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Apr-17-2008Freddie Mac to Unveil Lenders' Pact(topic overview)
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NEW YORK (Thomson Financial) - Government-sponsored enterprises Fannie Mae and Freddie Mac have made progress in improving their operations and bolstering mortgage markets, but they remain 'a significant supervisory concern' because of escalating credit risk, the Office of Federal Housing Enterprise Oversight, or OFHEO, said in its annual report to Congress Tuesday. OFHEO expects Fannie Mae (nyse: FNM - news - people )'s and Freddie Mac (nyse: FRE - news - people )'s major internal control issues to be remediated in 2008, but warned that 'the challenges of 2007 are still present this year. In order to mitigate the risk, OFHEO said it will need to raise additional capital, pointing to its decision in March to lower the 30% capital requirement to 20%. It also called for a stronger regulator, to ensure ability to restore confidence to the mortgage market. 'Significant progress was made in the remediation process, but OFHEO concludes that both companies remain classified as significant supervisory concerns,' OFHEO director James Lockhart wrote in the report. 'The extraordinary declines in the housing and mortgage markets have greatly increased their credit and interest rate risks, which have put additional pressure on their credit management, interest-rate risk management and financial modeling processes,' he added. [1] WASHINGTON (Thomson Financial) - The federal regulator of mortgage giants Fannie Mae and Freddie Mac said while the two companies have made strides in getting their financial reporting in order, they still need to be closely supervised in light of the risk they face given their exposure to trillions of dollars of mortgages. The Office of Federal Housing Enterprise Oversight (OFHEO) said both companies remain'significant supervisory concerns' in its annual report to Congress that was released on Tuesday. OFHEO has made that judgment in the past in light of the accounting overhaul that both companies needed to undertake. While that process is nearly complete, OFHEO said close supervision is still needed because the 'extraordinary declines in the housing and mortgage markets have greatly increased their credit and interest rate risks'. These risks have put 'additional pressure on their credit management, interest-rate risk management and financial modeling processes', OFHEO said in its report.[2] WASHINGTON (Reuters) - The unsettled U.S. mortgage and housing markets have left Fannie Mae (FNM.N: Quote, Profile, Research ) and Freddie Mac (FRE.N: Quote, Profile, Research ) exposed to serious risks, their federal regulator said on Tuesday. The two, the top U.S. housing finance companies, are under stress as they walk a line between curbing record losses and increasing their role in stabilizing the ailing U.S. housing market. As they try to boost the mortgage market, "both companies remain classified as significant supervisory concerns," the Office of Federal Housing Enterprise Oversight said in its annual report to Congress. "The extraordinary declines in the housing and mortgage markets have greatly increased their credit and interest rate risks," OFHEO director James Lockhart said in a letter to lawmakers.[3]
The Office of Federal Housing Enterprise Oversight has told Congress that Fannie Mae and Freddie Mac remain a significant supervisory concern because of increased mortgage market and credit risks. In its annual report to Congress, the OFHEO, which oversees both mortgage lenders, repeated its support for legislation that would mandate stronger regulation of Fannie Mae and Freddie Mac, but also praised the two for progress they have made. "Fannie Mae and Freddie Mac should be commended for the timely filing of their 2007 annual statements," OFHEO director James Lockhart said in a statement. "While they have made progress in fixing many of their systems, internal controls and risk management problems, they still have much work to do, especially with the continuing challenges of today's mortgage market."[4]
Fannie Mae and Freddie Mac helped provide stability and liquidity to the ailing U.S. mortgage market last year, but the two mortgage-finance giants remain a "significant supervisory concern," their regulator said. In its annual report to Congress on the two shareholder-owned but government-chartered companies, the Office of Federal Housing Enterprise Oversight cited "matters requiring attention," including Freddie Mac's internal controls and corporate governance.[5]
