Hennepin County has filed a federal lawsuit against Fannie and Freddie Mac, saying the mortgage lenders shortchanged Minnesota counties millions of dollars by failing to pay the state’s deed transfer tax.
The suit seeks more than $10 million.
The lenders acquired an unusually large number of properties through foreclosure in recent years and later resold them, the county said. But Fannie and Freddie Mac argued that they did not have to pay the fees to transfer ownership of the homes because Minnesota law exempts the U.S. or any of its agencies from paying those taxes, and the federal charter for the corporations says they are exempt from state and county taxation.
Hennepin County is following the lead of Oakland County, Michigan, which filed a similar lawsuit and won. In March, a U.S. District Court judge for the Eastern District of Michigan ruled that the federal law exempting those lenders from “all taxation” does not refer to real estate transfer taxes.
Other local governments in North Carolina, Ohio, Connecticut, Florida, Illinois, and other states have filed similar lawsuits in recent months.
Minnesota receives 97 percent of the deed transfer tax revenues, and the counties keep 3 percent to recoup the cost of collecting the taxes. The Hennepin County lawsuit seeks a judgment that would require Fannie and Freddie Mac to pay deed taxes they would have owed since February 2006, interest on the unpaid taxes and attorneys’ fees.
The suit also seeks a ruling that the corporations cannot claim such an exemption in the future.
Maya Rao • 612-673-4210
The Hennepin County attorney’s office has filed a federal lawsuit against mortgage giants Fannie Mae and Freddie Mac, claiming the companies illegally failed to pay required taxes on home sales.
The class-action suit, filed on behalf of all 87 Minnesota counties, is the latest in a string of similar lawsuits filed by other states against federal government-sponsored Fannie Mae and Freddie Mac in recent weeks.
Hennepin County Attorney Michael Freeman said at a news conference Friday, Aug. 24, that there are “tens of thousands” of transactions in question, going back six years, and that the lost tax dollars number in the millions.
“This is solely a question of law,” Freeman said after the conference, regarding the companies’ claim of tax exemption. “The question is: ‘Are Fannie and Freddie exempt from this law?’ We know Fannie and Freddie sold houses and we know they didn’t pay the tax.”
Specifically, the lawsuit points to Minnesota’s deed transfer tax, a tax of 0.33 percent collected on any property sale of more than $500. About 97 percent of the tax funds go to the state and the rest to counties. Hennepin and Ramsey counties were granted, via special legislation, the right to collect an additional sliver of tax dollars for environmental clean-up funds.
Freeman estimated that Fannie Mae and Freddie Mac own or guarantee about 40 percent of home mortgages in Hennepin County, a number that has ballooned since the foreclosure crisis began in 2005.
office is working on a full tally of transactions in which the mortgage corporations did not pay the deed transfer tax, but the lawsuit offers “a conservative estimate” of 20,000 properties sold statewide since the start of the housing crisis, amounting to more than $10 million in unpaid taxes.
Fannie Mae, whose official name is Federal National Mortgage Association, and Freddie Mac, whose name is Federal Home Loan Mortgage Corporation, were established by Congress in an effort to encourage widespread access to mortgages. Though federally backed, the companies are privately held.
The federal charter for Fannie Mae, and similarly for Freddie Mac, states the corporation “shall be exempt from all taxation now or hereafter imposed by any State,” as noted in the complaint.
But Hennepin County contends that “all taxation” does not include excise taxes, which are not direct taxes on real property. Minnesota’s deed transfer tax is an excise tax.
Freeman said at least eight similar lawsuits have been filed in other states over the last two weeks. He said a recent court decision in Michigan set a precedent for these cases.
The Michigan lawsuit, filed last year by Oakland County, hinged on the same tax exemption argument. A U.S. District judge ruled in favor of Michigan counties in March, saying the mortgage companies were not exempt and therefore required to repay the money.
Fannie Mae and Freddie Mac have indicated they plan to appeal.
Elizabeth Mohr can be reached at 651-228-5162. Follow her at twitter.com/LizMohr.
Here’s a sobering fact: short sales in San Mateo County comprise more than 50 percent of the home sale transactions.
The majority of those homes have second mortgages and, of those short sales, many are occurring to stave off a foreclosure. A federal bill to help home owners could not have come at a better time.
