Freddie Mac: Fixed Mortgage Rates Edge Up Again

After dropping for two consecutive weeks, fixed mortgage rates edged up again during the week ending April 24, according to Freddie Mac’s Primary Mortgage Market Survey.

The average rate for a 30-year fixed-rate mortgage (FRM) was 4.33%, up from 4.27% the previous week. A year ago at this time, the 30-year FRM averaged 3.40%.

The average rate for a 15-year FRM was 3.39%, up from 3.33% the week prior. A year ago at this time, the 15-year FRM averaged 2.61%.

The average rate for a five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged 3.03%, unchanged from the previous week. A year ago, the five-year ARM averaged 2.58%.

The average rate for a one-year Treasury-indexed ARM averaged 2.44%, also unchanged from the week prior. At this time last year, the one-year ARM averaged 2.62%.

“Mortgage rates edged up following the uptick in the 10-year Treasury note late last week,” says Frank Nothaft, vice president and chief economist, Freddie Mac. “Existing-home sales were essentially flat with a 0.2 percent decline in March to a seasonally adjusted annual rate of 4.59 million. However, new home sales fell nearly 15 percent in March to an annual rate of 384,000, well below consensus.”

Fitch Affirms FREMF 2013-K26 & Freddie Mac SPCs, Series K026

NEW YORK–(BUSINESS WIRE)–Fitch Ratings has affirmed six classes of FREMF 2013-K26 multifamily
mortgage pass-through certificates series and three classes of Freddie
Mac structured pass-through certificates, series K026. A detailed list
of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The affirmations of Freddie Mac 2013-K26 are based on the stable
performance of the underlying collateral. As of the March 2014
distribution date, the pool’s aggregate principal balance has been
reduced by 0.30% to $1.461 billion from $1.466 billion at issuance.
Fitch has not designated any loans as Fitch Loans of Concern, and no
loans are in special servicing.

The affirmations of the Freddie Mac K026 certificates are the result of
the pass-through nature of the certificates, as they are dependent on
the underlying ratings of corresponding classes of FREMF 2013-K26.

The largest loan of the pool (8.4%) is secured by East Coast 4, a
leasehold interest in a 367-unit high-rise apartment complex located in
Long Island City, Queens, NY. The property is part of a larger site that
represents the second phase of a master-planned project located along
the East River in Hunters Point. As per the property’s rent roll,
occupancy has remained approximately 100% since issuance.

The second largest loan (3.7%), Oakwood Falls Church, is secured by a
567-unit mid-rise apartment complex located in Falls Church, VA, that is
primarily used for corporate housing. The complex includes four
residential buildings, a leasing office, conference rooms, business
center and club room, a convenience store, a dry cleaner, a pro tennis
shop, tennis and basketball courts, and a beach volleyball court. As per
the servicer, the property’s occupancy increased slightly to 96.9% as of
September 2013 from 95% as of year-end 2012.

Occupancy on the third largest loan remains stable. The fourth largest
loan (3.2%), Granby and Olympia Mills Student Apartments, a student
housing facility in Columbia, SC, less than one mile away from the
University of South Carolina has seen an occupancy decline. The property
was converted from a historic cotton mill built in 1895, to a 1,050-bed
student housing complex. As of the third-quarter 2013, the property’s
occupancy declined slightly to 94.2% from 100% as of February 2013.
Leases are on 12-month terms that begin in August of each year.

RATING SENSITIVITY

The Rating Outlook for all classes remains Stable. Due to the recent
issuance of the transaction and stable performance, Fitch does not
foresee positive or negative ratings migration until a material economic
or asset-level event changes the transaction’s portfolio-level metrics.
Additional information on rating sensitivity is available in the report
‘FREMF 2013-K26 Multifamily Mortgage Pass-Through Certificates and
Freddie Mac Structured Pass-Through Certificates, Series 2013-K26′
(April 16, 2013), available at www.fitchratings.com.