Freddie Mac still has some ineffective internal controls, has invested in poorly underwritten loans and lacks "sufficient executive management depth," the Office of Federal Housing Enterprise Oversight said in an annual report to Congress. The regulator also raised questions about accounting decisions Freddie Mac made last year, saying they need further review. Those issues include Freddie Mac's approach to calculating the amount of money it should hold in reserve and other accounting choices that enabled the company to report a one-time gain of about $1 billion.[6]
The two companies' share of new mortgages rose from 46 percent in the second quarter of 2007 to 80 percent in January, S&P; said. Encouraged by regulators and politicians intent on keeping more homeowners from defaulting, Fannie Mae and its smaller government-sponsored sibling Freddie Mac have expanded their roles in the stricken housing market. The companies together must provide as much as $200 billion in new funding for home loans in exchange for getting their risk cash cushions reduced. The government requires them to keep a certain amount on reserve to guard against risk.[7] Piper Jaffray (nyse: PJC - news - people ) analyst Robert P. Napoli believes the federal government is going to lean on Fannie and Freddie to help prop up the housing market in the latest downturn. This means buying more loans, which also means assuming more credit risk and raising more capital. "The U.S. government will go to great lengths to lessen the pain of this housing market downturn," Napoli wrote in a note to clients. "It is imperative for the housing and mortgage markets that the government-sponsored enterprises are well-capitalized throughout this housing downturn. Maintaining this imperative may come at the expense of shareholders." Napoli cut his price target on Freddie Mac to $25 from $34.[8] Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) were created by Congress decades ago to bolster liquidity in the housing market. These companies buy home loans from mortgage lenders, package the loans into bonds and sell the bonds to investors. This ensures mortgage lenders can find a buyer for their loans. With real estate prices slipping and the economy slowing, mortgage lenders are increasingly relying on loans they can sell to Fannie and Freddie. Stung by bad credit and illiquidity, lenders holding on to their own loans are susceptible to impatient financial backers and angry investors.[8]
The agreement is with Wells Fargo & Co., J.P. Morgan Chase & Co. and Citigroup Inc., Freddie officials said. For the past nine months or so, interest rates on jumbo loans -- those bigger than the normal $417,000 limit on mortgages that can be sold to government-sponsored investors Freddie Mac and Fannie Mae -- have been much higher than those on smaller ones. That's because other loan investors, spooked by surging defaults and dropping home prices, are reluctant to buy loans that aren't backed by Fannie, Freddie or the Federal Housing Administration.[9] Let me take you through it: The stimulus package raises the maximum size of a "conforming" mortgage to $729,750 from the previous cap of $417,000. A conforming mortgage is a mortgage that can be sold to Fannie Mae or Freddie Mac, and it carries a lower interest rate than "jumbo" loans that exceed those limits.[10]
The refinance index rose 5.2 percent. The index of conventional purchase, which are those applications for non-government-backed loans to buy homes, fell 2.1 percent. Good news on the refi and FHA front, and good news last week for loan rates, which for conforming loans (those under $417K) fell to an average 5.74 percent with 1.05 points paid upfront. The MBA group doesn't quote rates for the new "agency jumbos," those of more than $417K but which Fannie Mae and Freddie Mac will buy from now until the end of the year. Anybody gotten a quote on one of those lately? Still a point or more higher than rates for conforming loans? I would imagine so, but let us know what you know.[11]
Congress is reviewing proposals from U.S. lawmakers and presidential candidates that would increase the government's role in housing markets even further, through the Federal Housing Administration, which guarantees loans that are subsequently securities by the Government National Mortgage Association. Unlike Fannie Mae and Freddie Mac, this agency, known as Ginne Mae, has explicit government backing.[12] The Office of Federal Housing Enterprise Oversight said it has "significant supervisory concerns" about Fannie Mae and Freddie Mac. While both mortgage finance companies have been hurt by the problems in the housing market, Freddie's problems run deeper, OFHEO said.