Freddie, Fed Try to Limit Damage
Mortgage Investor to Trim Purchases of Late Loans; Regulator Targets Practices
By JAMES R. HAGERTY and DAMIAN PALETTA
December 11, 2007; Page A3
Regulators and government-backed mortgage investors are struggling to contain damage from soaring home-loan defaults and prevent future blowups.
Freddie Mac announced yesterday a policy that will reduce the number of overdue loans it purchases from investors in mortgage securities guaranteed by the company. The move is designed to preserve capital by avoiding the large, immediate losses Freddie must recognize when it makes such purchases. A spokesman for Fannie Mae, Freddie’s main rival, said it plans to follow suit.
Meanwhile, the Federal Reserve is preparing to propose mortgage regulations banning certain lending practices and extending the Fed’s reach to the subprime-mortgage lenders and brokers that proliferated during the housing boom. The Fed is expected to propose a ban on penalties for prepaying certain subprime mortgages and a requirement that, in some cases, borrowers include money for taxes and property insurance in their monthly mortgage payments.
Freddie’s new policy came five days after Fannie quietly imposed a fee of 0.25% on all new mortgage loans it buys or guarantees. Fannie said the fee, sure to be passed on to consumers, is part of an effort “to ensure that what we charge aligns with the risk we bear.” Fannie and Freddie also have recently added surcharges on loans to people who have credit scores below 680, on a standard scale of 300 to 850, and who are borrowing more than 70% of the property’s value.
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Freddie’s announcement on delinquent loans raised concerns that the company could try to delay recognition of inevitable losses. “It doesn’t really change the ultimate level of credit losses,” said Joshua Rosner, an analyst at Graham Fisher & Co., a research firm in New York. “It just changes the accounting treatment.” A spokeswoman for Freddie said the policy will better reflect “our expectations for future credit losses” and won’t hurt investors in mortgage securities because they will still be compensated by Freddie whenever borrowers fail to make their payments.The companies’ regulator, the Office of Federal Housing Enterprise Oversight, or Ofheo, didn’t immediately endorse the action. “We are assessing this change,” an Ofheo spokeswoman said.
From the WSJ:
Mortgage Pain Hits
Prudent Borrowers
Fannie Adds More Fees on Loans — Even for Home Buyers
With Good Credit; ‘Jumbo’ Rates Resume Upward Trend
By JAMES R. HAGERTY and RUTH SIMON
December 11, 2007; Page B9
Some of the costs of cleaning up the nation’s mortgage crisis are beginning to hit innocent bystanders: people who pay their bills on time and avoid excessive debt.
Fannie Mae, the giant government-sponsored mortgage investor, last week raised costs for many borrowers by quietly adding a 0.25% up-front charge on all new mortgages that it buys or guarantees. On a $400,000 mortgage, that would mean an extra $1,000 in fees, almost certain to be passed on to the consumer. Freddie Mac, the other big government-sponsored mortgage investor, is expected to impose a similar fee soon, according to a person familiar with the situation.
The new charge from Fannie Mae adds to the general gloom over the housing market. It comes as mortgage interest rates are heading up again after a recent dip — as well as increases in mortgage-insurance costs, tougher requirements on down payments and other moves by lenders to ration credit. And last month, Fannie and Freddie imposed surcharges for mortgage borrowers with lower credit scores.
Loan applications have been so slow lately, says Lou Barnes, a mortgage banker in Boulder, Colo., that it feels like “our client base today is limited to people who don’t read the newspaper or watch television.”
Still, mortgage loans remain available for many people at rates that are attractive by historical standards. People with good credit scores and enough savings to pay a substantial down payment can still get 30-year fixed-rate mortgages of as much as $417,000 for 6.14% on average, according to HSH Associates, a financial-publishing firm in Pompton Plains, N.J.
But so-called jumbo loans — those above $417,000, the ceiling on mortgages that can be bought or guaranteed by Fannie and Freddie — have become much more expensive in relation to smaller mortgages.
The average rate for a fixed-rate jumbo loan is 7.13%, according to HSH. That is down from a recent high of 7.46% but remains lofty in comparison with “conforming” loans, those that can be sold to Fannie or Freddie. The premium paid for jumbo loans ballooned in August, when many loan investors began shunning mortgages lacking a guarantee from Fannie or Freddie.
Fannie said its new 0.25% fee will apply to loans sold by lenders to Fannie or placed into pools of guaranteed loans backing mortgage securities as of March 1, 2008. Lenders are likely to start adding that fee over the next few weeks because there is often a delay of several months between loan terms being offered to consumers and the sale of a completed loan to Fannie.
The change in criteria for freddie CNN money
today.
The companies customarily repurchased most mortgages once they were 120 days past due. Freddie Mac said it will now purchase delinquent loans that were part of larger securities issued by the firm when the mortgages are at least 120 days past due and either the mortgage has been modified, a foreclosure sale occurs, or the cost of payments to security holders exceeds the cost of holding the loans. It will also repurchase mortgages that are 24 months delinquent.