTV without credit enhancement. Note that it does not need to be mortgage insurance. One option is 10% participation by sellers. Why don't they do away with MI and enforce that option for credit enhancement? Isn't that what the government wants? For loan originators to share the risk? Wouldn't that help lead to more responsible loan origination?
Note that in the code, that is the FIRST option listed, and MI is the LAST. Intentional?
http://www.law.cornell.edu/uscode/html/uscode12/usc_sup_01_12_10_13_20_I...
For the purposes set forth in section 1716 (a) of this title, the corporation is authorized, pursuant to commitments or otherwise, to purchase, service, sell, lend on the security of, or otherwise deal in mortgages which are not insured or guaranteed as provided in paragraph (1) (such mortgages referred to hereinafter as “conventional mortgages”). No such purchase of a conventional mortgage secured by a property comprising one- to four-family dwelling units shall be made if the outstanding principal balance of the mortgage at the time of purchase exceeds 80 per centum of the value of the property securing the mortgage, unless
(A) the seller retains a participation of not less than 10 per centum in the mortgage; (B) for such period and under such circumstances as the corporation may require, the seller agrees to repurchase or replace the mortgage upon demand of the corporation in the event that the mortgage is in default; or(C) that portion of the unpaid principal balance of the mortgage which is in excess of such 80 per centum is guaranteed or insured by a qualified insurer as determined by the corporation.