Fitch affirms the following classes:

FREMF 2013-K26 Multifamily Mortgage Pass-Through Certificates

–$185.2 million class A-1 at ‘AAAsf’; Outlook Stable;

–$1.1 billion class A-2 at ‘AAAsf’; Outlook Stable;

–$73.3 million class B at ‘Asf’; Outlook Stable;

–$36.7 million class C at ‘BBB+sf’; Outlook Stable;

–$1,242* billion class X1 at ‘AAAsf’; Outlook Stable;

–$1,242* billion class X2-A at ‘AAAsf’; Outlook Stable.

Fitch does not rate the class D, X2-B and X3 certificates.

Freddie Mac Structured Pass-Through Certificates, Series K026

–$185.2 million class A-1 at ‘AAAsf’; Outlook Stable;

–$1.1 billion class A-2 at ‘AAAsf’; Outlook Stable;

–$1,242* billion class X1 at ‘AAAsf’; Outlook Stable.

Fitch does not rate the class X3 certificate.

*Notional amount and interest-only.

A comparison of the transaction’s Representations, Warranties, and
Enforcement (RWE) mechanisms to those of typical RWEs for the asset
class is available in the following report:

–’FREMF 2013-K26 Multifamily Mortgage Pass-Through Certificates and
Freddie Mac Structured Pass-Through Certificates, Series 2013-K26 —
Appendix’ (April 16, 2013).

Additional information on Fitch’s criteria for analyzing U.S. CMBS
transactions is available in the Dec. 11, 2013 report, ‘U.S. Fixed-Rate
Multiborrower CMBS Surveillance and Re-REMIC Criteria’, which is
available at ‘www.fitchratings.com
under the following headers:

Structured Finance CMBS Criteria Reports

Additional information is available at ‘www.fitchratings.com‘.

Applicable Criteria and Related Research:

–’Global Structured Finance Rating Criteria’ (May 24, 2013);

–’U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC
Criteria’ (Dec. 11, 2013).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827647

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND
DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING
THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS.
IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE
AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘WWW.FITCHRATINGS.COM‘.
PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS
SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS
OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES
AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OF CONDUCT’ SECTION OF
THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE
RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR
RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY
CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH
WEBSITE.

Freddie Mac: mortgage rates edge higher, 30-year averaging 4.33%

The average for a 15-year fixed loan rose from 3.33% to 3.39%, the McLean, Va.-based home finance company said Thursday.  Start rates for variable-rate loans were unchanged.  

Helped by stimulus measures from the Federal Reserve, the 30-year rate dropped below 3.5% in late 2012, but as recovery set in it rose back above 4.5% by the middle of last year.

It has spent most of 2014 below that level, making mortgage borrowing quite a bargain by historical standards.

QUIZ: How much do you know about mortgage rates?

Most fixed mortgages are packaged up to back bonds that are sold to investors with payment guarantees from Freddie Mac and other government-controlled entities.

These so-called agency bonds are regarded as nearly as safe as securities issued by the federal government, and fixed mortgage rates tend to move up or down according to what investors can earn on 10-year Treasury notes.

The mortgage rate increase this week followed an uptick in the yield on 10-year Treasury notes late last week,said Frank Nothaft, Freddie Mac’s chief economist.

Freddie Mac surveys lenders every Monday through Wednesday, asking them about the terms they are offering to borrowers who are good credit risks, have 20% down payments and pay less than 1% of the loan amount in lender fees and discount points.

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Fitch Affirms FREMF 2013-K26 & Freddie Mac SPCs, Series K026

NEW YORK–(BUSINESS WIRE)–

Fitch Ratings has affirmed six classes of FREMF 2013-K26 multifamily mortgage pass-through certificates series and three classes of Freddie Mac structured pass-through certificates, series K026. A detailed list of rating actions follows at the end of this press release.

KEY RATING DRIVERS

The affirmations of Freddie Mac 2013-K26 are based on the stable performance of the underlying collateral. As of the March 2014 distribution date, the pool’s aggregate principal balance has been reduced by 0.30% to $1.461 billion from $1.466 billion at issuance. Fitch has not designated any loans as Fitch Loans of Concern, and no loans are in special servicing.

