3/4/09 7:14 PM
To take advantage of the Homeowner Affordability and Stability Plan. you need to first determine if Freddie Mac or Fannie Mae owns your mortgage.
3/5/09 2:59 PM
Found this interesting.
Fannie Mortgage Borrowers Get Less Aid in Refi Plan (Update1)
2009-03-05 19:56:05.231 GMT
(Adds comment from economist in seventh paragraph.)
By Jody Shenn
March 5 (Bloomberg) -- Homeowners with Fannie Mae mortgages may get less payment relief than those with Freddie Mac loans under the firms’ implementations of President Barack Obama’s refinancing plan for borrowers with little or no home equity.
Freddie, the second-largest U.S. mortgage-finance company, will eliminate the upfront fees it typically charges lenders based on consumers’ credit scores and home equity, the McLean, Virginia-based company said in an announcement yesterday. Fannie, the largest, left similar fees “largely unchanged,” according to a Barclays Capital report. The U.S. seized both in September.
The Obama plan may allow 5 million more borrowers with loans owned or guaranteed by Fannie and Freddie to take advantage of mortgage rates near record lows, stemming foreclosures and boosting spending. Washington-based Fannie’s decision to leave its fees in place for now means borrowers face new rates 0.06 percentage point to 0.81 percentage point higher than if it had followed Freddie’s lead, according to Credit Suisse Group AG.
“We expect this decision to be reversed given the extensive government control of these institutions,” Credit Suisse mortgage-bond analysts in New York including Mahesh Swaminathan wrote in a report today.
Amy Bonitatibus, a Fannie spokeswoman, declined to comment on the companies’ differing approaches to the fees, called loan- level pricing adjustments.
‘Shop Around’ Permission
The company is permitting borrowers to “shop around” for new loans under the program, rather than only refinancing through the servicers of their mortgages, which should allow them to get lower rates than otherwise, she said. Freddie is requiring homeowners go through their servicers, the companies that manage payments and collections on outstanding loans, Brad German, a Freddie spokesman, said.
The “substantial” difference in policies is “really weird,” especially because the refi program was a centerpiece of the Obama administration’s effort to curb the U.S. housing slump, said Thomas Lawler, a former senior vice president for risk policy at Fannie, who is now an economist in Vienna, Virginia.
“At least from what I’ve heard, many of the big decisions the companies have made, they’ve run them by their regulator,”
he said. “You’d think their regulator would have noticed the differences, though in theory, they are still privately owned, with shareholders, and their shares still trade,” so allowing the companies to operate separately makes some sense, he added.
Stephanie Mullin, a spokeswoman for the Federal Housing Finance Agency, their regulator, declined to immediately comment.
Where Rates Are
The average rate on a typical 30-year fixed mortgage was
5.15 percent in the week ended today, according to a Freddie survey. Rates are down from 6.46 percent in October, and up from a record low of 4.96 percent last month.
The refinancing plan, announced on Feb. 18, allows for Fannie and Freddie borrowers with current loan-to-value ratios between 80 percent and 105 percent who aren’t delinquent to refinance without buying mortgage insurance, or without raising
that insurance if they already have it.
The companies typically need the insurance on loans with less than 20 percent down payments or equity under their government charters. They separately announced more details for their refinancing programs in letters to lenders yesterday, as the Treasury Department offered more on the guidelines for Obama’s $75 billion mortgage-modification plan for troubled homeowners.
Higher Prepayment Rate
The elimination of the fees by Freddie may boost the so- called constant prepayment rate, or CPR, for loans underlying the company’s mortgage securities, or percentage of the debt that would be retired in a year at the current pace, by 10 to 15 CPR, Swaminathan said in a telephone interview today. That would bring the total effect of the program to 15 to 25 CPR, he said.
“Our decision about fees was made to support the Obama plan, improve the opportunity for sustainable homeownership, and provide stability to the housing market,” Freddie’s German said.
About 25 percent of borrowers with Fannie and Freddie loans, with $1 trillion of debt, may be eligible for refinancing because of the program, though some may be prevented by missed payments, Barclays debt analysts in New York including Nicholas Strand and Derek Chen wrote in a report today.
The analysts also said that they expect Fannie’s fees are “unlikely to last,” partly because they would produce only about $7.5 billion of revenue, compared with the $200 billion of back-up capital from the U.S. available to the company.
Unlike Fannie, Freddie plans to require refinancing under the program to be manually underwritten, rather than approved of by its computer models, which should “slightly slow and extend the timeline” for its refinancing in comparison, they said.
JPMorgan Chase & Co. mortgage-bond analyst Matthew Jozoff said in a note to clients yesterday that prepayments on mortgage securities trading above face value may climb to 60 CPR or more because of Obama’s loan refinancing and modification plans.
The original details of the refi plan should add 20 CPR, while buyouts of reworked loans by Fannie and Freddie from their securities under the modification plan may add 5 to 10 CPR, he wrote. Another 15 to 20 CPR comes from changes to Fannie and Freddie underwriting policies and loan-level fees, which he said “represented a significant friction to refinancing for many borrowers,” assuming Fannie follows Freddie’s lead.
Mortgage-bondholders who paid more than face value for the debt may incur losses if refinancing means the securities are repaid faster than expected, cutting the value of the premium coupons on the bonds. More than 95 percent of Fannie or Freddie- guaranteed fixed-rate mortgage securities are trading above face value, according to Bloomberg data.
Freddie Waives a Demand
Freddie also has “importantly” waived lenders’ need to make their typical contractual promises about the validity of home values under the program, Jozoff added, meaning they may seek to boost refinancing to remove the risk that they will be forced to repurchase soured loans made in the past.
German said Freddie is only allowing refis through servicers under its plan because “they can verify who owns the mortgage, and are in a better position to get some of the original documentation that might be needed as part of the transaction.”