Compliance & Regulation

Residential Capital LLC has agreed to post $200 million of collateral to Fannie Mae, which in return will continue to do business with the unit of GMAC LLC. In a Securities and Exchange Commission filing Monday, GMAC, which is majority-owned by Cerberus Capital Management LP, said that ResCap's net worth fell below $1 billion in the third quarter. Under their contract, such an event gives Fannie the right to restrict ResCap from selling or servicing loans for the government-sponsored enterprise. Fannie also can force ResCap, of Minneapolis, to transfer servicing rights to another company. The GSE will refrain from exercising such remedies until Jan. 31, GMAC said. As part of the deal, ResCap also agreed to sell the servicing rights on $12.7 billion of loans, or about 9% of the total it services for Fannie. Selling those rights "will have an incremental positive impact on ResCap's liquidity and overall cost of servicing, since it will no longer be required to advance delinquent payments on those loans," GMAC said. (ResCap's overall servicing portfolio stood at $392 billion on Sept. 30) But posting the collateral will hurt the unit's liquidity, GMAC said, and come Jan. 31, if Fannie still deems ResCap's net worth inadequate and decides to exercise its contractual rights, "it would adversely affect our profitability and financial condition."

Fannie Mae lost $29 billion ($13.00 per share) in the third quarter of 2008, driven primarily by a $21.4 billion non-cash charge to establish a valuation allowance against deferred tax assets, as well as $9.2 billion in credit-related expenses arising from the ongoing deterioration in mortgage credit conditions and declining home prices. The company entered Federal Housing Finance Agency conservatorship on Sept. 6, 2008. In the same period one year ago, Fannie Mae lost $1.4 billion ($1.56 per share). Commentary from Moody's Investors Service notes, "The deferred tax valuation allowance was largely a result of uncertainty regarding the company's future profitability. Future profitability is likely to be reduced, at least in the short-term, as the company has been required to primarily focus on its public policy mission of supporting the US housing market rather than maximizing shareholder value. It is uncertain when or if the company's focus will return to profitability. In addition, there is the potential that the company will be unable to regain the franchise and same level of profitability upon emerging from conservatorship." Moody's affirmed its ratings on Fannie Mae. Fannie Mae's website is http://www.fanniemae.com.

The National Credit Union Administration has approved a new charter for Realtors FCU of Orlando, which will be an Internet-based credit union for an estimated 1.2 million members of the National Association of Realtors. Service will be provided by a 24/7 call center in addition to the Internet support, according to Michael Brodie, who will chair the start-up. "Realtors Federal Credit Union will be sensitive to the work habits and lifestyles of Realtors, most of whom are independent contractors who are compensated by commissions," said Brodie. Among its products, the new CU will offer first mortgages and HELOCs. -- <1>Credit Union Journal

Lend America, Melville, New York, on Monday plans to begin offering direct to qualifying consumers with subperforming mortgages in 44 states the lower-payment government-backed 'Home for Homeowners' refinance loans it previously made available only through alliances with institutional investors. The Federal Housing Administration lender and Ginnie Mae issuer will market the 'H4H' product to consumers through a series of 30-minute television infomercials that run under the name "The Mortgage Network." The company is continuing to offer the loans through its institutional investor program as well. Michael Ashley, chief business strategist of Lend America, said its mortgage specialists, who have received certified training in the relatively new government program, can educate borrowers, assess their affordability and refinance their loans in as little as 10 days, usually by phone.

Mortgage companies hired 2,900 full-time workers in September -- even though all U.S. business trimmed their employment roles by a surprising 284,000 workers, according to new government figures. The mortgage number, unfortunately, lags the national unemployment rate by a month. On Friday the U.S. Bureau of Labor Statistics said the unemployment rate spiked to a 14-year high of 6.5% in October as another 240,000 jobs were cut -- far worse than many economists expected. Unemployment is a key determiner of loan delinquencies. According to the government, 352,200 workers made their living off of mortgages (lending, servicing, brokerage) in September, compared to 349,300 in August. Employment in the mortgage industry has been relatively stable since January with most of the new jobs being added in servicing and loan modifications. Wachovia Corp. chief economist John Silva expects to see negative job and weak personal income reports until the spring of 2009, which will make it difficult for consumers struggling to make their mortgage payments. "Delinquencies and foreclosures will be rising for the next three to five months," Mr. Silva told MortgageWire. The housing market will go through a "tough winter," the economist said, but conditions should improve by spring with the help of government spending to revive the economy. "Most of the U.S. economy should have a decent housing recovery in 2009," he said.