[13] Despite the turmoil, OFHEO concludes that the two government-sponsored enterprises have done good work to buttress internal controls and prepare themselves for the rocky market. The report "was more upbeat, as the GSEs have remedied nearly all of their accounting and control issues, and are both issuing financial statements on a timely basis," wrote Credit Suisse analyst Moshe Orenbuch in a research note. "However, OFHEO noted that each remains a significant supervisory concern, as a result of their poor performance and increased credit and other risks in the environment," he added. Credit Suisse maintained its "underperform" ratings on the companies. Fannie Mae and Freddie Mac "need to raise additional capital" in order to protect themselves against losses even though they have recently won some relief to expand their mortgage investments, OFHEO said.[3] The deferred losses involve what the companies regard as temporary declines in the value of mortgage-related investments, but determining whether the losses are permanent and therefore must be counted against earnings is a judgment call, OFHEO said. "This is raising a yellow flag," Lockhart said. "Obviously, if we had a major issue with any of these they would have made a change," he said. The regulator's assessment came several years after twin accounting scandals prompted Fannie Mae and Freddie Mac to replace their top managers and begin overhauling the systems they use to track finances. The government has been counting on Fannie Mae and Freddie Mac to help prop up the troubled mortgage market, and toward that end OFHEO last month agreed to let them operate with thinner financial cushions. In announcing the decision, OFHEO emphasized the progress both companies had made in recovering from the accounting scandals.[6] Under an accounting rule, Freddie Mac was able to book income from changes in the value of securities it held and was able to choose which securities to use that way, presenting the opportunity to cherry-pick. In an interview, OFHEO Director James B. Lockhart III said the agency was not challenging the accounting judgments Freddie Mac has already made but will be monitoring its approach going forward "to make sure there's a logical and ongoing methodology." The Securities and Exchange Commission may look at the accounting issues as Freddie Mac seeks to register with the SEC this year, Lockhart said. At the end of last year, Fannie Mae and Freddie Mac had $4.8 billion and $15 billion of paper losses, respectively, that they had not counted against earnings, OFHEO said.[6]
The potential cost to U.S. taxpayers of bailing out Wall Street firms stricken by the credit crisis could grow to as much as $400 billion in a deep and prolonged recession, Standard & Poor's estimated yesterday. That bill would soar by another $1.4 trillion if it included the cost of bailing out Fannie Mae, Freddie Mac and other government credit agencies, whose losses could be so massive that the U.S. government could lose its AAA rating in what would be a calamity for the U.S. Treasury and the dollar.[14] WASHINGTON (AP) — A deep recession could force mortgage-finance titans Fannie Mae and Freddie Mac to require a federal bailout large enough to hurt the U.S. government's top-grade credit rating, Standard & Poor's warned Monday.[7] The performance of government-sponsored enterprises such as Fannie Mae and Freddie Mac could have a direct impact on the national economy and, more importantly, U.S. credit standing, according to credit rating agency S&P;, reports the WSJ. So-called GSEs enjoy implicit government guarantees and could cause the U.S. to lose its sterling triple-A rating if the government were forced to come to their rescue, S&P; said in a report Monday.[15]
By lifting loan-size limits and easing capital rules, S&P; noted, the government will let Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ) "replace some of the lost credit from private-label mortgage packagers," many of which disappeared along with the subprime mortgage market. The moves "increase both the likelihood of government support and the potential cost of providing such support."[12]
Fannie Mae and Freddie Mac, the U.S. government sponsored housing financiers, 'remain a significant supervisory concern' and still needed better internal controls, corporate governance and risk management, their regulator said yesterday.[16] A federal regulator said yesterday that it has "significant supervisory concerns" about the conditions of Fannie Mae and Freddie Mac, two government-sponsored housing finance companies that own or guarantee trillions of dollars of mortgages. Both companies have suffered financially from the meltdown in the housing market and remain vulnerable to further declines, but Freddie Mac's problems run deeper, the regulator said.[6]
A Piper Jaffray analyst said Monday the federal government is likely to do whatever it can to rescue the housing market - even at the expense of Fannie Mae and Freddie Mac.[8]