The affirmations of the Freddie Mac K026 certificates are the result of the pass-through nature of the certificates, as they are dependent on the underlying ratings of corresponding classes of FREMF 2013-K26.

The largest loan of the pool (8.4%) is secured by East Coast 4, a leasehold interest in a 367-unit high-rise apartment complex located in Long Island City, Queens, NY. The property is part of a larger site that represents the second phase of a master-planned project located along the East River in Hunters Point. As per the property’s rent roll, occupancy has remained approximately 100% since issuance.

The second largest loan (3.7%), Oakwood Falls Church, is secured by a 567-unit mid-rise apartment complex located in Falls Church, VA, that is primarily used for corporate housing. The complex includes four residential buildings, a leasing office, conference rooms, business center and club room, a convenience store, a dry cleaner, a pro tennis shop, tennis and basketball courts, and a beach volleyball court. As per the servicer, the property’s occupancy increased slightly to 96.9% as of September 2013 from 95% as of year-end 2012.

Occupancy on the third largest loan remains stable. The fourth largest loan (3.2%), Granby and Olympia Mills Student Apartments, a student housing facility in Columbia, SC, less than one mile away from the University of South Carolina has seen an occupancy decline. The property was converted from a historic cotton mill built in 1895, to a 1,050-bed student housing complex. As of the third-quarter 2013, the property’s occupancy declined slightly to 94.2% from 100% as of February 2013. Leases are on 12-month terms that begin in August of each year.

RATING SENSITIVITY

The Rating Outlook for all classes remains Stable. Due to the recent issuance of the transaction and stable performance, Fitch does not foresee positive or negative ratings migration until a material economic or asset-level event changes the transaction’s portfolio-level metrics. Additional information on rating sensitivity is available in the report ‘FREMF 2013-K26 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series 2013-K26′ (April 16, 2013), available at www.fitchratings.com.

Fitch affirms the following classes:

FREMF 2013-K26 Multifamily Mortgage Pass-Through Certificates

–$185.2 million class A-1 at ‘AAAsf’; Outlook Stable;

–$1.1 billion class A-2 at ‘AAAsf’; Outlook Stable;

–$73.3 million class B at ‘Asf’; Outlook Stable;

–$36.7 million class C at ‘BBB+sf’; Outlook Stable;

–$1,242* billion class X1 at ‘AAAsf’; Outlook Stable;

–$1,242* billion class X2-A at ‘AAAsf’; Outlook Stable.

Fitch does not rate the class D, X2-B and X3 certificates.

Freddie Mac Structured Pass-Through Certificates, Series K026

–$185.2 million class A-1 at ‘AAAsf’; Outlook Stable;

–$1.1 billion class A-2 at ‘AAAsf’; Outlook Stable;

–$1,242* billion class X1 at ‘AAAsf’; Outlook Stable.

Fitch does not rate the class X3 certificate.

*Notional amount and interest-only.

A comparison of the transaction’s Representations, Warranties, and Enforcement (RWE) mechanisms to those of typical RWEs for the asset class is available in the following report:

–’FREMF 2013-K26 Multifamily Mortgage Pass-Through Certificates and Freddie Mac Structured Pass-Through Certificates, Series 2013-K26 — Appendix’ (April 16, 2013).

Additional information on Fitch’s criteria for analyzing U.S. CMBS transactions is available in the Dec. 11, 2013 report, ‘U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria’, which is available at ‘www.fitchratings.com‘ under the following headers:

Structured Finance CMBS Criteria Reports

Additional information is available at ‘www.fitchratings.com‘.

Applicable Criteria and Related Research:

–’Global Structured Finance Rating Criteria’ (May 24, 2013);

–’U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria’ (Dec. 11, 2013).

Applicable Criteria and Related Research:

Global Structured Finance Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=708661

U.S. Fixed-Rate Multiborrower CMBS Surveillance and Re-REMIC Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=724961

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=827647

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY’S PUBLIC WEBSITE ‘WWW.FITCHRATINGS.COM‘. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH’S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE ‘CODE OF CONDUCT’ SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.

