Civil and Human Rights Coalition Calls for Stronger Fannie Mae and Freddie …

Press Release – The Leadership Conference on Civil and Human Rights

Civil and Human Rights Coalition Calls for Stronger Fannie Mae and Freddie Mac Role in Affordable Housing

For Immediate Release
Contact: Scott Simpson, 202.466.2061, simpson@civilrights.org
October 29, 2014

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WASHINGTON — Wade Henderson, president and CEO of The Leadership Conference on Civil and Human Rights, issued the following statement regarding its letter submitted to the Federal Housing Finance Agency emphasizing the critical role of Fannie Mae and Freddie Mac in realizing the dream of homeownership in communities of color:

“The Great Recession turned the American dream into a nightmare for hundreds of thousands of hardworking families, including in African-American and Latino communities. Almost six years later, a significant number of these families are still recovering and fighting to regain their financial security. For many, homeownership remains the primary indicator of that security and serves as a pathway to building our nation’s middle class.

To continue strengthening our housing market and ensuring shared prosperity, we must look to the future of Fannie Mae and Freddie Mac. Without strong leadership by Fannie and Freddie, many will be unable to access affordable 30-year fixed-rate mortgages. Our comments today speak to these central goals, and they recommend that any changes to the oversight and regulation of these agencies consider the unwinding of the conservatorship – which would allow the agencies to rebuild their capital and increase their lending capability.”

Wade Henderson is the president and CEO of The Leadership Conference on Civil and Human Rights, a coalition charged by its diverse membership of more than 200 national organizations to promote and protect the rights of all persons in the United States. The Leadership Conference works toward an America as good as its ideals. For more information on The Leadership Conference and its 200-plus member organizations, visit www.civilrights.org.

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Fannie Mae: A Primer To Senior Preferred Shares And Warrants (FNMA)

This article comes out of a request by two readers for both a primer and a deep dive into the rights granted Treasury under the Senior Preferred Stock Purchase Agreement and related documents with regard to Fannie Mae (OTCQB:FNMA). As always, the goal is to translate the legalese into concepts any interested investor can follow.

The documents covered in this article will be:

Senior Preferred Stock Purchase Agreement dated September 7, 2008, (PSPA). (My thanks to the reader who sent me the link to this document.)

Senior Preferred Stock Certificate

Federal National Mortgage Association Warrant to Purchase Common Stock

Amended and Restated Senior Preferred Stock Purchase Agreement dated September 26, 2008, (Restated PSPA)

Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement dated May 6, 2009, (1st Amendment).

Second Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement dated December 24, 2008, (2nd Amendment).

Third Amendment to Amended and Restated Senior Preferred Stock Purchase Agreement dated August 17, 2012, (Sweep Amendment).

These documents are a credit to the legal scrivener’s art, making the relatively complex completely obscure to the lay reader.

Essentially, there is an original Senior Preferred Stock Purchase Agreement which has been amended four times. The first amendment is titled with Amended and Restated. The next three amendments are numbered first, second and third. Each numbered amendment replaces specific paragraphs in the Restated PSPA. Subsequent amendments also replace paragraphs some of which were changed by prior amendments.

The correct way to do this is to restate the agreement and incorporate the new provisions with the old to produce one comprehensive document. This is what was done with the Restated PSPA. After that, the parties simply executed amendments. As a result, the reader must review the Restated PSPA and each of the three subsequent amendments to verify all the changes. I have seen worse, but it is still a mess.

For readers new to the Fannie saga, the factual background to these transactions is found in prior articles here and here.

Before going further, some basic stock concepts a reader requested: Preferred stock is stock which is has some feature which gives it a “preference” over common stock. The usual preferences are liquidation and dividends. A liquidation preference is a right, in the event the company is liquidated, to receive a fixed amount per share before the owners of the common receive anything. A dividend preference is a right to receive a fixed periodic dividend, again before the common receives any dividends. Common stock has a right to a dividend only if the Board of Directors of the company, in its discretion, elects to declare one. A warrant is a right to purchase stock of the company giving the warrant. The warrant will specific the type of stock which may be purchased, the number of shares which may be purchased, the price to be paid for the shares and the date by which the shares must be purchased. After that date, the warrant expires and becomes worthless. (I ask the indulgence of more experienced investors in only covering features which apply here.)