Sen. Christopher Dodd, D- Conn., said he will continue to serve as the chairman of the banking committee and he is looking forward to working with the Obama administration in preventing foreclosures and strengthening regulation of the financial system. At a press conference, Sen. Dodd put aside rumors that he is eyeing the chair of the Foreign Relations Committee by noting the banking committee will play a central role in dealing with the financial crisis, which is important to the nation and his state. Sen. Dodd said at the press conference that that president-elect Barack Obama should make it a priority to select his economic team quickly. The chairman pledged to hold extensive hearings on the Treasury Department's implementation of the $700 billion troubled asset relief program. And he said banks that have received capital injections from Treasury should increase their lending and reduce foreclosures. He also stressed that banks shouldn't use taxpayers funds to pay dividends or to acquire other banks.

The National Association of Home Builders is urging Congress to pass a new stimulus bill this year that has a more effective tax credit for homebuyers along with an interest rate buydown. Under the buydown plan, the buyers would get a 2.99% interest rate on a 30-year conforming mortgage if they purchase a home before June 30, 2009. The interest rate increases to 3.99% for homes purchased between July 1, 2009 and the end of the year. "Getting consumers off the sidelines will reduce the inventory of unsold homes, stop the erosion of home values in hard hit areas and result in more new and existing home sales," NAHB chief executive Jerry Howard said. The builders also want Congress to scrape the $7,500 first-time homebuyer tax credit Congress included in the first stimulus bill and replace it with a tax credit for all homeowners that covers 10% of the purchase price up to $22,000.

Ginnie Mae guaranteed the issuance of $27 billion in mortgage-backed securities in September, down slightly from the record high of $29.1 billion in August, which represents the first monthly drop in Ginnie MBS issuance this year. Ginnie Mae has been riding a boom in FHA single-family originations, which jumped from $59.8 billion in fiscal year 2007 to $181.2 billion in FY 2008 (which ended Sept. 30). In the fourth quarter of the fiscal year, Ginnie MBS issuance totaled $82.3 billion, compared to $26.1 billion in the fourth quarter of FY 2007. Meanwhile, agency officials are starting a testing program to make sure FHA loans in Ginnie Mae pools are insured. When uninsured loans are detected, the issuer will be directed to correct the problem by providing "copies of valid Mortgage Insurance Certificates, or by substituting or repurchasing the loan if it is not insured," a Ginnie memorandum says.

A Mortgage Bankers Association survey shows that 20.1% of single-family originations in the second quarter were guaranteed by the Federal Housing Administration, Department of Veterans Affairs and Rural Housing Service, up from 11.5% in the first quarter. "This survey confirms the increased popularity of FHA," said MBA senior economist Orawin Velz. She estimates FHA's market share hit 25% in the third quarter and it will go even higher in the fourth quarter. The MBA Mortgage Origination Survey also shows the conventional prime loans that Fannie Mae and Freddie Mac purchase are declining in terms of market share. Prime loans comprised 75.9% originations in the second quarter, down from 82.7% in the second quarter. In the second quarter, only 2.9% of originations were subprime loans and 1.1% were Alt-A loans.

The FDIC's proposal to increase deposit insurance assessments and penalize banks with unsecured liabilities runs counter to the federal government's effort to increase liquidity and should be withdrawn, according to the Federal Home Loan Bank of Atlanta. Since the Federal Deposit Insurance Corp. issued the proposed rule, Congress has increased the deposit insurance limit to $250,000 at no extra cost to institutions, while FDIC has guaranteed unsecured debt issued by banks and thrifts. "To say that the proposed rule has been overtaken by events understates the issue," FHLB executive vice president Jill Spencer says in a comment letter. If FDIC moves ahead with the assessment increase, Ms Spencer contends that institutions should not be penalized for relying on unsecured debt and FHLBank advances. Without advances, "we firmly believe that the number of institution failures would have been much higher and costlier" to the bank insurance fund, the Atlanta FHLBank says.