Compliance & Regulation

The House, in a 383-35 vote, has passed an economic stimulus bill that temporarily increases the loan limits for Fannie Mae, Freddie Mac, and the Federal Housing Administration. The stimulus bill (H.R. 5140) raises the loan limits to 125% of median area home prices in high-cost areas, with a $729,750 cap, and it is expected to increase home sales and help stabilize real estate markets. Raising the loan limits for Fannie and Freddie could generate 300,000 additional home sales, reduce the inventory of unsold homes, strengthen home prices, and help 210,000 families avoid foreclosure, according to the National Association of Realtors. "Simply lifting the loan limit will have an immediate impact on lessening foreclosures," NAR chief economist Lawrence Yun told reporters. Preliminary estimates also indicate that raising the FHA loan limit could generate 200,000 to 250,000 additional home sales and 500,000 refinancings. It would also reduce foreclosures, the association said, but NAR economists have not completed that analysis. The Senate is expected to pass its own stimulus bill by Feb. 1. The association can be found online at http://www.realtor.org.

The Core Mortgage Risk Index increased 9.0% in the first quarter, reflecting the pressures of rising delinquency and foreclosure rates, flat or declining price appreciation, and slower job growth, according to First American CoreLogic, Sacramento, Calif. Among the largest 100 markets in the country, CoreLogic said the five with the highest risk are: Bakersfield, Calif.; Stockton, Calif.; Fresno, Calif.; Warren-Troy-Farmington Hills, Mich.; and Grand Rapids-Wyoming, Mich. "While Michigan markets overall are not as highly ranked as they were in the past, it is not because the risk has declined or even stabilized, but rather that California markets are deteriorating at a faster rate," the company reported. CoreLogic, a provider of mortgage risk assessment and fraud prevention systems, can be found on the Web at http://www.corelogic.com.

House leaders have decided to leave Federal Housing Administration reform provisions out of an economic stimulus bill, but the package will include a temporary increase in the FHA loan limits, according to sources. House and Senate banking committee leaders wanted to include FHA reforms in the $150 billion stimulus package, but Treasury Secretary Henry Paulson raised objections. The Bush administration supports quick passage of an FHA reform bill, but "it should be on a separate track," a Treasury spokeswoman said. It appears that the stimulus bill would raise the loan limits for FHA and Fannie Mae and Freddie Mac in high-cost areas to 125% of median area home prices, with a $729,750 cap. This temporary increase would expire at year's end.

Fannie Mae and Freddie Mac will be able to securitize jumbo mortgages originated between July 1, 2007, and the end of this year under the economic stimulus package that the House of Representatives was expected to pass Tuesday afternoon. The stimulus bill (H.R. 5140) temporarily raises the GSE conforming loan limit to 125% of median area home prices in high-cost areas, with a $729,750 cap. H.R. 5140 also includes "sense of Congress" language that encourages the government-sponsored enterprises to securitize the jumbo mortgages -- but leaves it up to Fannie and Freddie to decide the best execution. Fannie Mae president and chief executive Daniel Mudd told Bloomberg News that his preference is to securitize the loans. "That is a good business for us," he said. "It is not capital-intensive. But there may be instances where it makes sense to put them on the balance sheet." The stimulus bill also temporarily raises the loan limits for Federal Housing Administration loans in high-cost areas.

New York Attorney General Andrew Cuomo has granted Clayton Holdings immunity in exchange for providing information on its due diligence work for Wall Street firms that securitized subprime mortgages. The publicly traded company says it has provided due diligence reports to the New York AG since it was first subpoenaed in June. "Now, at the request of the New York attorney general, we have entered into a cooperative agreement with his office," said Frank Filipps, Clayton's chairman and chief executive. The New York Times first reported the immunity agreement. The New York attorney general's office has not replied to requests for confirmation. Clayton performs due diligence on loans purchased by conduits, and identifies "exceptions" to the issuers' loan guidelines. The Shelton, Conn.-based company also evaluates the performance of loans once they are securitized. A company executive said the percentage of loans securitized in 2006 that had exceptions was about 30%.

Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., has pledged to act on a GSE reform bill this year in an effort to get the White House to accept a temporary increase in the Fannie Mae and Freddie Mac loan limit that is going to be inserted in the economic stimulus package. Sen. Dodd met with Treasury Secretary Henry Paulson Friday morning to discuss strengthening the regulation of the two government-sponsored enterprises. "I wanted the secretary to know I am going to get a GSE bill done," Sen. Dodd told reporters. The Treasury secretary has let it be known that he is unhappy with the one-year increase in the loan limit that House Democratic and Republican leaders insisted on. He has always insisted that an increase should be tied to passage of a comprehensive GSE reform bill. Meanwhile, Republicans claim they agreed to increase the GSE loan limit from $417,000 to $625,000. But in marking up the stimulus bill, Democrats plan to raise the GSE loan limit to 125% of median area home prices in 12 high-cost metropolitan statistical areas, with a $729,750 cap.

House leaders have struck a deal with the White House to increase Fannie Mae and Freddie Mac loan limits from $417,000 to a maximum of $730,000 during negotiations on a $150 billion economic stimulus package. The stimulus package, which Congress is expected to pass in a few weeks, also increases the Federal Housing Administration loan limit permanently. This increase reflects an agreement between the House and Senate banking committee chairmen to increase the FHA and GSE loan limits to 125% of median area home prices, with a $730,000 cap. The increase in the loan limit for the two government-sponsored enterprises would expire after 12 months. House Speaker Nancy Pelosi, D-Calif., negotiated the deal with Treasury Secretary Henry Paulson. But the GSE regulator said raising the loan limit is a "mistake" without passage of a comprehensive bill to strengthen regulation and oversight of Fannie and Freddie. "To restore confidence in the markets, we must ensure the GSEs' regulator has all the necessary safety-and-soundness tools," said James Lockhart, director of the Office of Federal Housing Enterprise Oversight.

House and Senate banking committee chairmen have agreed to raise the Federal Housing Administration loan limit to 125% of median house prices with a $730,000 cap as part of a FHA reform bill that is expected to be included in an economic stimulus package Congress wants to pass in a few weeks. House Financial Services Committee chairman Barney Frank, D-Mass., and Senate Banking Committee chairman Chris Dodd, D-Conn. want a similar loan limit increase for Fannie Mae and Freddie Mac on a temporary basis. However, House leaders struck a deal with the White House to increase the GSE loan limit from $417,000 to $625,000. Sources suspect it is limited to high cost areas. But several housing trades, including the Mortgage Bankers Association and National Association of Realtors, want the $625,000 loan limit to be nationwide. Meanwhile, Rep. Frank told reporters the sticking points to reconciling the House and Senate FHA bills involve minimum FHA downpayment requirements, allowing mortgage brokers to substitute surety bonds for FHA net worth/audit standards and downpayment assistance provided by nonprofit groups.

Freddie Mac purchased $55 billion worth of mortgages in December, its best purchase month since September. For the year, its loan acquisitions totaled $577.7 billion, a 15% gain from the prior year. Its retained portfolio grew 2.4% in December to $720.8 billion, while business volumes improved to $55.1 billion. Its total "book of business" grew to $2.10 trillion during the month or 15.1% year over year. A research report released by Credit Suisse says, "Freddie changed its disclosure surrounding it portfolio market value-level sensitivity. Using the prior disclosure percentage change and the dollar amount it now discloses, we estimate that fair value of common equity fell to a range of $11 - 13 per share in November, down from roughly $25 in Q3. This would represent a decline of over 50% in Q4." Freddie releases year-end earnings in late February.

Arguing that Congress needs to do something about the "foreclosure crisis," Senate Banking Committee Chairman Christopher J. Dodd, D-Conn., says he wants to attach a Federal Housing Administration reform bill and an increase in the GSE loan limit to the economic stimulus package Congress and the White House are working on. Sen. Dodd said he will be meeting with House Financial Services Committee Chairman Barney Frank, D-Mass., to discuss how the House and Senate FHA bills can be reconciled quickly and attached to the stimulus package. "I want to send a bill to the president as soon as possible," Sen. Dodd told reporters. The Connecticut senator also said he supports a temporary increase in the loan limits for Fannie Mae and Freddie Mac so the two government-sponsored enterprises can bring liquidity to the jumbo market. But he did not sound optimistic that that would be possible. The chairman also served notice that he has "concerns" about the House-passed GSE regulatory reform bill and that some changes are needed to get the bill through his committee. "I want a strong regulator," he said. "But I am not going to gut the GSEs. It is not going to happen on my watch."