Under the Restated PSPA, Treasury agreed to make $100B available to Fannie (Commitment). The Commitment was increased to $200B in the 1st Amendment. In the 2nd Amendment the Commitment was increased to $200B plus any Deficiency Amounts (defined as the excess of Fannie’s liabilities over Fannie’s assets, excluding amounts due under the Senior Preferred Stock (SPS)).

In return for the Commitment, FHFA, as conservator of Fannie agreed to a number of things

1) To issue to Treasury 1M shares of SPS. The SPS has a dividend of 10% of the Liquidation Preference. Here, Liquidation Preference is defined to be:

a) $1,000 per share (1M shares X $1,000 per share = $1B); and

b) A prorated amount equal to each draw of the Commitment. Thus, the Liquidation Preference goes up with each draw on the Commitment and goes down with each re-payment of a draw on the Commitment. This is a critical point.

2) To issue the Warrant, which permits:

a) The purchase of that number of common shares to equal 79.9% of all outstanding common stock;

b) At a price per share of “one one-thousandth of a cent ($0.00001) per share;”

c) Expiring on September 7, 2028.

3) To pay a Periodic Commitment Fee “intended to fully compensate [Treasury] for the support provided by the ongoing Commitment.”

a) The fee to be set each five years by agreement of FHFA and Treasury “subject to their reasonable discretion and in consultation with the Chairman of the Federal Reserve.” Treasury has the right to annually waive the Periodic Commitment Fee “in its sole discretion based on adverse conditions in the United States mortgage market.”

b) The fee is payable in cash or by adding the unpaid amount of the fee prorata to the Liquidation Preference of the SPS.

This brings us to the infamous, Third or Sweep Amendment. In the Sweep Amendment, the dividend of 10% of the Liquidation Preference was changed: Beginning January 1, 2013, “Dividend Amount shall be the “Net Worth Amount” minus “Capital Reserve”. In more detail, and in equation form, this is:

Total Assets (not including the Commitment)

- Total Liabilities (not including any capital stock liabilities)

= Net Worth

- Capital Reserve

= Dividend

The Capital Reserve was $3B in 2013, but reduced annually ratably to be zero in 2018.

Bottom line: Under the Sweep Amendment, every quarter, all assets of Fannie over the Capital Reserve amount are transferred to Fannie. In 2018, the Capital Reserve goes to zero. At that point, every penny of Net Worth goes to Treasury every quarter.

On the other hand, so long as the Sweep is in place, the Periodic Commitment Fee does not accrue and is not payable. Very kind.

When does the Sweep end? Funny you should ask. This was the most indecipherable part of all seven documents.

There is no explicit provision which ends the Sweep. However, since the Sweep is the dividend to the SPS, the way to end the Sweep is to pay down the Liquidation Preference ($1B plus all the draws). Paying down the Liquidation Preference causes the SPS to be retired. Thereafter, no dividend is due.

Here’s the rub: since the payments under the Sweep are “dividends” and not repayment of the Liquidation Preference, there is no way for Fannie to accumulate any funds to repay the Liquidation Preference. (There’s a lot more, but that’s the bottom line.)

Three more interesting provisions: First, §5.3 of the Restated PSPA forbids FHFA from terminating the conservatorship without Treasury’s written consent. FHFA may, however, place Fannie into a receivership without Treasury consent.

Second, §5.7 of the Restated PSPA places a maximum limit on the amount of Mortgage Assets Fannie may own as a given date. It also requires that Fannie own no more than a defined percentage of the maximum each year thereafter. The final revision, in the Sweep Amendment, revises the maximum Mortgage Assets to be not more than $650B as of December 31, 2012, and each year thereafter to be not more than 85% of the previous year’s maximum at each December 31. Fannie will not be required to own less than $250B. By my calculations, the $250B should be reached in 2018.

Third, §6.7 of the Restated PSPA provides that:

“If any order, injunction or decree is issued by any court of competent jurisdiction that vacates, modifies, amends, conditions, enjoins, stays or otherwise affects the appointment of Conservator as conservator of Seller or otherwise curtails Conservator’s powers as such conservator (except in each case any order converting the conservatorship to a receivership) … [Treasury] may … declare this Agreement null and void, whereupon all transfers hereunder (including the issuance of the Senior Preferred Stock and the Warrant and any funding of the Commitment) shall be rescinded and unwound and all obligations of the parties (other than to effectuate such rescission and unwind) shall immediately and automatically terminate. (Emphasis added.)

