Wednesday, December 7, 2011

Fannie Mae & Freddie Mac prevented two million foreclosures: Report

WASHINGTON: Fannie Mae and Freddie Mac, the two major US mortgage-finance companies, prevented nearly two million foreclosures since the start of conservatorship in 2008, said a report by the US Federal Housing Finance Agency (FHFA).

The completed foreclosure prevention activity of the two mortgage giants increased slightly in the third quarter, pushing the total foreclosure prevention actions up to nearly two million since they were under conservatorship by the federal government, according to FHFA's Foreclosure Prevention and Refinance Report released Tuesday.

During this period, about 1.7 million of these actions have allowed borrowers to retain homeownership, with more than one million being permanent loan modifications, Xinhua cited the report as saying.

The FHFA, regulator of Fannie Mae and Freddie Mac, said the improvement of completed foreclosure prevention activity in the third quarter was driven primarily by loan modifications and repayment plans. Two-thirds of all borrowers who received loan modifications in the quarter had their monthly payments reduced by over 20 percent, the agency added.

Also, the cumulative refinancings through the Home Affordable Refinance Program (HARP) increased 11 percent during the third quarter to nearly 928,600 loans, according to the report.

While serious delinquency rates continued to decline, the percentage of loans that have missed one payment increased during the quarter, noted the FHFA.

Fannie and Freddie have survived on Treasury aid since September 2008, when they were put under conservatorship by the federal government after suffering from the collapse of the subprime mortgage market.

The two mortgage giants own or guarantee about half of all mortgages in the US, or nearly 31 million home loans. Along with other federal agencies, they provide more than $5.7 trillion in funding for the US mortgage market, nearly 90 percent of new mortgages over the past year.

Garrett urged to keep government in housing

Housing industry trade groups will press Rep. Scott Garrett, R-N.J., Wednesday to include a government role in his future housing finance proposal.

Garrett introduced components of his proposal in October, which includes clearer guidelines and disclosures for a mortgage market fully funded by private investors. He has not introduced legislation yet through the capital markets subcommittee he chairs. Instead, he held one hearing in November where Federal Housing Finance Agency Acting Director Edward DeMarco called it "thoughtful" but wanted assurances taxpayers would be completely protected in times of crises.

In preparation for a second hearing scheduled Wednesday, Garrett circulated the proposal to housing industry trade groups for their thoughts.

According their collective written testimony, much was lauded in the Garrett proposal. Each described a market starved of private capital, but most on the panel added there is a necessary involvement needed from the government too, an unsavory notion to conservatives.

"The importance of housing whether owner-occupied or rental, to the nation’s economic and social fabric warrants a federal government role in promoting liquidity and stability in the core mortgage market," according to testimony from Mortgage Bankers Association CEO David Stevens. A proposal from the MBA would include an explicit guarantee on a class of mortgage-backed securities paid for through fees.

Tom Salomone, representing the National Association of Realtors, didn't want a repeat of the credit crunch in 2007, when private funding for mortgages froze. He, too, asked for some sort government role in times of crises.

"A full shut-down of the conventional conforming portion of the secondary mortgage marketplace, means there would be very limited or no funding for middle class homeowners or homebuyers, which would be devastating to the national economy—possibly causing a catastrophic collapse," Salomone said in written testimony.

While Chris Katopis, executive director for the Association of Mortgage Investors, said the trade group would not directly back the Garrett proposal, though he did applaud much of the clarity it grants, specifically for representation and warranty language. To him, the government still has a role in the future structure, albeit a supporting one.

"The government has a role – not through the heavy-hand of big government, but rather, the light touch of a prudent standard-setter and facilitator," according to his written testimony. "With appropriate standards and rights for the holders of asset-backed securities, securitization would achieve the goals sought by many – the more efficient funding of capital markets, lessening volatility, and the resulting better economic activity."

Future of the 30-year FRM

Most are concerned with the future of the 30-year fixed-rate mortgage if the future market is completely turned over to private investors.

In the early 1970s, Stevens said, mortgage lenders discovered investors were willing the bear the prepayment risk associated with the 30-year FRM as interest rates rose and fell. But only as long as they were protected from the credit risk.

"From that point to today, with a few exceptions, most investors either did not have the capacity or the willingness to take on the credit risk, particularly given the uncertainty involved with systemic credit events such as the one we just experienced," Stevens said.