Treasury and Fed officials in the past have taken issue with the widespread view on Wall Street that Fannie Mae and Freddie Mac are backed by the government. They have repeatedly warned about the risks posed by their enormous holdings of more than $6 trillion, and have sought to rein in the agencies to reduce potential taxpayer liabilities.[14]
As Washington geeks realize, I'm making a big assumption here, and a somewhat cynical one. The higher limits for Fannie and Freddie (which are government-sponsored enterprises) are scheduled to expire at the end of this year, and there's talk of reducing the maximum size of the loans insured by the FHA, which is a government agency. I'm assuming that when political forces such as homeowners, Fannie and Freddie get a "temporary" goody from Washington, it tends to become permanent. Politicians love to give out goodies but are loath to take them away. That's especially true in a case like this, where interest savings (or higher house prices) for high-income types don't show up as a cost to the federal budget the way rebates do. The cost of this benefit -- higher financial risks for the FHA, Fannie, and Freddie -- is hidden, unlike the projected $152 billion of stimulus payments. I'm dubious about whether all this stimulus money will stimulate anything other than the amount Uncle Sam will have to borrow, primarily from foreigners, to close our budget deficit. But I could be wrong.[10] While the Federal Reserve's rescue of Bear Stearns & Co. last month with a $29 billion guaranteed loan had comparatively small costs to taxpayers, the action served to cement the impression on Wall Street that the U.S. government will not allow any major brokerages to fail, and it will almost certainly step in to prevent the failure of Fannie or Freddie, S&P; said.[14]
The financial stress Fannie and Freddie may face poses a far larger risk to the government than the $29 billion in mortgage assets taken on by the Federal Reserve to avoid the bankruptcy of investment bank Bear Stearns Cos, the credit rating agency said.[7] The Bush administration has long been concerned about the risks posed by Fannie and Freddie, but given a housing market on the skids, has no choice but to let the two play a bigger role, said David Jones, president of Denver-based consulting firm DMJ Advisors. "It's a risk the government has to take," he said, adding that the country's $14 trillion economy is strong enough to insulate the government's credit rating from a downgrade.[7]
Many analysts, however, believe the government's actions expose Fannie and Freddie to more risk. "If housing prices go down another 15 percent, they're not going to be able to withstand it," said Harvard University economist Kenneth Rogoff. It's not just economists and policymakers who are closely monitoring the growing dependence on Fannie and Freddie. Their shareholders, too, should see the reliance as a "growing concern," Piper Jaffray analyst Robert Napoli wrote in a research report Monday. "The U.S. government will go to great lengths to lessen the pain of this housing market downturn," Napoli wrote, adding that shareholders' stake in the company could wind up being diluted as the companies may be pressured to raise more capital than investors desire. "The longer and more severe the housing downturn, the more this risk grows," he wrote.[7] The findings in the Office of Federal Housing Enterprise Oversight'''s annual report to Congress represent an obstacle to plans to grant Fannie and Freddie greater flexibility to support the U.S. housing market. Ofheo wants Fannie and Freddie to make improvements before it will further reduce a regulatory capital surcharge imposed on them after past accounting scandals. The charge was cut from 30% to 20% this year.[16] In terms of mortgage origination, Fannie and Freddie accounted for a whopping 75.6 pct in 2007, up sharply from 37.4 pct in 2006. OFHEO director James Lockhart said there is 'increasing pressure' on both companies to 'do even more to support the mortgage market'. He also said this is 'problematic' given the absence of legislation that would strengthen federal oversight of the two companies. Lockhart noted in March OFHEO agreed to lower the capital reserve requirements for both companies in an effort to increase their ability to support the mortgage market, and said the mortgage portfolio of both companies will likely expand later this year. He again stressed better oversight is needed and called on Congress to approve legislation that would give the federal regulator greater oversight over the two companies, as well as other changes OFHEO believes would strengthen its role in overseeing Fannie and Freddie. 'The time to act on the legislation is now,' he said.[2]