Translation: if any court issues any order against FHFA which Treasury doesn’t like, Treasury can unwind all the transactions discussed in this article “including the issuance of the [SPS] and the Warrant.” Fannie would have to repay all the draws, of course. My speculation is that this was designed as a nuclear option to make any litigant fearful of having to repay the Commitment at Treasury’s option. This is no longer a viable threat given Fannie’s profitability but does reflect an interesting mindset.

With the documents outlined, let’s talk about the implications.

First, the warrant: Did any reader earn a Gold Star by noticing the typo in the consideration for the warrant? The price per share of “one one-thousandth of a cent ($0.00001) per share” is wrong. “Thousandths” is three zeros to the right of the decimal, not four. I guess a $100B transaction just doesn’t buy the same degree of proofreading it once did. Or, as my government employed friends would say: “Close enough for government work.” The rule of construction is that in the event the numerals and written words differ, the written words govern. The difference in the exercise price is $90 and as a holder of Fannie common I want every penny.

On a more serious note, exercise of the warrants will increase the number of shares of common to the point that Treasury will own 79.9% of the outstanding common shares. The holders of the existing outstanding common shares will only represent 20.1% of Fannie. The exercise of the warrant will not cause the existing outstanding common to be eliminated or the current junior preferred to be converted into common.

The 79.9% number is not random. Under equity accounting rules, the owner of 80% or more of the common stock of an equity must consolidate the liabilities of that entity on the owner’s books. Here, Treasury did not want to reflect Fannie’s liabilities on Treasury’s books. Thus, the Treasury warrant is only for 79.9% rather than 80% or more.

Second, the reduction of the maximum amount of the Mortgage Assets: At first blush this looks like part of a liquidation effort requiring Fannie to reduce its fixed income portfolio. Readers should review Bill Ackman’s presentation on Fannie given in May 2014, if you have not already, to get the second blush. Ackman makes the point that Fannie has two business lines: buying, selling and holding fixed income securities, which makes money on interest spreads, and collecting guarantee fees.

Of the two business lines, the fixed income asset line is much riskier due to leverage and interest rate exposure while the guarantee fee line is more lucrative. On reflection, in the event Fannie is returned to the shareholders, reducing the mortgage assets and the associated risks, may not be a bad thing. On the other hand, I welcome any reader analysis of the relative cash flow and profit implications of the two lines.

Third, I think the reduction in the Capital Reserve is more nefarious than the portfolio reduction. Every company needs equity on the balance sheet. Reducing Fannie’s equity to zero is an effective way of ensuring Fannie remains a ward of the Government, dependent on Government financing.

Fourth, in light of the legal arguments about whether Fannie has come under the control of Treasury, for what it’s worth, in my opinion, the original PSPA was drafted by a Treasury attorney. Why do I say this? When an attorney prepares an agreement, he does so with his client’s perspective. If the client is the seller, it’s a sales contract. If the buyer is a purchaser, it’s a purchase contract. Plus, it’s usual, although not required, to name the seller first in a purchase and sale agreement. Review the first paragraph of the original PSPA. That paragraph lists the purchaser, i.e., Treasury, first. Very unusual, unless Treasury is your client and you view the world from Treasury’s perspective. Does this have any legal bearing on the argument? Nope. But to a transactional attorney, it’s telling.

Fifth, there’s point about the original 10% dividend I haven’t seen anywhere else. The literature about “lender of last resort” indicates that the interest rate should be “punitive” to literally punish poor business judgment. Yet, the rate should not be so high as to cripple the entity receiving the help or the purpose of the lender of last resort, to help stabilize entities, is defeated. The Government has argued that the Sweep Amendment was necessary because Fannie was unable to pay the 10% dividend. That would seem to me to be an argument that the initial 10% rate was far too much if it was so high the Government did not think Fannie could reasonably pay the dividend. The 10% interest rate smacks of ulterior motive.