Why existing home sales are flat but first-time homebuyers return

Starts, permits, sales, and prices as spring selling season begins (Part 4 of 5)

(Continued from Part 3)

Existing home sales decrease to a 4.59 million pace in March

The National Association of Realtors (or NAR) reports existing home sales once a month. The seasonally adjusted number reports completed transactions in single-family homes, condominiums, townhomes, and co-ops. The report includes such data points as existing home sales, inventory of houses for sale, median house price, mortgage rates, and median time on the market. Existing home sales were an annualized 4.59 million in March.

Restricted supply has been the theme of the U.S. housing market over the past year

At the end of January, there were 1.99 million existing homes for sale, representing a 5.2-month supply. This is higher than the 4.7-month supply a year ago. A level of 6 to 6.5 months indicates a balanced market. So, while inventory is building, we’re still at tight levels. As professional investors have become major players in the real estate market, we’re seeing bidding wars for properties in the hardest-hit markets, like Phoenix, and even strong markets, like Washington, DC. For all the fears that a flood of properties would hit the market and drive down prices, the opposite problem has happened. That said, NAR forecasts that the jump in rates will begin to affect affordability in high-cost areas like California and the New York City metropolitan area.

Prices continue to rise

The median sale price for an existing home was $198,500, which is up 7.9% year-over-year. There’s definitely more demand than supply in the market, and some hot markets, like San Francisco and Phoenix, are experiencing the bidding wars we used to see in 2006. This increase in median home prices is somewhat overstated in that most of the transactions are concentrated in a few areas. Nationwide, we’re not seeing such large increases in prices.

Homebuilder earnings were generally strong

Fourth quarter earnings for the builders are just beginning. Lennar (LEN) and KB Home (KBH) both have November fiscal years and have reported already. Lennar came in better than expected, while KB Home has more exposure to the first-time homebuyer and noted a drop in traffic. Other builders with exposure to the first-time homebuyer are D.R. Horton (DHI), Standard Pacific (SPF), and PulteGroup (PHM).

First-time homebuyers accounted for 30% of all sales—well below their historical level of 40%, but still up from 28% in February. The first-time homebuyer has been absent due to tough credit conditions, heavy student loan debt, and a difficult labor market. As those circumstances change, a lot of pent-up demand will release, which should drive homebuilder earnings for quite some time. Also, restricted supply has been a major feature of the current housing market. If there’s a shortage of existing properties for sale, buyers will naturally turn to new construction.

Continue to Part 5

Browse this series on Market Realist:

Fannie Mae and Freddie Mac, Boon Or Boom?

There are two colossal institutions in the United States mortgage industry: Fannie Mae and Freddie Mac. Most people have heard of them, but few understand what they do or the important role they play in financing American homeownership. Nor do most people understand the potential systematic risk they pose to our entire financial system. In this article we’ll discuss what they do, their government-sponsored enterprise (GSE) status, their public missions and how they profit. We’ll then explore the danger these behemoths could pose to the U.S. mortgage market if they failed to manage their risk effectively. Remember, when giants fall, it’s the peasants who get squished.

What They Do
Fannie Mae and Freddie Mac purchase and guarantee mortgages through the secondary mortgage market. They do not originate or service mortgages.

Mortgage originators sell mortgages directly to Fannie Mae and Freddie Mac, or exchange mortgage pools with them in return for a mortgage-backed securities (MBSs) backed by those same mortgages but which carry the added guarantee of the timely payment of principal and interest to the security holder. When mortgage originators sell mortgages to Fannie Mae or Freddie Mac, or sell the MBSs that have been issued back to them, it in turn frees up the funds used to originate those mortgages so that the originators can then create even more mortgages. Fannie Mae and Freddie Mac also invest heavily in their own MBSs in what is known as their retained portfolios.

In short, they facilitate the flow of money from Wall Street to Main Street.

