Compliance & Regulation

Ginnie Mae is essential to the recovery of the market, said Ginnie Mae president Joseph Murin addressing the 4th Annual Mortgage Lending Industry Strategic Markets and Diversity Conference at the National Harbor, Maryland. Furthermore, he noted that after the government takeover of Fannie Mae and Freddie Mac, Ginnie Mae is taking a leadership role in helping secure affordable housing and secondary market funding. One clear indicator is Ginnie Mae's current and expected growth, especially in the secondary market where Ginnie Mae is now a critical player. Projections of Ginnie Mae mortgage-backed securities show that in 2008 Ginnie's volume will reach $210 billion, compared to only $90 billion in 2007. Further, by the end of 2009 it is expected to cross the $1 trillion mark, he said. This means Ginnie Mae may represent over 40% of the mortgage-backed securities business by yearend 2009.

According to Freddie Mac's Primary Mortgage Market Survey the 30-year fixed-rate mortgage (FRM) averaged 5.94%, down from last week when it averaged 6.10%. Last year at this time, the 30-year FRM averaged 6.40%. Similarly, the 15-year FRM this week averaged 5.63%, down from last week when it averaged 5.78%. A year ago at this time, the 15-year FRM averaged 6.06%. Five-year Treasury-indexed hybrid adjustable-rate mortgages averaged 5.90%, down from last week when it averaged 6.00%. The only rise came among one-year Treasury-indexed ARMs, which averaged 5.15% this week, up from last week when it averaged 5.12%. Putting the numbers into context, Frank Nothaft, Freddie Mac vice president and chief economist said, "Longer-term mortgage rates fell for the first time in three weeks, roughly following bond market yields. Meanwhile, the latest housing market data showed some pickup in home purchase activity in August."

House Financial Services Committee chairman Barney Frank, D-Mass., is demanding that other major servicers follow Bank of America's model and adopt plans for "immediate mass modifications" to stem the flood of foreclosures. Rep. Frank also put 10 major banks and servicing companies on notice that they are expected to report to his committee by Oct. 17 on their plans to adopt a systematic approach to loan modifications. "Hope Now and other industry initiatives have had too little impact to meet the large and growing need for widespread relief," Rep. Frank says in a letter to the companies and industry trade groups. The committee chairman stresses the BoA/Countrywide settlement agreement to modify nearly 400,000 subprime and payment-option mortgages should serve as a template for the rest of the industry. "It is essential that every mortgage servicer firmly commit to implement plans for immediate mass modifications based on, or stronger than, the measures BoA/Countrywide has undertaken," Rep. Frank says in the Oct. 8 letter.

The regulator of Fannie Mae and Freddie Thursday morning suspended capital classifications for the two GSEs, which have been operating under government control since early September. Both mortgage giants continue to buy loans from their seller/servicers. Through the purchase of senior preferred stock, the Treasury Department owns most of both companies although their common shares continue to trade on the New York Stock Exchange. In a statement, the Federal Housing Finance Agency said it will continue to "closely monitor" their capital levels but noted that any minimum capital requirements "will not be binding during the conservatorship." Agency director James Lockhart said he is officially classifying the two mortgage giants as "undercapitalized" as of June 30, even though both reported second quarter results saying they met FHFA's statutory requirements for capital. FHFA's actions today were not unexpected.

Friedman Billings Ramsey is telling its clients to avoid investing in financial stocks, noting that the "future capital structure" of the industry is uncertain "given the growing likelihood of direct equity investment in financials by the government." The firm notes, "We expect that the government will take additional, drastic steps to combat the financial crisis, as rate cuts and Federal Reserve-backed auction facilities have had limited benefits." Earlier in the decade FBR's investment banking arm took many subprime residential firms public using a real estate investment trust ownership (REIT) structure. Every subprime firm it has raised equity for has either failed or merged out of existence. On Thursday FBR's share price hit a new 52-week low: 62 cents. Its high is $5.