Request for reader help: I’m considering an article setting out the various Fannie suits in a chart, characterizing the approaches and discussing the high end strategies and end games for each approach as it relates to the common shares. Any reader help to forward links to complaints I don’t already have would be appreciated. General articles have indicated that there are 19 or 20 Fannie Sweep or PSPA related suits. The only ones I have so far are:

Perry v. Lew, DC District Court (which includes the Fairholme suit also in the DC District Court)

Continental Western v. FHFA, Southern District of Iowa,

Fairholme v. FHFA, Court of Federal Claims

Rafter and Pershing Square v. USA, Court of Federal Claims

Washington Federal v. USA

Some of these, such as the ones before the Court of Federal Claims may be consolidated. Again, any help would be appreciated.

Editor’s Note: This article discusses one or more securities that do not trade on a major exchange. Please be aware of the risks associated with these stocks.

Disclosure: The author is long FNMA. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. (More…)

New worry for taxpayers at Fannie Mae and Freddie Mac

There have been several efforts by the government to help struggling homeowners, and most haven’t accomplished much. Now there’s a new plan to help first-time buyers purchase a property—and it’s already controversial.

Mel Watt, director of the agency that oversees the mortgage-finance giants Fannie Mae (FNMA) and Freddie Mac (FMCC), says the government will soon announce new rules meant to lower the required down payment on home purchases and relax other rules that have left many potential buyers unable to get approved for a mortgage. Watt hasn’t yet spelled out the details, but the changes might allow buyers to score a property with a down payment of as little as 3%.

High standards for mortgages have kept many buyers out of the market and contributed to a lackluster housing recovery. Yet pushing the required down payment as low as 3% could cause some of the same problems that led to a brutal housing bust nearly a decade ago. “It has the potential to increase the risk taxpayers have with regard to guaranteeing those mortgages,” Edward DeMarco, Watt’s predecessor as director of the Federal Housing Finance Agency, tells me in the interview above.

Fannie Mae and Freddie Mac don’t issue mortgages, but instead purchase them from lenders, package them into securities and protect investors who buy those securities against losses—with taxpayers footing the bill if something goes wrong. That system worked for decades and kept ample credit flowing to home buyers, but it foundered in the early 2000s as lenders lowered their standards to the point that nearly anybody could get a mortgage. The two housing agencies bought hundreds of thousands of soon-to-default mortgages that banks mischaracterized as safe, which helped crater the whole financial system and led to the Fannie and Freddie bailouts in 2008.

The FHFA, under DeMarco, was tasked with fixing Fannie and Freddie–which have now become profitable once again. At the same time, a surge in mortgage defaults led to millions of foreclosures and calls for Fannie and Freddie to cut stressed home owners some slack. DeMarco resisted such moves, arguing that his job was to nurse the two agencies back to health, period. When Watt replaced DeMarco late last year, some hoped he’d push programs to forgive certain payments or find other ways to help struggling homeowners.

The promised changes in down-payment requirements are one of Watt’s first major initiatives. DeMarco worries that such a low down payment will leave borrowers too stretched if there’s a job loss, family emergency or other externality that forces a quick sale of the property. ”The selling cost of getting out of a mortgage is 6, 7 or 8 percent,” he says. “So if you haven’t put that money down, you’re effectively underwater and you’re going to lose money on that transaction right then and there.”

The counterargument is that lenders and the housing agencies are playing it too safe right now, with a shortage of the prudent risk-taking that allows capitalism to flourish during normal times. The FHFA plans to address that in another way, by clarifying and perhaps loosening the terms lenders must meet when they sell mortgages to Fannie and Freddie for securitization. That would alleviate a huge new concern of bankers—that they’ll get sued long after the fact by one of the agencies or be forced to buy back loans that seemed safe at the outset but turned out to be troubled for some reason the lender couldn’t control.

Most housing finance experts agree that reforms are needed, if only because Fannie and Freddie are now de facto duopolists controlling the entire market for mortgage securitization. But given the slow pace of action in Washington, it could still be years before Fannie and Freddie evolve into something other than zombie companies in yoke to the government.