The proposed legislation (H.R. 6153) is known as the “Fast Help For Homeowners Act” and was introduced by U.S. Rep. Jerry McNerney, D-Stockton/Pleasanton. It will help speed up the short sale approval process by requiring secondary lien holders (companies that handle second and subsequent mortgages) to respond to short sale requests within 45 days.
But here’s the kicker: if the holder of a subordinate lien fails to respond within the 45-calendar day period, “the request from a mortgagor shall be considered to have been approved by such lien holder.”
As part of our ongoing mission to serve as “the voice” for real estate in San Mateo County, SAMCAR (the San Mateo County Association of Realtors) is joining forces with state and national Realtor associations and consumer groups in supporting passage of the Fast Help For Homeowners Act.
The bill is co-sponsored by a bipartisan group consisting of U.S. Reps. Denis Cardoza, (CA-18); Jim Costa, (CA-20); Barbara Lee, (CA-9); and, George Miller, (CA-7) — all Democrats — as well as Richard Nugent, (FL-5) and Thomas J. Rooney, (FL-16) — both Republicans.
Congress will have a chance to demonstrate to the American public that homeownership matters by taking swift action on H.R. 6153 when it returns on Sept. 10 from its summer recess.
SAMCAR is supporting and urging the quick passage of the FHFH Act as it will require those who service second, third and succeeding home loans to respond to short sale offers in a fair and reasonable amount of time, ensuring distressed properties are brought to market, which will aid in the recovery of the housing market and the general economy.
LeFrancis Arnold, president of the California Association of Realtors observed: “Short sale transactions are difficult as it is … when subordinate lien holders refuse to respond to offers, additional unnecessary barriers to homeownership are created. The FHFH Act will eliminate this major hurdle.” A recent lender satisfaction survey by C.A.R. found that nearly half of all properties sold as short sales in California had subordinate liens (second mortgages).
On the national front, Moe Veissi, 2012 president of the National Association of Realtors, noted it has been actively pushing the mortgage servicing industry for years to improve the short sale review and approval process, especially in cases where second mortgages are involved. Veissi said second mortgage lien holders frequently hold up and/or cancel the short sale transaction while trying to collect the largest possible payout in exchange for releasing the homeowner’s debt even though the secondary mortgage holder often gets nothing if the home ends up going into foreclosure.
SAMCAR strongly supports streamlining the short sale approval process for both primary and subsequent mortgage holders as it will help close more short sale transactions in San Mateo County, but more importantly, congressional approval will positively impact the quality of life in communities throughout the United States and in San Mateo County.
Anne Oliva, the 2012 president of the San Mateo County Association of Realtors, is a Realtor and a principal in Marshall Realty in San Bruno.
By Romesh Navaratnarajah: Fannie Mae, the biggest source of money for US mortgages, has tightened its qualification standards for borrowers acquiring homes or refinancing loans.
A Bloomberg report revealed that the tougher changes include slashing maximum loan-to-value ratios for adjustable-rate mortgages from as much as 97 percent to 90 percent and increasing the required credit scores for certain mortgages.
Aside from that, Fannie Mae will also demand more tax returns from self-employed borrowers, said Matt Hackett, Underwriting Manager at New York lender Equity Now Inc.
Hackett noted that tax-information demand along with updates to underwriting software utilised by originators “can knock a decent portion of borrowers out of the picture who had a rough year in business two years ago”.
Fannie Mae’s new guidelines could also add to the challenges facing the US housing market, which has been showing signs of recovery after a six-year slump, said Pacific Investment Management Co., the manager of the world’s largest mutual fund. Related Stories:Aussie low-doc borrowers more likely to default UK mortgage lending up 8%Analyst: Don’t blame UOB for 50-year loan
When MGIC (MTG) announced that Freddie Mac (FMCC.OB) was threatening to block one of their insurance writing subsidiaries (MIC) from writing coverage unless a dispute between MGIC and Freddie was settled, the stock price of MGIC collapsed. With the stock price well under a dollar, a price that assumed a disastrous outcome, I bought and then added to my position. It seemed to me that the worst case outcome was no sure thing.
We are at a point now where the stock price has recovered significantly from those distressed levels. Any future increase is going to be determined by future developments in the dispute with Freddie.
I have written about this dispute previously in some detail in a post about what I worried about with the mortgage insurers (here). At the time, my analysis was limited to the SEC filings from MGIC and a few articles that I found that had referenced the court proceedings. I did not have access to any of the court documentation first hand.
