Compliance & Regulation

Fannie Mae's use of HomeSaver advances to cure delinquent loans in securitized pools peaked in June and July and two-thirds of the personal loans went to nonprime borrowers, according to a report by the Federal Housing Finance Agency. Fannie launched the HomeSaver program in February and it had made more than 45,000 advances totaling $301 million as of Sept. 30, according to the company's latest financial report. The average size of these unsecured loans is $6,700 and it has helped the mortgage giant fix the loans without purchasing them out of pools and recognizing a loss. From February through August, Fannie made 36,415 HomeSaver advances and 23,177 went to alt-A and subprime borrowers. Fannie made 11,725 advances in June and 10,599 advances in July. Advance activity dropped to 7,914 in August, according to the government-sponsored enterprise regulator.

Fannie Mae has filed with the U.S. Securities and Exchange Commission that the GSE has notified the New York Stock Exchange that it intends to bring the share price of its common stock and the average share price of its common stock for 30 consecutive trading days above $1.00 by no later than May 11, 2009. Fannie Mae is currently working with its conservator, the Federal Housing Finance Agency, to determine the specific action or actions that Fannie Mae will take to cure the deficiency. If necessary to bring its share price and its average share price for 30 consecutive trading days above $1.00, and subject to the approval of the U.S. Department of Treasury, Fannie Mae has advised the NYSE that it may undertake a reverse stock split in order to cure the deficiency by the May 11, 2009 date. Fannie Mae expects to determine the actual number of shares that will produce one share of common stock as a result of any reverse stock split based on both the market price of Fannie Mae's common stock prior to announcement of the split and additional input from FHFA and Treasury. Under applicable NYSE rules, Fannie Mae now has until May 11, 2009, subject to supervision by the NYSE, to bring its share price and its average share price for 30 consecutive trading days above $1.00. If it fails to do so, the NYSE will initiate suspension and delisting procedures.

The Treasury Department has provided Freddie Mac with a $13.8 billion infusion to wipe out a capital deficit and keep the government sponsored enterprise afloat. In exchange for this infusion, the mortgage giant issued $13.8 billion in senior preferred stock to Treasury. Freddie reported a $25.3 billion loss for the third quarter and a $13.8 billion capital deficit, which triggered Treasury's response. Treasury officials pledged to prevent Freddie and Fannie Mae from operating with negative net worth when the GSEs where placed in conservatorships on Sept. 7. Under separate senior preferred stock purchase agreements, Treasury agreed to provide Freddie and Fannie each with up to $100 billion in net worth assistance. Fannie reported a $29 billion loss in the third quarter and revealed its net worth had dropped to $9.4 billion as of Sept. 30. The Fannie executives warned in their quarterly securities filing that the GSE may have negative net worth by the end of the fourth quarter if "housing and financial market trends continue to worsen and we have a significant loss in the fourth quarter of 2008."

The average weekly rate for a 30-year fixed-rate mortgage fell to 5.97% during the week ending Nov. 26 from 6.04% the week previous in a move Freddie Mac attributed to recent statistics signaling economic decline. "Signs the overall economy is flagging lowered most interest rates marketwide," said Frank Nothaft, Freddie Mac vice president and chief economist, noting that "economic growth in the third quarter was revised downward this week, led by the first decline in consumer spending since the fourth quarter of 1991 and the largest drop since the second quarter of 1980." In addition to falling week over week, the average rate for a 30-year FRM was down from the same period last year, when it was 6.10%. The average rate on the five-year Treasury-indexed hybrid adjustable-rate mortgage, at 5.86%, inched down to 5.86% from 5.87% but was the same as it was the year previous; while the average rate on the one-year Treasury-indexed ARM, at 5.18%, fell from 5.29% the previous week and 5.43% the year before. However, the average rate for a 15-year FRM, at 5.74%, was slightly up from the previous week and the previous year when it was 5.73%, in both cases. Points averaged 0.7 for 30- and 15-year FRMs, 0.6 for five-year hybrids and 0.5 for one-year ARMs.