Potential home buyers, meanwhile, should benefit as lending standards gradually loosen and the market inches back to normal. DeMarco advises those planning to buy to polish their credit score, keep saving for a down payment and seek out home buying counseling to help understand the many complexities of purchasing a home. As Fannie and Freddie prove, it’s a lot more complicated than it used to be.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

New worry for taxpayers at Fannie Mae and Freddie Mac

There have been several efforts by the government to help struggling homeowners, and most haven’t accomplished much. Now there’s a new plan to help first-time buyers purchase a property—and it’s already controversial.

Melvin Watt, director of the agency that oversees the mortgage-finance giants Fannie Mae (FNMA) and Freddie Mac (FMCC), says the government will soon announce new rules meant to lower the required down payment on home purchases and relax other rules that have left many potential buyers unable to get approved for a mortgage. Watt hasn’t yet spelled out the details, but the changes might allow buyers to score a property with a down payment of as little as 3%.

High standards for mortgages have kept many buyers out of the market and contributed to a lackluster housing recovery. Yet pushing the required down payment as low as 3% could cause some of the same problems that led to a brutal housing bust nearly a decade ago. “It has the potential to increase the risk taxpayers have with regard to guaranteeing those mortgages,” Edward DeMarco, Watt’s predecessor as director of the Federal Housing Finance Agency, tells me in the interview above.

Fannie Mae and Freddie Mac don’t issue mortgages, but instead purchase them from lenders, package them into securities and protect investors who buy those securities against losses—with taxpayers footing the bill if something goes wrong. That system worked for decades and kept ample credit flowing to home buyers, but it foundered in the early 2000s as lenders lowered their standards to the point that nearly anybody could get a mortgage. The two housing agencies bought hundreds of thousands of soon-to-default mortgages that banks mis-characterized as safe, which helped crater the whole financial system and led to the Fannie and Freddie bailouts in 2008.

The FHFA, under DeMarco, was tasked with fixing Fannie and Freddie–which have now become profitable once again. At the same time, a surge in mortgage defaults led to millions of foreclosures and calls for the duo to cut stressed home owners some slack. DeMarco, who is now Senior Fellow-in-Residence at the Milken Institute, resisted such moves, arguing that his job was to nurse the two agencies back to health, period. When Watt replaced DeMarco late last year, some hoped he would push programs to forgive certain payments or find other ways to help struggling homeowners.

The promised changes in down-payment requirements are one of Watt’s first major initiatives. DeMarco worries that such a low down payment will leave borrowers too stretched if there’s a job loss, family emergency or other external event that forces a quick sale of the property. ”The selling cost of getting out of a mortgage is 6, 7 or 8 percent,” he says. “So if you haven’t put that money down, you’re effectively underwater and you’re going to lose money on that transaction right then and there.”

The counterargument is that lenders and the housing agencies are playing it too safe right now, with a shortage of the prudent risk-taking that allows capitalism to flourish during normal times. The FHFA plans to address that in another way, by clarifying and perhaps loosening the terms lenders must meet when they sell mortgages to Fannie and Freddie for securitization. That would alleviate a huge new concern of bankers—that they’ll get sued long after the fact by one of the agencies or be forced to buy back loans that seemed safe at the outset but soured for some reason the lender couldn’t control.

Most housing finance experts agree that reforms are needed, if only because Fannie and Freddie are now de facto duopolists controlling the entire market for mortgage securitization. But given the slow pace of action in Washington, it could still be years before Fannie and Freddie evolve into something other than zombie companies in yoke to the government.

Potential home buyers, meanwhile, should benefit as lending standards gradually loosen and the market inches back to normal. DeMarco advises those planning to buy to polish their credit score, keep saving for a down payment and seek out home buying counseling to help understand the many complexities of purchasing a home. As Fannie and Freddie prove, it’s a lot more complicated than it used to be.

Rick Newman’s latest book is Rebounders: How Winners Pivot From Setback To Success. Follow him on Twitter: @rickjnewman.

Letter to FHFA on Fannie Mae, Freddie Mac, and Affordable Housing Goals

Letter to FHFA on Fannie Mae, Freddie Mac, and Affordable Housing Goals

Advocacy Letter – 10/28/14

Source: The Leadership Conference on Civil and Human Rights
Recipient: The Honorable Melvin L. Watt


View the PDF of this letter here.