Earlier this week, I was fortunate enough to find a link to the original court document of MGIC’s Complaint for Declaratory Relief against Freddie Mac. It was posted on MGIC’s Yahoo board.
The document describes the pool insurance dispute between the two companies and the case presented by MGIC.
Having read through the document a couple of times, my takeaway is that MGIC has a decent case against Freddie Mac and that, all things being fair, the evidence suggests good odds of them winning. What remains at issue is that all things are not fair. In particular, I believe the primary impediment to their success, and the primary uncertainty in the stock, is simply the leverage that Freddie Mac can inflict upon them.
Let’s get into the issue at stake.
What’s at issue
The disagreement revolves around 11 pool insurance policies. Each of these policies contains a number of pools of loans that MGIC had agreed to insure for Freddie Mac beginning in 1996. The insurance was designed to be in force up to a limit defined by a percentage of the principle balance of each pool.
To get an idea of how these policies work, let’s put it in terms of a simple example. Let’s assume we have one policy and it contains two pools of loans. Each pool contains loans worth a total of $1 million. Let’s also assume that the policy is structured such that MGIC has agreed to insure a maximum of 1% of the principle balance of the pools within it. MGIC therefore has an aggregate loss limit (meaning the maximum amount that they could potentially be on the hook to pay if a lot of the loans in the pool started to go sour) with respect to the policy of $20,000.
The disagreement between Freddie and MGIC stems from what happens once insurance on one of the pools expires. Going back to our example, let’s assume one pool was added to the policy in 2000, and the other was added in 2003. Both of the pools have insured agreements for 10 years. Time passes and 2010 rolls around and insurance on the first pool reaches its expiration.
According to Freddie’s interpretation of the policy agreement, MGIC is still responsible for $20,000 of losses (less what had been incurred up to 2010) because Freddie believes that the aggregate loss limit of the policy is based on the total principle balance of all loans ever included under the policy.
Under MGIC’s interpretation, the aggregate loss limit is determined by the total principle balance of loans currently insured under the policy, so when the first loan pool runs off, it is no longer included in the calculation. Under MGIC’s interpretation, the aggregate loss limit would drop to $10,000.
In this example, the difference between the two interpretations is $10,000; that is the amount of insurance that MGIC may have to pay on defaults in the remaining pool for 3 years. In the actual contract between MGIC and Freddie, the difference between the two interpretations is $550 million of potential losses. $550 million, being a tidy sum of money, could be the difference between life and death for MGIC.
Points raised by the declaration
As I said, there were a number of points raised in the declaration that made me think that MGIC has a fairly strong case. These points were:
- The premium paid by Freddie for the policy insurance was consistent with the interpretation of the agreement by MGIC. Freddie paid premiums that were consistent with the 10-20 year periods that each pool was to be insured. Freddie did not pay anything extra that could be construed to reflect the extra insurance coverage that Freddie’s interpretation results in.
- It was only in 2008 that Freddie began to reinterpret the agreement. Prior to that time, Freddie acted as though they agreed with the MGIC interpretation. Specifically, Freddie created additional policies with MGIC after 2007. These policies were used to insure new pools. This coincided with when the existing policies began to wind down. If Freddie had believed at the time that the insurance in force was not dependent on whether the existing policies were winding down, they would have just added new pools to the existing policies.
- Before 2000, the 11 policies existed separate from one another. In 2000, Freddie and MGIC changed the agreement so that the 11 separate policies were combined into a “mega” policy whereby the losses to all policies would be aggregated and a single loss limit would be applied to the “mega” pool. When this change was made, the language of the change specifically referred to the loss limit being determined by “loans insured” and “loans that become insured”. MGIC’s position is that the language is clear that once a loan is no longer covered by the insurance, it should be removed from the aggregated volume. I would say this sounds in line with the language.
- With respect to the mega pool, Freddie Mac’s reading of the contract would have resulted in an increase in the regulatory capital requirements of MGIC when the agreement to combine policies into a mega pool was made. This is in conflict with one of the objectives of both Freddie and MGIC for creating the mega pool. The mega pool idea was conceived to reduce capital requirements for MGIC so they could write more pool insurance for Freddie in the future. MGIC argues that it makes no sense to accept Freddie’s interpretation, which would have meant that Freddie was constructing an agreement that would accomplish the opposite of that.
