Fannie Willing To Go to 120%
Fannie Mae is introducing a refinancing option for underwater mortgages as it searches for ways to contain credit losses and provide its seller/servicers with additional tools to help struggling homeowners.
In reporting a $2.2 billion first-quarter loss, Fannie executive said it will purchase loans refinanced for up to 120% of the property's current value.
This option is available only for Fannie-owned or guaranteed loans and borrowers must be current on their mortgage payments.
Company officials estimate this new option could help 150,000 homeowners who currently cannot refinance into a more affordable mortgage because of negative equity.
The mortgage giant has not provided many details about this financing option. However, a spokeswoman said it does not involve the use of a balloon mortgage, which some servicers are using to modify underwater mortgages.
Initially, this refinancing option is not available for alt-A loans, although it may be in the future.
Fannie has a $310.5 billion alt-A mortgage loan portfolio, which accounted for 43% of its credit losses in the first quarter. Over 30% of the alt-A loans are secured by properties in Florida and California and Fannie executives want to stop the bleeding.
"We are very focused on identifying and attacking the trouble spots in the business," Fannie's chief business officer Robert Levin said to investors and Wall Street analysts during a conference call on May 6.
In Florida, "we are performing underwriting reviews of defaulted loans. If loans are not underwritten to our guidelines, we will require the servicers to buy them back or make us whole."
The chief business officer also noted that Fannie is pursuing deficiency judgments against real estate investors and second-home borrowers in Florida.
Fannie reported $3.2 billion in credit losses during the first quarter and the secondary market agency sees higher losses going forward until house prices start to stabilize.
Fannie is forecasting that home prices will fall about 7% to 9% in 2008. That translates into a 15% to 19% peak-to-trough decline in prices. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/