SEE: Behind The Scenes Of Your Mortgage

Government-Sponsored Enterprises
Fannie Mae and Freddie Mac are GSEs. Both were created by acts of Congress; Fannie Mae in 1938, and Freddie Mac in 1970. Both are publicly traded companies chartered to serve a public mission. Their shares trade on the NYSE under the symbols FNM and FRE, respectively. While they are publicly traded companies, because of their charters, they have the following ties to the Federal Government:

  • Both companies have a board of directors made up of 18 members, five of which are appointed by the president of the United States.
  • To support their liquidity, the secretary of the Treasury is authorized, but not required, to purchase up to $2.25 billion of securities from each company.
  • Both companies are exempt from state and local taxes.

Because of these ties, the market tends to believe that the securities issued by Fannie Mae and Freddie Mac carry the implied guarantee of the U.S. government. In other words, the market believes that if anything were to go wrong at Fannie Mae or Freddie Mac, the U.S. government would step in to bail them out. This implicit guarantee is reflected by how cheaply they are able to access funding. Fannie Mae and Freddie Mac are able to issue corporate debt, known as “agency debentures”, at yields lower than other institutions.

Fannie Mae’s and Freddie Mac’s Public Purpose and Mission
According to their charters, Fannie Mae’s and Freddie Mac’s public purpose is to facilitate the steady flow of low-cost mortgage funds.

Their charters include the following:

  • Their singular focus is the residential mortgage market. They may not enter into unrelated lines of business or discontinue support for the residential mortgage market.
  • The mortgages that they purchase and guarantee must be below an amount specified by the Office of Federal Housing Enterprise Oversight (OFHEO).
  • They are barred from entering the business of other housing finance companies – mortgage origination, for example.
  • They must meet annual goals established by the Department of Housing and Urban Development (HUD). These goals center around low and moderate income housing and housing for minorities.
  • They are subject to risk-based and minimum capital requirements and annual examinations by OFHEO.

 

Freddie Mac’s website states that its mission is to provide liquidity, stability, and affordability to the housing market. Fannie Mae’s website states that its mission is to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. (To keep reading about real estate, see Investing In Real Estate, Smart Real Estate Transactions and our Exploring Real Estate Investments tutorial.)

Profit-Driven Companies with a Public Mission
Make no mistake – Fannie Mae and Freddie Mac are driven by profits, as their shareholders demand. While fulfilling their public mission, they make their profit in two primary ways: guarantee fee income and retained portfolios.

  1. First, let’s cover guarantee fee income, or “g-fees”. Fannie Mae and Freddie Mac retain a certain percentage of each mortgage payment for each mortgage they have guaranteed a timely payment of principal and interest to a MBS holder (investor). For example, every monthly mortgage payment can be broken down into principal and interest. Principal and interest, as collected by a mortgage servicer, is passed onto one of the two companies, let’s say Fannie Mae. Fannie Mae then passes the principal and interest along to the holder of the mortgage-backed security; however, it keeps a certain percentage of the interest as the guarantee fee – usually between 0.12% and 0.50% annually. Think of it as an insurance policy. Hopefully Fannie Mae collects more in guarantee fee income than it pays out to its mortgage-backed securities holders because of borrower defaults. It’s a very big insurance policy. At 2006 year end, the two companies had credit guarantees on $2.9 trillion of MBSs, according to the Treasury’s Secretary Robert K. Steel (March 15, 2007 Testimony before the U.S. House Financial Services Committee on GSE Reform).

  2. Second, Fannie Mae and Freddie Mac have huge retained portfolios of mortgages and MBSs. They invest heavily in their own – and each other’s – securities. Because of their implied Federal guarantee, as discussed earlier, they are able to issue debt at yields lower than other corporations to fund their retained portfolios. In other words, they are able to earn spreads on their portfolios which are potentially greater than other institutions because of this funding advantage. To say the size of their portfolios is huge is an understatement. At their 2006, the combined mortgage portfolios of the two companies were $1.4 trillion, again according to Steel (March 15, 2007).