- There is an element of incompetence on the part of MGIC implicit in the Freddie interpretation. There are these policies outstanding. MGIC is allowing Freddie to continue to add pools of loans to these policies. These pools of loans, because they are new, are extending out the life of the policy and increasing the total UPB that has been added to the policy. So with Freddie’s interpretation that the limit of the insurance is independent of whether older pools have expired, those newer pools are effectively having higher and higher loss limits. This would be a ridiculous business decision on the part of MGIC.
- In 2007, the individual pools within the mega pool began to wind down. Under MGIC’s interpretation, this would have meant a corresponding reduction in aggregate coverage of the pool. Under Freddie’s interpretation, the coverage would have remained the same. Yet Freddie, beginning in 2007, created new policies with MGIC that were not part of the mega pool. Naturally the inference is that they did so because they would receive better coverage from a new policy than from the existing policies that were winding down, which means that at that time, they understood the nature of the agreement as being consistent with the MGIC interpretation.
- During 2008, there was an email communication between MGIC and Freddie where the two parties discussed how MGIC could reduce exposure on the some of the policies. In that exchange, Freddie noted that most of the risk in these policies would be unwinding due to their natural expiration dates during the remainder of 2008 and throughout 2009.” With the interpretation of the agreement Freddie has, this would not have been the case and the risk would be continuing for a number of years hence.
I imagine that the reason that MGIC decided to go to court is because they felt confident that the court would settle in their favor. Conversely, the reason that Freddie is putting the screws to MGIC to settle out of court is, in my opinion, because they see the same result.
Unfortunately, Freddie has a lot to leverage on MGIC. In particular, Freddie has the ability to approve or not approve the use of the insurance subsidiary MIC.
MGIC created MIC to write insurance in states where the existing MGIC insurance subs could not. MGIC has been pushing up against the risk to capital ratio of 25:1 and some states have as a hard limit whereby you cannot write insurance once a sub is above that ratio. In the second quarter, MGIC finally exceeded the 25:1. To get around this, and keep writing insurance in all states, MGIC created a new, capitalized, subsidiary. Enter MIC.
But for MIC to write insurance, it needs the approval of the GSE’s for that insurance to be approved to go into their securities. And while Fannie has agreed, Freddie has balked.
What brought the dispute to a head was when Freddie sent this letter to MGIC stating that they wanted the dispute resolved, along with a few other requests, before they would designate MIC approved insurer of Freddie Mac loans.
What is somewhat unclear to me is what happens if MGIC does not have approval to write insurance through MIC for Freddie. There are a couple of aspects of this that remain gray areas:
- While MIC would not be able to write insurance on loans that are subsequently sold to Freddie, they would be able to do so for Fannie. The problem here is that most loans are originated without a particular end-party in mind. However, whether this can be worked around or whether it is an impediment to writing any new business is a question I have not seen addressed
- There are 16 states that have hard limits on risk to capital. Of those, MGIC has already received waivers from 6. Of the remaining 10, 3 have denied waivers and MGIC is waiting for responses on the other 7. While the inability to write insurance in 3-10 states would crimp overall volumes and is obviously not preferable, it would still leave upwards of 40 states that MGIC would be able to write new business in.
Whether an outright rejection of Freddie’s demands is an alternative for MGIC or not is not clear. But what is clear is that it would be preferable to settle.
What I’m doing
With MGIC back to $1.20, it is at a level that no longer prices in imminent bankruptcy. But, I would argue, it also does not price in any of the upside of a positive settlement with Freddie. I have been debating taking some of my position off at this level, and reducing the size back down. I still may do that, but given that MGIC does appear to have a decent case against Freddie Mac, I would be reluctant to eliminate my position completely. I want to keep some skin in the game because a reasonable settlement to the court case with Freddie would likely result in a move in the stock price back to $2 and beyond. If I could be more certain that the case would resolve on its merits, and not on the leverage of Freddie Mac, I would be tempted to buy more. But unfortunately, the power of Freddie Mac, along with the uncertainty about their actions, remains too great to take too much of a chance on the stock until more clarity can be gained.