The Honorable Melvin L. Watt, Director
Federal Housing Finance Agency
400 7th Street SW, Ninth Floor
Washington, DC 20024

Re: RIN 2590-AA65: 2015-2017 Enterprise Housing Goals

Dear Director Watt: 

On behalf of The Leadership Conference on Civil and Human Rights, we write in response to the Federal Housing Finance Agency’s (FHFA) request for comment regarding the 2015-2017 Enterprise Housing goals’ proposed rule. We greatly appreciate the leadership you have shown to date at FHFA to ensure the financial safety and soundness of the government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac, and for policies that will help to secure a fair and affordable housing market. 

Homeownership is a critical means for building financial security and for moving more Americans into the middle class. While our national economy has significantly improved since the financial crisis of 2008, we remain concerned about the mobility of the middle class. Since the 2008 housing crisis, communities of color have moved farther away from being able to achieve equity and prosperity through homeownership. More specifically, the black-white homeownership gap over the past decade has widened significantly, from 26.1 percent to 30.4 percent. Similarly, young people are less likely to become homeowners in this new economy. The perception that homeownership is unavailable is also higher in communities of color. Sixty-three percent of Hispanic homeowners believe it would be difficult to get a home mortgage today, compared to 40 percent of the general population of owners. We must do all that we can to enact policies that will help spur economic growth and ensure that more low- and moderate-income Americans can achieve the American dream of homeownership. FHFA can lead on this, do it responsibly, and do it without putting taxpayers at risk. 

We believe there are two pieces to meeting these goals. First, particularly given the likely demise of GSE “overhaul” legislation on Capitol Hill, it is clear that any successful policy to promote affordable homeownership must involve strong leadership by Fannie Mae and Freddie Mac. These agencies are vitally important to the continued growth of our nation’s housing market, and to the ability of consumers to continue obtaining affordable, 30-year, fixed-rate mortgages. In its current form, pending legislation to eliminate the GSEs would be counterproductive; it would negatively impact communities of color and young people, and it would impede our ability to grow our nation’s middle class.

Second, the GSEs require capital if they are to serve their historic mission. As your agency embarks upon decision-making on affordable housing policy, it naturally must be balanced with FHFA’s statutory obligation as conservator to the safety and soundness of these enterprises. We applaud FHFA for its announcement this week on the expansion of lending to middle class borrowers, but this expansion will require capital. We note that some of the current proposals to raise g-fees and to impose new requirements on private mortgage insurers will increase the costs of borrowing, and would still fall short of building the capital needed to grow a robust and healthy housing market. This is especially true given the GSE’s status in, what Congresswoman Maxine Waters (D-CA) describes as seemingly “permanent conservatorship,” where they are unable to rebuild capital. 

In light of this, in order to ensure the best path forward for increasing homeownership in the communities we represent, we believe it is vital to initiate serious discussions about unwinding the conservatorship and allowing Fannie and Freddie to begin rebuilding their capital. Both agencies have become profitable, and could remain so while still giving the taxpayers a large return on the government’s investment. We are not suggesting this be done without significant reforms to ensure that all markets are being served fairly, and without important safeguards for the taxpayer. Fannie and Freddie can be fixed; discarding them in entirety would be a colossal mistake. Under the proposed replacements for Fannie Mae and Freddie Mac, such as the committee-passed versions of the Johnson-Crapo or Hensarling bills, it is clear to us that the current affordable housing benefits provided by the GSEs (see attachment “GSE Affordable Housing Activities”) simply cannot be replicated in a new untested system.

We look forward to working with FHFA to formulate a plan that increases homeownership for more Americans, while further reducing the liability as a result of another catastrophic event on the backs of taxpayers. Exploring an end to the conservatorship and allowing the enterprises to build capital should be an important component of this effort.

Thank you for your consideration of our views. If you have any questions, please contact either of us, or Senior Counsel Rob Randhava, at (202) 466-3311.

Sincerely,

Wade Henderson
President CEO

Nancy Zirkin
Executive Vice President

Freddie Mac: Mortgage Serious Delinquency rate declined in September, Lowest since 2008

Freddie Mac reported that the Single-Family serious delinquency rate declined in September to 1.96% from 1.98% in August. Freddie’s rate is down from 2.58% in September 2013, and this is the lowest level since December 2008. Freddie’s serious delinquency rate peaked in February 2010 at 4.20%.