In February, Congress passed legislation raising the ceiling on loans that can be purchased by Fannie or Freddie or insured by the FHA to as much as $729,750 in the highest-cost areas. The expanded limits are due to expire at the end of this year, though they could be extended by Congress. Some lenders have been reluctant to offer terms on loans between $417,000 and the new $729,750 limit -- a category known as "conforming jumbo" -- because of uncertainty over how much Fannie and Freddie will pay for them.[9] The pricing commitments will be based on benchmarks in the pricing of mortgage-backed securities. Freddie officials said they are in talks to extend similar terms to other big lenders. Based on the current pricing plans, interest rates on conforming jumbo loans are likely to be around 0.50 to 0.75 percentage point above those on loans of $417,000 and below, said Bob Ryan, vice president of mortgage-credit pricing at Freddie. The conforming jumbo rates should be around 0.50 point below those on mortgages that exceed the new caps, he said.[9] A $729,750 limit works out just fine. This higher limit translates into cheaper refinancing or a higher sales price, because the lower interest rate means buyers can presumably afford to pay a higher price. If we assume a 5 percent down payment, we're talking about houses in the $450,000 to $765,000 range becoming eligible for these loans. The range rises if people make larger down payments or put second mortgages on top of these loans.[10]
NEW ORLEANS (AP) - The Federal National Mortgage Association said Wednesday its investment in underwriting or refinancing home loans since Hurricane Katrina has reached $40 billion in the Gulf Coast region and announced a new injection of almost $50 million into the New Orleans housing market.[17] While the tourism industry has rebounded and construction jobs are plentiful, U.S. companies have not invested heavily in new permanent jobs in New Orleans. In announcing Wednesday the availability of an additional $48.8 million in New Orleans, Fannie Mae said the money will be targeted to affordable housing, including rental units and condos expected to come to market later this year.[17] NEW ORLEANS, April 16 /PRNewswire-FirstCall/ -- Fannie Mae today announced that it is boosting the rebuilding effort in New Orleans by investing an additional $48.8 million in housing developments throughout the city.[18]
Fannie Mae partners with lenders, tax credit fund managers, housing nonprofits, developers and others to invest in rental housing and single family homes throughout New Orleans.[18] A state-by-state breakdown was not immediately available. While accounting for only 2.5 percent of its total in the region since the August 2005 hurricane, Fannie Mae Gulf Coast director Tim Carpenter said the investment in New Orleans is significant given post-storm uncertainties about the housing market and the economy.[17] "Fannie Mae and its housing partners are very committed to New Orleans and will continue to be a major player in the rebuilding effort," said Ken Bacon, EVP of Housing & Community Development at Fannie Mae.[18]
The government-sponsored, publicly traded company known as Fannie Mae said $1 billion of the $40 billion total was in New Orleans.[17]
A Fannie Mae spokesman had no immediate comment on whether that company planned similar arrangements. HSH Associates, a financial publisher in Pompton Plains, N.J., said its surveys of lenders last week showed an average rate of about 5.9% on loans of $417,000 and below that can be sold to Fannie and Freddie, compared with an average of about 7.2% on loans too large for them to buy.[9] The plan would prohibit Fannie Mae and Freddie Mac from buying home loans where the property value is determined by an in-house appraiser. "It is not clear that the appraisal function should be outside the institution," Dugan said, responding to questions at an Excheqeur Club luncheon.[19] WASHINGTON, April 16 (Reuters) - An effort by Fannie Mae (FNM.N: Quote, Profile, Research ) and Freddie Mac (FRE.N: Quote, Profile, Research ) to put home lenders and appraisers at arm's length is flawed, a top U.S. bank regulator said on Wednesday.[19]
In the report released yesterday, OFHEO gave Fannie Mae more credit than Freddie Mac.[6] Freddie Mac shares fell 68 cents, or 2.9 percent, to $22.81 in morning trading, while Fannie Mae shares slipped 87 cents, or 3.3 percent, to $25.17.[8] Illustrating the adage that too much of anything is no good, Standard & Poor's warned on Monday that Fannie Mae and Freddie Mac pose significant economic risks to the United States.[12] Washington, D.C. -based Fannie Mae and McLean, Va. -based Freddie Mac have been under scrutiny since admitting to billions of dollars in accounting errors several years ago.[4]