Disclosure: I am long MTG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
You might have already heard that the US Treasury has already made crucial tweaks in the bailout program of Freddie Mac (FMCC.OB) and Fannie Mae (FNMA.OB), two GSEs that played huge roles in leading the US economy into the dreaded housing bubble in 2007, buying almost 50% of the mortgage-related securities from the banking and the non-banking institutions.
But why would the government take such a drastic decision? In this article, I want to focus on the decrepit and reckless performance of these government-sponsored companies for the past few years.
One of the severest recessions in the history of the US was right after the 9/11 attacks. And ironically, the housing bubble (which would lead to the Great Recession) was an aftermath of Alan Greenspan’s act to reassure the Americans after the terrorist attacks.
Anyway, let’s find out how inefficient and burdensome the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corp (Freddie Mac) were these last few years.
Why Such a Decision?
Freddie Mac’s and Fannie Mae’s return on average assets (ROAA, which signifies the return from its current portfolio) is (0.24)% and (0.52)% respectively, compared to 1.26% of Wells Fargo (NYSE: WFC), 0.87% of JPMorgan Chase (NYSE: JPM) and 3.9% of CBRE Group (NYSE: CBG). Although the numbers of the other companies are not something to be proud of, the improving positive numbers tell us that they are reviving back from the dead. It must also be understood that the interest rate hike following the recession has already led to negative income for most of these financial institutions. Fools rush in where angels fear to tread, and that’s what happened during the Great Recession.
Fannie Mae incurred a loss of $16.9 billion last year, straight for four consecutive years. If you look at the balance sheet, you will find $2.9 trillion worth of mortgage loans, being adjusted at $48 billion loitering in the storeroom. What are they going to do about it? Needless to say, the US government is taking such a drastic step now, which should have been taken earlier.
In the last quarter ended June 2012, Freddie Mac’s net interest income went down to $21.8 million, compared to $25.3 million in the same quarter last year. Looking at the recent financial statement, it is verified that the GSE is running at a loss for over a couple of years now. And its portfolio doesn’t seem to be doing well since over $162 billion worth of PCs (Participation Certificates) were extinguished last year.
It seems they are not being a facilitator in the housing market, rather being a burden on the government, spiking up government debt with their HUGE amount of senior notes offerings every other year. Since 2008, Fannie Mae and Freddie Mac has “drawn a total of $188 billion in taxpayer funds to stay afloat, while paying more than $45 billion in dividends.”
According to the new bailout program, the unlimited support the Treasury extended to the two companies will expire at the start of next year. After December 31, Fannie Mae’s bailout will be capped at $125 billion and Freddie Mac will have a limit of $149 billion.
Additionally, the companies’ corporate debt price rallied as the new policy alleviated the need for Fannie Mae and Freddie Mac to borrow from the government just to make dividend payments, putting them in a better position to service their debt.
Moreover, as part of the new terms, Fannie Mae and Freddie Mac will be required to reduce their investment portfolios at an annual rate of 15 percent instead of the previous 10 percent. That will put each of them on track to cut their portfolios to a targeted $250 billion in 2018, four years earlier than planned.
Fannie Mae’s investment portfolio, valued at $673 billion as of the second quarter, holds distressed loans and mostly mortgages that were originated before 2008. Freddie Mac’s investment portfolio was valued at $581 billion as of June.
And instead of the previous 10% dividend yield on the money borrowed, the GSEs need to give away all their revenue to the government from now on.
In this case, I would say the US did take the right decision of dissolving (perhaps!) these two GSEs. “You fixed the major flaw in the initial agreement,” said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
Are You Asking About The Consequences?
Different people have different opinions.
Some people are vouching for the dissolution of the two most important housing finance bodies in the US.
“In the short run it protects the borrowers to insure that the GSEs continue to be a viable resource,” said David Stevens, President and CEO of the Mortgage Bankers Association. “If something were to happen to the GSEs in the next administration that put them on a path to a different state or eliminated them, this insures that the Treasury maximized, within their authority, the re-collection of every dollar possible.”
Some people just think that these companies will be there. Just lesser participation will result in more capitalization in the market.
“We see this as a positive for housing, as it ensures that Fannie and Freddie will remain in business,” writes Jaret Seiberg of Guggenheim Partners. “Absent Fannie and Freddie, we believe housing finance will become more expensive and less available.”
Some people think that they will start borrowing even harder with this new bailout program, which means a heavier burden for the government.
