No
one wants to see their companies and future employment batted around in the
press, but perhaps our brethren and Freddie and Fannie are accustomed to it by
now. Michael Stegman, the Treasury Department's top housing policy official,
said the responsibility lies with Congress to end government conservatorship
of Fannie Mae and Freddie Mac. "The only way to responsibly end the
conservatorship is through legislation," Stegman said. Please note the
article discusses "conservatorship" and not "eliminating"!
And both announced their 97% LTV programs - see below.
"To
help expand access to mortgage credit, we are introducing Freddie Mac Home Possible Advantage,
a responsible mortgage option that offers more flexibility for maximum
financing. Today's Single-Family Seller/Servicer Guide (Guide) Bulletin
2014-22, provides the requirements for Home Possible Advantage mortgages. This
new offering primarily adopts the responsible and affordable flexibilities of
Freddie Mac Home Possible® mortgages, but with additional requirements that
include, but are not limited to the following: Maximum loan-to-value (LTV)
ratio of 97 percent and total LTV ratio of 105 percent, the mortgage must be a
fixed-rate mortgage secured by a 1-unit property other than a manufactured
home. Mortgage insurance coverage of at least 18 percent for mortgages with LTV
ratios greater than 95 percent, and maximum debt payment-to-income ratio of 43
percent for manually underwritten mortgages. Home Possible Advantage will be
available for mortgages with Freddie Mac settlement dates on or after March 23,
2015."
And
on Fannie part we saw, "In support of ongoing efforts to expand access to
credit and support sustainable homeownership, Fannie Mae will offer up to 97%
LTV/CLTV/HCLTV financing to help home buyers who would otherwise qualify for a
mortgage but may not have the resources for a larger down payment, and to
support refinance of existing Fannie Mae mortgage loans. Fannie Mae is
providing multiple options to help lenders serve creditworthy borrowers and
expand business opportunities. Selling Guide Announcement
SEL-2014-15 details the requirements and policy changes. The 97% LTV
ratio updates will be available for loan casefiles underwritten through Desktop
Underwriter® (DU®) Version 9.2, which will be implemented the weekend of Dec.
13, 2014. Review the updated DU Version 9.2 Release Notes for more
information. Additional details and resources are available on the FannieMae.com 97% LTV Options page including a
fact sheet, FAQs, and a video overview."
To sum things up the new
product is largely geared towards the first-time purchase borrower, although a
non-cashout refinancing option exists as well. The announcement is certainly
a shot across the bow of the FHA, particularly for borrowers with better
credit, which should result in adverse selection for FHA loans. It should
also have a positive impact on credit availability on the margins as it lowers
the cost for a high LTV loan. Yes, only fixed rate loans with terms up to 30yr
are eligible, the home must be the primary residence, at least one of the
borrowers should be a first-time home buyer (only for Fannie Mae) while Freddie
Mac stipulates that borrowers must not have any ownership interest in any other
home, the loan balance must be lower than the area loan limit (only for Fannie
Mae), borrowers' annual qualifying income must not exceed 100% of the area
median income or the income multipliers for designated high cost areas (only
for Freddie Mac), they have a private mortgage insurance requirement of 18%
coverage, and so on. And there is a cost in the form of loan level price
adjustments: an additional 0.5% LLPA for Fannie over regular LLPA for 95-97
LTV and for Freddie Mac, the LLPA varies between 1% and 1.5% for 95-97 purchase
mortgages and is set at 1.75% for refinance mortgages.
LOs were quick to send me notes
that it is likely that a better credit borrower would most likely opt for a
Fannie or Freddie loan over FHA loan given substantial savings in mortgage
payments. (The product bears a striking resemblance to the former product of
the same down payment.) This should lead to adverse selection and worsening
credit quality for FHA loans. It should also have a positive effect on credit
availability on the margins as it lowers the cost for a high LTV loan,
especially for first time purchase borrowers. From an investor's perspective
the new program should have a limited effect on refi speeds of existing high
LTV loans. These loans, even in the past, could always refinance with help of
PMI once their current LTVs dropped below 95% LTV. Also the new 97% LTV program
does not offer all-in rates that are significantly different from that. Also, it
will affect loans that are currently in the very tight window of 95-97% LTV.
Just
when investors thought it was safe to back into the markets, San Francisco
is looking at using eminent domain.
Jody Shenn with Bloomberg writes, "San Francisco may become the biggest
U.S. city to use its development powers to help homeowners avoid foreclosure,
partnering with another California community whose own plan has come under fire
from investors. The proposal from a member of San Francisco's Board of
Supervisors would use eminent domain to take over loans on property with a
market value below the mortgage amount. A lawmaker says it would help
minorities in the city of about 837,000, while some officials see the move
increasing borrowing costs and discouraging investors. If the proposal
succeeds, the city would join nearby Richmond, which is seeking municipal
partners in the effort. Lawmakers in California's San Bernardino County, as
well as in Chicago and North Las Vegas, Nevada, considered and abandoned the
idea. Such a program in San Francisco would 'likely be negatively perceived by
financial markets, insurers, other financial intermediaries and potential
investors in the city's bonds,' Sesay and Ben Rosenfield, the controller, said
Oct. 6 in a memo to Mayor Ed Lee and the 11-seat Board of Supervisors."
Moving on to something more
constructive, the markets were abuzz from news via the FHFA regarding Fannie
& Freddie's programs. As Mortgage News Daily noted, "Each will
permit loans with as high as a 97 percent loan to value ratio with certain
compensating factors. Both Fannie Mae and Freddie Mac's loans must be secured
by a single family owner occupied property. Only fixed-rate loans are eligible
and manufactured housing is not acceptable collateral. At least one borrower
must be a first time homebuyer and median income eligibility levels apply. The
GSEs are also requiring a form of homeowner education, the type and duration of
which varies between them."
Turning to the markets,
mortgage-backed securities (MBS) did pretty darned well Monday. Not only did
Treasury rates drop and prices improve (the 10-yr was better by .375), but
agency MBS prices improved relative to Treasuries by about .125. It was all
supply (not very strong) and demand (investors want them). The 10-yr closed
Monday at 2.26% and this morning, with no scheduled news, we're down to 2.24%
and agency MBS prices are better a smidge.
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