Oversight Over Fannie Mae and Freddie Mac
Fannie Mae and Freddie Mac are regulated by the OFHEO and the HUD. OFHEO regulates the financial safety and soundness of Fannie Mae and Freddie Mac, including implementing, enforcing and monitoring their capital standards and limiting the size of their retained portfolios. OFHEO also sets the annual conforming loan limits. HUD has responsibility for the housing mission of Fannie Mae and Freddie Mac. All new loan programs that they may participate in (purchase and/or guarantee) must be approved by HUD. In addition, HUD sets annual goals for Fannie Mae and Freddie Mac to carry out their housing mission. These goals center on low and moderate income housing and housing for minorities.

 

Too Much Risk Concentrated in Two Companies with Federal Ties?
There is no doubt that Fannie Mae and Freddie Mac play critical roles in our housing finance system. However, there is danger in having so much risk concentrated in only two companies. They manage an immense amount of credit and interest rate risk. If something went wrong with their risk management and/or portfolio management practices, there is no doubt that pain and stress would be felt throughout financial markets worldwide. Many critics feel that, due to their size and the complexity of managing mortgage risk, they pose too large of a systematic risk to our economy. Furthermore, some believe Fannie Mae and Freddie Mac have an unfair advantage because of their implicit federal guarantee which allows them to issue debt at interest rates unavailable to other corporations – specifically, that it is this implicit guarantee that has allowed Fannie Mae and Freddie Mac to grow so large.

Put simply, there is a danger that the two companies have been allowed to take on too much risk at the potential expense of the American tax payer. To put things in perspective, according to Treasury Secretary Steel, at the end of 2006, Fannie Mae and Freddie Mac had about $4.3 trillion of mortgage credit exposure, which was about 40% of total outstanding mortgage debt in the U.S. (March 15, 2007). Or viewed differently, the two companies have $5.2 trillion of debt and MBS obligations outstanding, exceeding the $4.9 trillion of publicly held debt of the U.S. government, according to the Federal Reserve’s board of director’s Chairman Ben Bernanke (April 2007).

Furthermore, no one ever claimed that either the credit risk or the interest rate risk of a mortgage is easily managed or mitigated through the use of derivatives.

Conclusion
In the summer of 2007, the market for all mortgages except those guaranteed by Fannie Mae and Freddie Mac came to a complete standstill, emphasizing the importance of the roles played by the two companies. In the fall of 2007, Freddie Mac shocked the market by announcing large credit-related loses, fueling the fire for the argument that the two companies pose a tremendous risk to the entire financial system. Will the benefits Fannie Mae and Freddie Mac create for the American homeowner outweigh the risks they pose to our entire financial system and the American taxpayer? Only time will tell.

To read more about these two institutions, check out Profit From Mortgage Debt With MBS.

Sales of existing homes slowed in March

Still, sales are off the norm for this time of year, and the group acknowledged disappointment with the March figures, which were down 7.5 percent from a year earlier. Sales have dropped for seven of the past eight months.

“There really should be stronger levels of home sales given our population growth,” Lawrence Yun, the group’s chief economist, said in a statement. Based on the size of the population, a normal sales rate would be closer to 5.5 million, the group said.

Sales have been sluggish for months in part because investors who were snapping up homes cheaply began retreating when prices and interest rates climbed, and traditional buyers have been slow to fill the gap. Housing analysts are especially worried about the dearth of first-time buyers. They’ve accounted for roughly a third of home purchases in the past year, well below the historical norm.

The trend continued in March, the group’s figures show. Miserable weather in many parts of the country contributed to the poor sales among all types of buyers, Yun said.

But Yun and other analysts expect that will change as the economy and the job market improve, and as home prices cool off after the spectacular gains during 2012 and 2013.

The median price for single-family homes, townhouses, condominiums and co-ops was $198,500 last month, a 7.9 percent increase from a year earlier, the group reported. But by several measures, the pace of price gains is slowing.

The price increases in recent years have been largely because of high demand. The supply of homes has been tight in recent years, particulary the lower-priced ones that are popular with first-time buyers. It would take 5.2 months to sell the homes on the market at the current pace — below the six-month supply available in a more normal market.

But the supply of homes for sale rose 4.7 percent, to 1.99 million, in March.