“The market’s worry is that Fannie and Freddie will exhaust this Treasury capital and default on bond payments,” the Washington Research Group said in a note to clients. “Just the fear of this could drive up their borrowing costs, which would require them to seek government capital more quickly,” it said.
But some people think differently from the above.
The Treasury’s new agreement with the companies will require them to only turn over any earnings, meaning they won’t need to borrow more to cover the dividends in quarters when their profits are too small or non-existent. The compounding effect of the previous accord meant they could have run out of money within as little as seven years, Bank of America analyst Ralph Axel said in January.
Some are just too optimistic about the whole thing.
The companies’ regular need to borrow money from the Treasury to pay the dividends, increasing their burden and leaving them exposed to eventually running out of aid, seemed like a “never-ending, un-virtuous cycle” that worried potential buyers of their bonds, Robert Rowe, an agency debt analyst at Citigroup, said in a telephone interview. “You could potentially see some investors, particularly some foreign investors, which have moved out of the market come back to it.”
I would say that it’s too hard and too fast to comment on this right now, since it is a macroeconomic aspect, and the housing market is isolated from the other industries in the United States. Even another gas price rise can be of concern! But just when the housing market seems to be recovering, this might be the step you were looking for.
With real estate markets on the rebound and an economy that is beginning to show signs of sustained growth, many people in southern Delaware and beyond are again looking into buying a new home for themselves and their families.
With prices low, inventories high and interest rates at never-before-seen levels, it’s a perfect time to do just that. But the harsh reality is that money remains tight for many Delawareans.
For those who can afford financing a new home through conventional means, there’s never been a better time to do so as interest rates are at their lowest levels in more that four decades. But even if buyers can’t meet the higher financing requirements put in place following the recession, that doesn’t mean the dream of home ownership is out of reach.
“While it’s true that lending requirements have toughened in wake of the recent recession, there are other ways to share in the American dream of home ownership. You just have to do your homework,” said Trina Joyner, 2012 president of the Sussex County Association of Realtors. “Just because you don’t have a 20 percent down payment or perfect credit, don’t let that stop you from taking advantage of one of history’s greatest home-buying opportunities.”
In lieu of conventional financing options, exploring ways of financing a new home by more creative, yet potentially beneficial, means can reap great rewards.
A few ways supported by the National Association of Realtors include investigating down payment assistance programs. These are available at the local, state and national levels and give qualified applicants loans or grants to cover all or part of a needed down payment. Search online or ask a local Realtor for more information.
Buyers can also explore seller financing. While not the top choice, it is a possibility worth exploring if conventional financing is not an option in the short term.
Leasing with the option to buy means renting the home for a year or more, allowing more time to save toward the down payment. In some cases, the owners may even apply some rent toward the purchase price.
Buyers can also consider asking a family member or close friend for help with a down payment or to be a cosigner on the mortgage.
A short-term second mortgage could give the buyer extra money to use toward down payment. This will likely only be available for buyers with good credit, however.
“Buying a home is the very cornerstone of the American dream, and we at SCAOR believe that everyone should have the opportunity to be a part of that dream,” said Joyner. “Contrary to popular belief, money is still out there to be lent. Sometimes, you just have to be a little creative in looking for it these days. Be persistent and ask a lot of questions, and you will find it.”
To read more about issues related to Sussex County’s real estate industry, go to www.scaor.com.
NEW YORK (MarketWatch) — U.S. stocks scaled back opening losses Wednesday after the National Association of Realtors reported a 2.3% rise in the sale of existing homes in July. The Dow Jones Industrial Average
fell 4.11 points to 13,199.47. The SP 500 index
retained a roughly 1-point decline at 1,412.09. The Nasdaq Composite
was off 3.75 points at 3,063.50.
Read the full story:
U.S. stocks unchanged after home sales data
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Attorney General Martha Coakley warned government-sponsored mortgage giants Fannie Mae and Freddie Mac to comply with the Bay State’s recently passed loan modification law, in a letter sent to the head of the Federal Housing Finance Agency.
The Massachusetts law, signed by Gov. Deval Patrick earlier this month, requires creditors to take commercially reasonable steps to avoid foreclosure on certain mortgage loans. Recently, the FHFA, which manages Fannie Mae and Freddie Mac, officially refused to practice principal forgiveness, Coakley said.