The Federal Reserve has authorized another $37.8 billion in aid for insurer American International Group, which continues to struggle with liquidity and capitalization concerns that are partially mortgage-related. "Under this program, the New York Fed will borrow up to $37.8 billion in investment-grade, fixed-income securities from AIG in return for cash collateral," the Fed said. "These securities were previously lent by AIG's insurance company subsidiaries to third parties." The Fed added that, "drawdowns to date under the existing $85 billion New York Fed loan facility have been used, in part, to settle transactions with counterparties returning these third-party securities to AIG. This new program will allow AIG to replenish liquidity used in settling those transactions, while providing enhanced credit protection to the New York Fed and U.S. taxpayers in the form of a security interest in these securities."

The Federal Reserve Board Tuesday made plans for a commercial paper funding facility that aims to bolster flagging term funding markets' liquidity. "A large share of outstanding commercial paper is issued or sponsored by financial intermediaries, and their difficulties placing commercial paper have made it more difficult for those intermediaries to play their vital role in meeting the credit needs of businesses and households," the Fed said, adding that it believes that the steps it is taking will improve the situation. The Fed's CPFF takes the form of a special purpose vehicle that will purchase three-month unsecured and asset-backed commercial paper directly from eligible issuers. The Fed said it would provide financing to the SPV that "will be secured by all the assets of the SPV and, in the case of commercial paper that is not asset-backed commercial paper, by the retention of up-front fees paid by the issuers or by other forms of security acceptable to the Federal Reserve in consultation with market participants."

Recent legislative changes to the Hope for Homeowners program that are expected to boost lenders participation in the special FHA refinancing program will take some time to implement, according to housing secretary Steve Preston. The Emergency Economic Stabilization Act signed by President Bush on Oct. 3 amends the Hope for Homeowners (H4H) program so the lender does not have write down the loan amount all the way to a 90% loan-to-value ratio and it allows second lien holders to be paid off in cash. "It may encourage more lenders to come into the program," the Department of Housing and Urban Development secretary told reporters. However, HUD will very likely have to issue a propose rule for public comment. "It will take some time to implement that," Mr. Preston said. Meanwhile, HUD will be watching to see how aggressively lenders adopt the H4H program and start refinancing borrowers with underwater mortgages. Secretary Preston noted, however, that lenders have other workout options, including the expanded FHA Secure program and they can decide to modify the loan on their own. The private Hope Now initiative has completed 2.3 million workouts since it was launched last year, he said.

Fannie Mae has agreed to purchase mortgages originated by members of the Chicago Federal Home Loan Bank and it opens the door for other FHLBanks that participate in Chicago's Mortgage Partnership Finance program to sell loans to Fannie. "Our partnership with Fannie Mae facilitates access to the secondary market through the familiar structure of the MPF program. Most importantly, this program will make it easier for the majority of our members to continue to offer competitively priced fixed-rate mortgages to their customers in their communities," Chicago FHLBank president Matt Feldman said. Due to financial troubles, the Chicago bank stopped purchasing mortgages from its community bank members in August and the Des Moines, Pittsburgh and Topeka FHLBanks stepped in to purchase mortgages from Chicago members. The new government-sponsored enterprise regulator, the Federal Housing Finance Agency, approved the Fannie/Chicago FHLBank partnership.

Asset managers interested in working for the Treasury Department will have to submit a proposal to handle either whole loans or mortgage-backed securities by 5 p.m. EST Oct. 8. In outlining its selection process, Treasury officials stress that they will be racing to sign up asset managers. "Given the urgent need to implement the Troubled Assets Relief Program quickly, the selection process for asset managers may involve extremely short deadlines for submitting information and for traveling to Washington, D.C. for meetings and interviews," a Treasury memo says. Meanwhile, securities asset managers will be expected to purchase and manage MBS backed by prime, alternative-A, subprime, and commercial real estate mortgages. In addition, they will be expected to manage "MBS collateralized debt obligations, and possibly other types of securities acquired to promote market stability." Whole loan managers will also handle a range of products, including residential first mortgages, home equity loans, second-lien loans, and CRE mortgages.