“In many markets, home sales were being turbocharged by investor purchases and prices got pushed out of whack,” said Mike Larson, a housing analyst at Weiss Research. “As investor buying cools off, demand is falling because of that and we’re starting to see some price rationalization. There’s time to salvage the spring selling season.”

Regionally, sales improved in the Northeast and Midwest, but they were offset by losses in the West and South, which includes the Washington region.

March sales were up 9.1 percent in the Northeast and 4 percent in the Midwest from the previous month. They fell 3 percent in the South and 3.7 percent in the West.

Amrita Jayakumar contributed to this report.

Freddie Mac Reduces Taxpayer Exposure With $269.5 Million Credit Risk Insurance Policies

MCLEAN, VA–(Marketwired – Apr 24, 2014) – Freddie Mac (OTCQB: FMCC) announced today that it has obtained insurance policies underwritten by a group of well-capitalized and established insurers and reinsurers. The policies cover up to a combined maximum of $269.5 million of losses for a portion of the credit risk associated with a pool of Single-Family loans funded in the first quarter of 2013.

The policies were obtained under Freddie Mac’s Agency Credit Insurance Structure (ACIS), which has attracted private capital from non-mortgage guaranty insurers and reinsurers. It further demonstrates the company’s business strategy to expand risk sharing with private firms to reduce taxpayers’ exposure to mortgage losses.

“We have a good start on our goal to provide multiple avenues for sharing mortgage credit risk with a diverse spectrum of private investors,” said Kevin Palmer, vice president of Single-Family strategic credit costing and structuring for Freddie Mac. “Global reinsurers represent a large source of capital, and they are interested in expanding their product line to cover Single-Family mortgages. This year, we expect to execute multiple insurance transactions and bring in additional insurance and reinsurance companies.”

In addition, earlier this month Freddie Mac co-hosted with Aon Benfield a reinsurer industry day where representatives from 13 foreign and U.S. based reinsurance companies learned how Freddie Mac manages its residential mortgage risk. Palmer added, “Transferring some of our Single-Family risk to large, diversified global insurance and reinsurance companies help us to better manage our risk.”

Freddie Mac has led the market in introducing new risk-sharing initiatives with four STACR debt note offerings and now two ACIS transactions involving three policies. The first ACIS occurred in Nov. 2013 and covered up to $77.4 million in credit losses. Through STACR and ACIS, Freddie Mac has laid off loss risk on more than $95 billion in qualifying Single-Family mortgages.

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four home borrowers and is one of the largest sources of financing for multifamily housing. Additional information is available at FreddieMac.com, Twitter @FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.

Freddie Mac Reduces Taxpayer Exposure With $269.5 Million Credit Risk Insurance Policies

MCLEAN, VA–(Marketwired – Apr 24, 2014) – Freddie Mac (OTCQB: FMCC) announced today that it has obtained insurance policies underwritten by a group of well-capitalized and established insurers and reinsurers. The policies cover up to a combined maximum of $269.5 million of losses for a portion of the credit risk associated with a pool of Single-Family loans funded in the first quarter of 2013.

The policies were obtained under Freddie Mac’s Agency Credit Insurance Structure (ACIS), which has attracted private capital from non-mortgage guaranty insurers and reinsurers. It further demonstrates the company’s business strategy to expand risk sharing with private firms to reduce taxpayers’ exposure to mortgage losses.

“We have a good start on our goal to provide multiple avenues for sharing mortgage credit risk with a diverse spectrum of private investors,” said Kevin Palmer, vice president of Single-Family strategic credit costing and structuring for Freddie Mac. “Global reinsurers represent a large source of capital, and they are interested in expanding their product line to cover Single-Family mortgages. This year, we expect to execute multiple insurance transactions and bring in additional insurance and reinsurance companies.”

In addition, earlier this month Freddie Mac co-hosted with Aon Benfield a reinsurer industry day where representatives from 13 foreign and U.S. based reinsurance companies learned how Freddie Mac manages its residential mortgage risk. Palmer added, “Transferring some of our Single-Family risk to large, diversified global insurance and reinsurance companies help us to better manage our risk.”