“We expect Fannie Mae and Freddie Mac, like all creditors, to comply with these statutory obligations as they conduct business in Massachusetts,” Coakley said in her letter to FHFA Acting Director Edward J. DeMarco. “Specifically, we expect that Fannie Mae and Freddie Mac will pursue common-sense loan modifications for borrowers when the economic benefits of a modified loan exceed the significant losses anticipated at foreclosure. These loan modifications are critical to assisting distressed homeowners, avoiding unnecessary foreclosures, and restoring a healthy economy in our Commonwealth.”
Coakley said the FHFA recently decided not to implement the Home Affordable Modification Program Principle Reduction Alternative after the agency’s own study concluded that “principal reduction leads to a 20 percent reduction in re-default probabilities as compared to a modification utilizing forbearance, and principal reduction leads to a 24 percent reduction in re-default probabilities as compared to a modification that receives payment reduction, but neither forgiveness nor forbearance.”
“This data demonstrates that, in appropriate cases, loan modifications providing principal forgiveness can help struggling homeowners avoid foreclosure, save taxpayers’ money, and work to stabilize the housing market — all stated goals of the FHFA,” Coakley said.
In April, Coakley and 10 other state attorneys general sent a letter to DeMarco seeking relief for homeowners that argued the failure to implement principal loan forgiveness hurts struggling investors and homeowners.
WASHINGTON, Aug. 23, 2012 — /PRNewswire/ — Today, Fannie Mae (OTC Bulletin Board: FNMA) announced Servicer Total Achievement and Rewards™ (STAR™) Program results for the first half of 2012. STAR was created to establish servicing standards and recognize Fannie Mae servicers in their overall performance, customer service and foreclosure prevention efforts. The program measures servicers across key operational and performance areas relative to their peers, and acknowledges their achievement through star designations.
“Fannie Mae wants servicers to be responsive to homeowners who are struggling and work with them to prevent as many foreclosures as possible. Through STAR, we’ve seen servicers make measureable improvements over the course of the program’s first 18 months,” said Leslie Peeler, Senior Vice President of National Servicing Organization, Fannie Mae. “The servicers we are recognizing today are implementing effective, standardized processes that help drive improved performance and operational success.”
The following servicers produced results on the STAR Scorecard at or above median levels relative to their peers for the first half of 2012:
- Peer Group One–CitiMortgage, Inc., EverBank, GMAC Mortgage, LLC (Ally Bank), Green Tree Servicing, LLC, JP Morgan Chase, Nationstar Mortgage, LLC, PHH Mortgage Corporation, Seterus, Inc., and Wells Fargo Bank, NA
- Peer Group Two–Fifth Third Bank and Regions Bank
- Peer Group Three–Associated Bank, NA, The Branch Banking and Trust Company, Capital One, N.A., Colonial Savings, F.A., M T Bank, Nationwide Advantage Mortgage Co., Navy Federal Credit Union, Sovereign Bank, a FSB, Third Federal Savings and Loan, and Trustmark National Bank
Fannie Mae has communicated the STAR designations for the 2011 STAR program year to servicers. The following servicers earned a three star designation for the 2011 program year: Arvest Mortgage Company, Associated Bank, NA, Central Mortgage Company, CitiMortgage, Inc., Doral Bank, EverBank, Fifth Third Bank, GMAC Mortgage, LLC (Ally Bank), HSBC Bank (USA) NA, Homeward Residential, The Huntington National Bank, JP Morgan Chase, M T Bank, Nationwide Advantage Mortgage Co., Navy Federal Credit Union, Regions Bank, and Wells Fargo Bank, NA.
Fannie Mae acknowledges Fifth Third Bank’s leading performance among all servicers and peer groups in 2011, as it was closest to achieving a four star designation.
Please note that this announcement is specific to how the STAR Program measures servicer performance. This announcement does not waive or amend a servicer’s obligations to service and perform in accordance with the Fannie Mae Servicing Guide.
STAR Scorecard results for 2011 may be found at:
Fannie Mae exists to expand affordable housing and bring global capital to local communities in order to serve the U.S. housing market. Fannie Mae has a federal charter and operates in America’s secondary mortgage market to enhance the liquidity of the mortgage market by providing funds to mortgage bankers and other lenders so that they may lend to home buyers. Our job is to help those who house America.
Follow us on Twitter: http://twitter.com/FannieMae
SOURCE Fannie Mae