These are mortgage loans that are “three monthly payments or more past due or in foreclosure”. 

Note: Fannie Mae is expected to report their Single-Family Serious Delinquency rate for September on Friday.

Fannie Freddie Seriously Delinquent RateClick on graph for larger image

Although this indicates progress, the “normal” serious delinquency rate is under 1%. 

The serious delinquency rate has fallen 0.62 percentage points over the last year - and the rate of improvement has slowed recently.  However, at that rate of improvement, the serious delinquency rate will not be below 1% until some time in 2016.

Note: Very few seriously delinquent loans cure with the owner making up back payments – most of the reduction in the serious delinquency rate is from foreclosures, short sales, and modifications. 

So even though distressed sales are declining, I expect an above normal level of Fannie and Freddie distressed sales for perhaps 2 more years (mostly in judicial foreclosure states).

Pending Home Sales Positive From A Year Ago

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In the South sales increased 1.7% trending 1.7% above September 2013

Chicago, IL (PRWEB) October 28, 2014

Lenders like Peoples Home Equity were pleased to see pending home sales increase for the month of September. The monthly change also represent the first time pending home sales are positive on an annual basis since early 2013.

On October 27th, the National Association of Realtors released their latest pending home sale report showing a September increase of 0.3%. Some analysts regarded this report as disappointing, especially impressive existing home sale and mortgage application reports. However, Peoples Home Equity found the report uplifting given that sales were 1% above a year ago. A positive annual change in sales has not been recorded since early 2013. On a regional basis, pending home sales increased in the Northeast by 1.2% trending at 2.9% below last year. In the Midwest, where Peoples Home Equity centers most of its lending, sales decreased 1.2% and are trending 4% below last year. In the South sales increased 1.7% trending 1.7% above September 2013, and in the West sales also increase 0.8% at 3.6% above last year.

Lawrence Yun, chief economist for the National Association of Realtors said “moderating price growth and sustained inventory levels are keeping conditions favorable for buyers.”

Even if individuals find a desired property in an unfavorable market “tight credit conditions continue to be a barrier for some buyers. Of the reasons for not closing a sale, about 15 percent of Realtors® in September reported having clients who could not obtain financing as the reason for not closing.”

Peoples Home Equity strives to be different. The lender goes through a rigorous credit check to make sure everyone has a great chance of obtaining a home loan. Nothing is left unchecked; the lender truly finds every possible to way get its applicants approved.

If in need of a home loan, contact a Peoples Home Equity loan officer today at: 262-563-4026

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Realtor Association of Pioneer Valley helps Monson recover from June 2011 … – The Republican

SPRINGFIELD – The Realtor Association of Pioneer Valley has received a $1,500 Placemaking-Micro Grant from the National Association of Realtors to help Monson a  transform an unused public space into a vibrant community destination.

The grant is intended to help Realtor Associations partner with others to plan, organize, implement and maintain placemaking activities in their communities, according to a news release from local Realtors.

The Realtor Association of Pioneer Valley will use the funds to support Monson as they continue to recover from the June 2011 tornado which ravaged their Main Street, business district and surrounding area. The funding will be used for signage and/or benches for their new Senior Fitness Trail project.

Tim Pascale, director/program coordinator for the Monson Park and Recreation Department, will oversee building of the trail on formerly under-utilized municipal property.

The trial will be open to Monson residents and non-residents alike. Currently there is nowhere in the Monson area dedicated as a senior hiking location. The trail is seen as a location where citizens can socialize and exercise.

Earnings up 22% at Old National

The Evansville-based holding company for Old National Bank on Monday reported third-quarter earnings of $29.1 million, or 26 cents a share – a nearly 22 percent increase from the same period a year ago when earnings were $23.9 million.

Old National Bancorp’s board of directors also declared a quarterly cash dividend of 11 cents a share on the company’s outstanding shares.

“For the second consecutive quarter, strong organic loan growth and a strong loan pipeline served as the catalyst for Old National’s earnings success,” Old National President and CEO Bob Jones said in a statement.

“It’s also worth noting that our earnings of $29.1 million exceeded analysts’ consensus estimates.”