For everyone who's crying about the moral hazards of a government bailout of the mortgage crisis, I have just 3 words for you. The banks are so afraid that they won't lend to one another. They have Zero faith in Government secured loans. When these financial institutions finally stop underwriting to Fannie and Freddie overall standards, which in my opinion is only months away, borrowers are about to be faced with the a new set of underwriting standards in this country, that are based on complete fear. I'' think it's too late anyway. I think the Fed should have moved before we got to this point in August of last year.[20] Aiding Fannie and Freddie, plus the government agencies that back home loans and student loans could add up to 10 percent of gross domestic product, the total value of all goods and services produced within the United States, S&P; said. John B. Chambers, chairman of Standard & Poor's sovereign rating committee, said in a statement that in a worst-case scenario the size of Fannie and Freddie "could create a material fiscal burden to the government that would lead to downward pressure on its rating."[7] The cost of rescuing the credit agencies, including the Federal Home Loan Banks, would be up to 10 percent of the economy's $14 trillion annual output, or $1.4 trillion, S&P; said.[14]
Freddie Mac is expected to announce Thursday an agreement with three major mortgage lenders aimed at making more funds available for large home loans.[9] Freddie Mac still has some ineffective internal controls, has invested in poorly underwritten loans and lacks "sufficient executive management depth," the regulator said in an annual report to Congress.[13]
'While they have made progress in fixing many of their systems, internal controls and risk management problems, they still have much work to do, especially with the continuing challenges of today's mortgage market,' OFHEO Director James Lockhart said. The report also noted an ongoing "significant supervisory concern" given the current volatility and uncertainty surrounding the U.S. mortgage market and renewed its calls for a stronger regulator of the system.[21] Standard & Poor's analyst John Chambers said "recent policy decisions aimed at supporting the U.S. mortgage market" have made "large contingent fiscal risks" posed by Fannie and Freddie "even larger." Chamber added, "If these risks were to translate into increased government debt, they could even hurt the U.S.'s credit standing."[12] S&P; analysts see a bailout of Fannie and Freddie as unlikely and point out that U.S. officials "are focused on avoiding a deep and prolonged recession." While the government isn't obligated to assist Fannie or Freddie in a financial emergency, many on Wall Street believe it would bail them out if there is a collapse. The idea that they are "too big to fail" enables the two companies to borrow relatively cheaply by issuing top-rated securities backed by mortgages.[7] Washington-based Fannie and McLean, Va. -based Freddie face intense pressure to do more to help out a hobbled housing market. Over the past year, their share of new mortgages has soared, as Wall Street investors have backed away from all but the safest mortgage investments.[7]
Fannie and Freddie are imposing numerous restrictions on conforming jumbo loans. For instance, Freddie won't buy such loans in cases where the borrower's mortgage debt exceeds 90% of the home's appraised value, or 85% in areas where house prices are falling. Freddie also says borrowers must fully document their income and assets.[9] Fannie Mae has a federal charter and operates in America's secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates.[18] Recent investment activity includes the following: -- Fannie Mae has entered into an agreement to provide $11.5 million through Prudential Mortgage Capital for the permanent financing of The Willows once the apartment complex is rehabilitated and leased.[18] Fannie Mae has provided $40 billion in financing for housing and redevelopment in the Gulf region since Hurricane Katrina in 2005.[18] Fannie Mae estimated losses of up to $500 million after Katrina, but that figure later was revised to $100 million.[17]
Fannie Mae's internal controls range "from satisfactory to adequate," the regulator said.[6] Ofheo also pointed to Fannie Mae's strategy for managing interest-rate risk, which it described as "somewhat aggressive in light of higher and.[5]
OFHEO noted Fannie and Freddie's total exposure to the mortgage market grew by 15 pct in 2007, up from 8 pct in 2006. Together, they have a total of 5 trln dollars worth of mortgage-backed securities and mortgage investments.[2] OFHEO attributess that view to the agencies' growing role, noting that the GSEs' support of the mortgage market grew by 15% in 2007 to $5.0 trillion in guaranteed mortgage-backed securities outstanding and mortgage investments. Their market share of total mortgage originations grew to 75.6% in the fourth quarter from 37.4% in 2006.[1]