Salomone with NAR said American borrowers enjoy the long-term loan precisely because the U.S. backs the mortgage market more than any other country. He cited research from economist Susan Woodward that finds the 30-year FRM would disappear without the backstop.

"There is no evidence that a long-term fixed-rate residential mortgage loan would ever arise spontaneously without government urging," Salomone said.

While other economists question the need to defend the 30-year FRM at all costs lenders and real estate agents on the ground see enough demand for it from their clients to warrant such strong language in protecting the product.

The next step is needed

Not every panelist wanted a government role. Some testimony on the Garrett proposal came in direct contrast with these very trade groups some consider responsible for lobbying Congress to support overreaching homeownership goals.

Mark Fleming, chief economist for the analytics firm CoreLogic (CLGX: 13.72 -0.07%) said the government's role should limited only to setting guideposts, not risk management.

"Similar governmental initiatives introduced now or in the future would be unnecessarily burdensome and redundant, directing resources away from rapidly advancing private enterprise risk management efforts to improve transparency across the RMBS and capital markets," Fleming said in written testimony. "We support Congressman Garrett’s PMMIA as currently proposed – and subsequently refined – to the extent that it does not call for any such additional governmental action."

Mark Calabria, director of financial studies at the Cato Institute, said a fully funded private mortgage market is very possible even though it may not be able to rely on the secondary market as it once did.

"While I believe we cannot completely replace our current system solely with private label securities, for instance returning to a structure based more on deposit-funded portfolio lending should be key to any reform, the draft legislation before the Committee represents an important step in the process," Calabria said in written testimony. "If lenders or borrowers wish to have 'insurance' against extreme market events, then they should purchase such insurance on the open market like any other good."

All agreed action is needed quickly. Fannie and Freddie have lingered in conservatorship for more than three years with only three private securitizations since – all from Redwood Trust (RWT: 10.70 +1.61%) and only for higher-priced homes in the jumbo market.

The GSEs currently owe more than $150 billion in bailouts and counting, however, they along with the Federal Housing Administration, fund 95% of the mortgage market still. And yet, no proposal has even made it out of subcommittee, leaving most to believe a resolution will have to wait until after the November 2012 elections.

"While a gradual transition to a new housing finance system is desirable, there are strong reasons to lay out a clearly defined future for mortgage finance as soon as possible," Stevens said in written testimony. "The uncertainty over the future policy environment is deterring the recovery by inhibiting the ability of businesses and investors to plan and move forward."

"Quite frankly there should be no higher priority for this subcommittee than the reform of our broken mortgage finance system," Calabria said in his testimony. "Continued delay adds to market uncertainty and hobbles the development of private market solutions. Delay also adds to the increasing taxpayer cost of bailing out our mortgage finance system."


Tuesday, December 6, 2011

Brazil Real Weakens As S&P Puts Euro Area Countries On Negative Outlook

BRASILIA (Dow Jones)--The Brazilian real weakened against the dollar on Tuesday as investors' appetite for emerging-market currencies waned following Standard & Poor's announcement that adopted a negative outlook on 15 of the 17 countries sharing the euro.

The real weakened to BRL1.7895 to the dollar, from Monday's close of 1.7836, according to Tullett Prebon via Factset.

The warning from the credit ratings agency assigned a fifty percent chance of a downgrade in the next 90 days for the 15 euro-zone members, ending days of positive sentiment generated by hopes of an agreement between Germany and France regarding the euro area's financial crisis.

"It's a function of the global markets, how the U.S. and other markets are reacting to S&P," said Ilan Solot, a currency analyst at Brown Brothers Harriman in London. "At this point the dollar/real remains range-bound, but the risks are roughly balanced."

S&P said six of the seventeen countries in the monetary union could be downgraded by one notch, taking the triple-A rating of these countries including Germany, France and Belgium to AA, while the other nine countries on review risked a two-notch cut.

S&P will complete its review Friday, concurrently with a summit meeting at which euro-zone leaders will again try to solve the debt crisis.

The weaker real also follows a report in which Brazil's statistics agency said the economy stagnated in the third quarter.

Brazil's gross domestic product expanded 2.1% in the third quarter compared with the third quarter a year ago, the Brazilian Census Bureau, or IBGE, said Tuesday. That was below the 2.7% median forecast made by 14 economists polled by Dow Jones Newswires and down from year-on-year growth of 3.1% in the second quarter.

The economy failed to expand at all in the third quarter from the second quarter, remaining flat quarter-on-quarter, the IBGE said.