Lakeland Financialsees earnings jump

Lakeland Financial Corp. of Warsaw on Monday reported third-quarter earnings of $11.5 million, a nearly 18 percent increase from the $9.8 million reported year ago during the same period.

Diluted net income per common share rose 17 percent to 69 cents, compared with 59 cents during the same period in 2013. The quarterly earnings and per-share performance represents a record level for the company.

”We are pleased with both the strength and quality of our record earnings performance in 2014,” David M. Findlay, president and CEO, said in a statement. “The expansion of our Indiana footprint, as well as our increased market share growth in every market we serve, has contributed to our success in 2014.”

Modest rise seenin home contracts

The number of Americans signing contracts to buy homes ticked up only slightly in September, as it remained difficult to qualify for mortgage financing.

The National Association of Realtors said Monday its seasonally adjusted pending home sales index rose 0.3 percent over the past month to 105. The index remains a half-percentage point below its 2013 average, although 1 percent higher than a year ago.

Tight credit and price increases through the middle of 2013 have limited buying activity.

About 15 percent of the real estate agents surveyed for the index said they couldn’t close a deal because the buyer was unable to obtain a mortgage. Pending sales are a barometer of future purchases.

Valeant hikes bidfor Botox maker

The Canadian drugmaker Valeant said it would be willing to raise its takeover bid for Allergan by almost 12 percent, which would mean $200 or more a share for the maker of Botox.

The letter to Allergan’s board Monday did not break down the exact terms of the new offer, but Valeant said the increase would consist of added “consideration” and expected appreciation of Valeant’s own stock to be used in any deal.

The letter was released publicly just before Allergan released its third-quarter earnings, which topped Wall Street expectations.

Allergan said in a written statement that Valeant has not made a firm higher offer and the letter was intended to “distract investors from Allergan’s outstanding third quarter results.”

OIG: Fed QE Program Led to 167% Increase in Fannie Mae & Freddie Mac …

FILE – In this Aug. 8, 2011, photo, the Fannie Mae headquarters is seen in Washington. Fannie Mae reports quarterly financial results on Thursday, Aug. 7, 2014. (AP Photo/Manuel Balce Ceneta, File)

(CNSNews.com) – Fannie Mae and Freddie Mac, two government-sponsored enterprises (GSEs), benefited financially from the Federal Reserve’s quantitative easing (QE) program, which led to increasing revenues of 167 percent from 2011 to 2013, according to an inspector general report.

The Federal Housing Finance Agency’s (FHFA) Office of Inspector General report titled, “Impact of the Federal Reserve’s Quantitative Easing Programs on Fannie Mae and Freddie Mac,” shows the effects of the QE programs on the Enterprises’ financial performance.

Fannie Mae and Freddie Mac purchase qualifying mortgages from lenders and then package them into mortgage-backed securities (MBS) which are sold to investors. The Fed, in its effort to respond to the financial crisis in 2007, purchased over $2.3 trillion of Fannie and Freddie’s MBS under its three QE programs.

“The Federal Reserve’s substantial MBS purchases likely contributed considerably to lower long-term mortgage rates from 2008 through mid-2013. The lower rates caused mortgage refinancing to surge from 2009 through mid-2013,” the audit stated. As this surge was happening, FHFA told Fannie and Freddie to increase their MBS guarantee fee rates, and since 2011, they have more than doubled.

“From 2011 to 2013 the Enterprises realized a $4 billion increase in annual guarantee fee revenue from new single-family MBS issuances, most of which is attributable to refinanced mortgages purchased in 2012 and 2013,” the audit explained.

In 2011, Fannie and Freddie’s combined expected annual guarantee revenue for single-family MBS issuances was $2.4 billion, and two years later in 2013, it was $6.4 billion, showing an increase of 167 percent.

Since the Fed has been tapering its MBS purchases, Fannie and Freddie have not been faring as well financially. Around the middle of 2013, long-term mortgage rates began to increase, because financial markets expected the Fed to taper later in the year.

“Since then, the rates have generally stabilized above their 2013 levels. The increase has contributed to significant declines in mortgage refinancing activity and Enterprise MBS issuances in 2014,” the report explained. “Consequently, the Enterprises’ expected guarantee fee revenue on MBS issued in the first half of 2014 fell about 56% compared to their expected revenue on MBS issued in the first half of 2013.”

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