The S&P; report noted a spike in growth in the government-sponsored enterprises' share of mortgages made into securities.[12]
At the end of last year, government-sponsored enterprises, agency and mortage pools backed by the government-sponsored enterprises held $7.3 trillion of debt, about a fifth of all U.S. lending and more than half the size of the American economy, which was $13.8 trillion in 2007.[12]
Standard & Poor's is one of two Wall Street credit agencies that assign ratings to the U.S. government. The ratings not only reflect on the government's strength, but they largely determine its debt costs.[14] A lower credit rating would mean higher borrowing costs for the U.S. government and could lead to a flight from Treasury securities, which investors — including foreign governments — consider to be virtually risk-free.[7]
To assign a rating, S&P; must make realistic estimates of the financial threats that arise in dire circumstances, including the possibility of a severe recession resulting from the housing collapse. "Even under a severe stress scenario, the contingent fiscal risks of broker-dealers will not threaten the AAA rating on the U.S. government," said John B. Chambers, chairman of S&P;'s sovereign ratings committee, but because the government credit agencies have grown to such an enormous size, their insolvency would put pressure on the U.S. government's own finances.[14]
The warning comes at a time that the government is encouraging the companies to expand lending to help boster the troubled U.S. housing market.[12]
The companies are expected to raise significant capital to supplement a move by the regulator to relax constraints last month on the two, the biggest providers of U.S. home loan funding.[3]
Confused about where to go if you want to look into getting an FHA loan (Federal Housing Administration)? I still am, and I've even been onto the FHA website to look up local lenders and such. Someone's applying for those loans, judging by this week's release from the Mortgage Bankers Association.[11] The maximum mortgage that can be insured by the Federal Housing Administration has also risen to $729,750. For people in high-home-price areas, including mine, these maximum mortgages are now high enough to matter.[10]
Even if normalcy returns -- alas, that doesn't seem imminent -- having a $700,000 conforming mortgage would cut a borrower's interest costs by $1,400 a year.[10] In today's market, the interest difference between a conforming loan and a non-conforming loan for a 30-year fixed-rate mortgage is a whopping 1.27 percent a year, according to Keith Gumbinger, a vice president at HSH Associates, a mortgage research firm.[10]
Once you get above the amount the fed is guaranteeing, the loan industry is taking zero risk, even on those with good credit.[11]
Freddie Mac (NYSE: FRE) had a $2.45 billion loss in the fourth quarter. [4] The company also announced that it has invested more than $1 billion in Orleans Parish since Hurricane Katrina struck in 2005. Its total book of business in New Orleans is now larger than it was prior to the storm.[18]
SOURCES
1. OFHEO:Fannie Mae, Freddie Mac a'significant supervisory concern' on credit risk - Forbes.com
2. OFHEO says Fannie, Freddie remain'significant supervisory concerns' - Forbes.com
3. Fannie, Freddie regulator sees more risk ahead | Reuters
4. Regulator: Fannie Mae, Freddie Mac still a concern - South Florida Business Journal:
5. Free Preview - WSJ.com
6. Attempting to Heal a Fractured Mortgage Market - washingtonpost.com
7. The Associated Press: Report Highlights Fannie, Freddie Risks
8. Analyst: US to Lean on Fannie, Freddie - Forbes.com
9. Freddie Mac to Unveil Lenders' Pact - WSJ.com
10. Allan Sloan - Happy Tax Day, Homeowners! - washingtonpost.com
11. Square Feet: Mortgage applications inched up last week, led by FHA and refis
12. Bailout Now, Pay Later - Forbes.com
13. Early Briefing: Concerns About Freddie - WashBiz Blog
14. S&P; gauges bailout of Wall Street firms - - Breaking News, Political News & National Security News - The Washington Times
15. FT.com | GSEs could hit US credit rating
16. Concern over US mortgage providers - Property Week
17. Fannie Mae: Investment in N.O. tops $1 billion - NewsFlash - NOLA.com
18. Fannie Mae Boosts New Orleans Rebuilding Effort Through New Housing Investments Totaling More Than $48.8 Million
19. Regulator knocks Fannie, Freddie appraisal deal | Markets | Bonds News | Reuters
20. See What People Are Saying About. Inflation & Gov't Bailout - FM See What People Are Saying - MSNBC.com
21. Canadian Economic Press - Welcome
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