Freddie Mac has led the market in introducing new risk-sharing initiatives with four STACR debt note offerings and now two ACIS transactions involving three policies. The first ACIS occurred in Nov. 2013 and covered up to $77.4 million in credit losses. Through STACR and ACIS, Freddie Mac has laid off loss risk on more than $95 billion in qualifying Single-Family mortgages.

Freddie Mac was established by Congress in 1970 to provide liquidity, stability and affordability to the nation’s residential mortgage markets. Freddie Mac supports communities across the nation by providing mortgage capital to lenders. Today Freddie Mac is making home possible for one in four home borrowers and is one of the largest sources of financing for multifamily housing. Additional information is available at FreddieMac.com, Twitter @FreddieMac and Freddie Mac’s blog FreddieMac.com/blog.

Sales of existing homes slowest since July 2012


By Ruth Mantell, MarketWatch


WASHINGTON (MarketWatch) — The sales pace of existing homes ticked down in March to the slowest rate since July 2012, showing weakness in the early spring sales season, though underlying trends signal a firming in market fundamentals, economists said Tuesday.

The National Association of Realtors reported that the annual sales pace of existing homes declined 0.2% last month to a seasonally adjusted annual 4.59 million. But March’s result beat a consensus among economists polled by MarketWatch, who had expected a sales rate of 4.55 million, compared with a pace of 4.6 million in February.

Home sales flatten out – and that’s an improvement

NAR’s chief economist thinks home sales are on the verge of breaking out of a rut, but he’s concerned about our buying power.

Indeed, the broader market responded well to the data, with the Dow Jones Industrial Average sporting a gain of about 0.5% in mid-morning trade. The SPDR SP Homebuilders ETF

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+1.05%


 also was stronger. Read Market Snapshot.

For context, there was an average monthly sales pace of more than 6 million existing homes over the five years leading up to a 2005 bubble peak.

Sales rates have trended down since the summer on falling affordability as inventory remained low, and there’s been concern about tepid spring-sales results. Some buyers have been put off by rapidly rising prices. According to NAR, the median sales price of used homes hit $198,500 in March, up 7.9% from the year-earlier period. Elsewhere Tuesday, a federal housing regulator reported that home prices in February were up almost 7% from the year-earlier period.

Unusually rough weather in recent months likely also curbed some demand, though regional sales results for March show gains in the Northeast and Midwest, according to NAR. New mortgage rules for borrowers and lenders are likely also curbing some deals, analysts say.

“At least part of the net weakening likely reflects weather effects, although, even without weather effects, sales have clearly slowed since early last year,” Jim O’Sullivan, chief U.S. economist at High Frequency Economics, wrote in a research note.

In addition, banks have high hurdles for borrowers to obtain a mortgage, conditions that are particularly tough for would-be first-time buyers and younger families. Some economists worry that as institutional investors scale back
their purchases, with foreclosures and ultra-cheap deals thinning out, first-time buyers won’t fill the gap
.

Over the last several business days, economists at both Fannie Mae


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  and Freddie Mac


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, the federally controlled mortgage-finance giants, cut their forecasts for the housing market’s performance in 2014. Fannie reduced its outlook for new-home construction, while Freddie lowered its view for home sales.

2014 won’t be a wipeout

Despite home-sales weakness in the first quarter of this year, economists don’t think 2014 will be a wipeout.

“Although the string of negative readings suggests the recovery has stalled, the underlying details are more supportive,” Wells Fargo Securities economists wrote in a research note.

Recent drops in the sales pace of existing homes have been relatively small, signaling that the market may be stabilizing and sales could bounce higher in coming months, Lawrence Yun, NAR’s chief economist, told reporters Tuesday. Projects and purchases delayed by bad weather could show up in coming housing reports.

“Negative housing momentum, which was exacerbated by severe weather conditions during the winter months, may be starting to fade…We expect positive underlying fundamentals to begin reasserting themselves, helping to drive a rebound in housing market activity over the coming months,” Gennadiy Goldberg, U.S. strategist at TD Securities, wrote in a research note.

And here are a couple of bright points in Tuesday’s home-sales data:

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