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Mudd Is Optimistic as Fannie Mae Looks to Future

Fannie Mae said its book of business grew at the compound annualized rate of 24.7% in December, while mortgage-backed securities and other guarantees increased by 27.1% as the total MBS issuance reached $64 billion.

Fannie's gross mortgage portfolio increased at a 3.3% compound annualized rate and net retained commitments were $11.3 billion in the month of December.

In November (the latest such data available), Fannie said the serious delinquency rate for conventional single-family homes increased by 7 basis points to 0.9%. The multifamily serious delinquency rate rose one basis point to 0.08%. Mortgage market highlights also included a decrease by 4.8 percentage points to 10.1% in the monthly average ARM share of the number of conventional mortgage applications in December, the lowest such share recorded since November 2001.

Commenting on the GSE financial statements while at the Citigroup 2008 Financial Services Conference, president and CEO Daniel Mudd said that compared to last year when Fannie "was focusing on catching up and getting current with our financial statements," now it is a current filer and will file its 2007 10-K by the end of February. Also, Fannie projected its single-family mortgage guaranty business "would grow and regain market share" he said, and in 2007 that business grew by double digits in a shrinking market, and Fannie more than doubled its market share from under 20% in early 2006 to over 40%.

"We expected a significant correction to begin in the housing market, with falling home prices and rising mortgage delinquencies. Well ... we all know what happened next," he said. "I cannot, however, claim to have called the speed and depth of the fall of the housing market starting last summer. The market correction took its toll on virtually all major financial institutions in 2007, including us."

According to Mr. Mudd, the three key points are "One, the prime, conventional, conforming market for the most part has remained a stable center amid the turmoil, and continues to perform well. Two, as we've made clear, Fannie Mae is not immune to the downturn and our financial results show it. But when the market takes its first steps toward recovery, we see a significant upside for our company, driven by the business we're taking on today. And three, even as we work through what we see as the most severe housing decline in our lifetimes, I remain a huge believer in the long-term health and growth of housing in America."

Fannie is not immune to the market, he said, and all told, the environment is not steady making it difficult to project with much precision. "Accordingly, I think it is prudent to brace for the challenge, while remembering that fundamentally, and in the long term, U.S. home finance is a strong, growing, profitable sector."

Fannie is positioned to win because of its positioning in four areas: book of business, risk management and capital, capability and market position, and staff.

In risk management, its goal in the current market is to manage credit losses, adjust pricing and products to manage credit exposure on the new business and build a stronger book for the future. "In the simplest terms, managing credit losses in a market like this one means helping people keep their homes if they can make it, and getting them out quickly if they can't. Loan workouts are the best option for borrowers who fall behind."

Foreclosure is generally the worst outcome for all, including the economy as a whole, he said. For example, for Fannie "the average foreclosure costs 10 times more than working out the loan. So when borrowers fall behind, we work very closely with our loan servicers to restructure the loans to minimize losses.

"We've increased our incentive fees for loan servicers to offer workout solutions instead of foreclosure. And, since often the first point of contact is the lawyer, last year we began paying these lawyers to avoid foreclosure, instead of executing a foreclosure."

Mr. Mudd said Fannie's goal is to help a significant portion of borrowers who are seriously delinquent at least three payments behind to stay in their homes. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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