Sales of new homes fell 5.3% in October to the lowest level since 1991 and homebuilders don't expect a turnaround unless Congress provides more incentives to stimulate home sales. The U.S. Census Bureau saw sales of new single-family homes fall from a seasonally adjusted annual rate of 457,000 in September to 433,000 in October. The National Association of Home Builders is forecasting that new home sales will turn up in the first or second quarter of 2009 if Congress makes the homebuyer tax credit more attractive and enacts an interest rate buy-down program. Even with all the moves by the Treasury Department and Federal Reserve, "I don't think that is quite enough to help turn this market around," said NAHB director of forecasting Bernard Markstein. He noted the inventory of newly constructed homes has declined by 190,000 units since the peak in 2006 to 385,000 in October. "We are making progress," he said, but the current inventory still represents an 11-month supply at the current sales pace. Single-family housing starts won't turn up until the inventory gets down to 300,000, Mr. Markstein said.

Canada's RBC Mortgage Co. has agreed to pay the United States more than $10.7 million to resolve allegations arising under the False Claims Act concerning 219 Federal Housing Administration loans, according to the U.S. Department of Justice. The government had alleged that, between 2001 and 2005, the subsidiary of the Royal Bank of Canada falsified documentation in support of loan applications, violated due diligence underwriting requirements and improperly submitted loans for endorsement by the Department of Housing and Urban Development that were not eligible for FHA insurance. "The settlement reached between RBC and the United States resolves these allegations," the DoJ said. In addition to the settlement, RBC also has agreed to pay $264,000 to resolve administrative claims with respect to 39 federally insured loans, according to the Justice Department.

Fannie Mae has appointed David M. Johnson to serve as its executive vice president and chief financial officer. Mr. Johnson previously was EVP and CFO at Hartford Financial Services Group, Hartford, Conn. David C. Hisey, who stepped up from his post as senior vice president and controller to temporarily take the CFO post when previous EVP/CFO Stephen Swad left the company in late August, will be Fannie's deputy CFO and EVP. "David Hisey has done a terrific job leading our financial team through Fannie Mae's transition to conservatorship and during our most recent filing," Fannie CEO Herb Allison said. "Through this period of great change, David has been a rock - for the front office, the financial team and the company - and we appreciate his leadership of our financial team. His deep knowledge and experience in financial matters related to the mortgage market will continue to be critical to the company as we move ahead through this period."

Fannie Mae issuance of mortgage-backed securities fell to $28.6 billion in October, the lowest level since February 2001, and Ginnie Mae edged out the mortgage giant by issuing $29.2 billion in single-family MBS in the same month. Fannie's monthly activity report shows it purchased $13 billion of its own guaranteed MBS and its mortgage portfolio grew by $15.7 billion to $777.1 billion as of Oct. 31. The government-sponsored enterprise has been hampered by high funding costs in providing more support for the mortgage market. But the Federal Reserve Board's new initiative to purchase GSE debt and MBS should give Fannie a boost in the months ahead and hopefully lower mortgage rates. Meanwhile, the delinquency rate (90 days or more past due) on Fannie guaranteed mortgages rose to 1.72%, up from 1.52% in September and 0.78% in October 2007.

The Department of Housing and Urban Development should reopen the FHA 203(k) loan program to investors temporarily so they can purchase and renovate rundown foreclosed properties, according to the National Association of Realtors. "Investors utilizing the 203(k) program could purchase dilapidated foreclosed properties for rehabilitation and conversion to rental properties," NAR says in a letter to HUD secretary Steve Preston. Federal Housing Administration 203(k) loans cover the cost of buying a property and the estimated renovation costs in a single transaction. HUD closed the 203(k) program to investors in the late 1990s because of fraud and mounting loan losses. The NAR suggests allowing investors to participate in the FHA program for three years.

Federal Deposit Insurance Corp. researchers have calculated that 638,000 mortgages entered foreclosure in the second quarter while servicers had to deal with a larger crop of newly delinquent loans. Single-family mortgages becoming 60 to 90 days past due in the second quarter totaled 736,000, up from 670,000 in the first quarter and 618,000 in the fourth quarter of 2007. "What this tells us is that the number of problem mortgages is still rising and that finding alternatives to foreclosure remains a policy priority," said FDIC chief economist Richard Brown. There were 1.2 million foreclosures in the first half and it could hit 2 million by year-end, Mr. Brown said. "More needs to be done to modify loans," he added. The FDIC has developed a streamlined loan modification program. FDIC chairman Sheila Bair wants the Treasury Department to fund a loss-sharing loan guarantee program to facilitate more modifications.