According to the Federal Housing Finance Agency (FHFA), the headline is that “FANNIE MAE AND FREDDIE MAC LOAN MODIFICATIONS UP BY MORE THAN 50 PERCENT IN FIRST QUARTER, MONTHLY PAYMENTS REDUCED FOR HOMEOWNERS.”

We then learn that “Fannie Mae and Freddie Mac modified nearly 37,000 loans during the first quarter of 2009. It is an increase of 57 percent over the fourth quarter of 2008 and more than double the number of modifications in the first quarter of last year.”

Is 37,000 loans a lot? Is 37,000 loans a big number over a period of three months at a time when foreclosure filings are running at better than 300,000 per month nationwide? Is 37,000 loans impressive in the context of the 30.4 million loans held by Fannie Mae and Freddie Mac?

Notice that the headline discusses loan modifications, but modifications are not the only approach to help those facing foreclosure.

“Modifications represented 43 percent of all completed foreclosure prevention actions in the first quarter of 2009,” says FHFA. In other words, there were about 87,000 loan workouts in total for the quarter and most were not modifications.

Modifications Versus Workouts

“Modifications with more than 20 percent reduction in monthly payments rose from 2 percent in the first quarter of last year to 52 percent in the first quarter of this year.” Question: What about the other 68,000 distressed borrowers? How many of them saw no reduction in monthly costs? How many of them saw monthly costs actually rise, something which is entirely possible with repayment plans, a type of workout which differs from modifications.

The reason there are so few Fannie Mae and Freddie Mac foreclosure actions is very simple: The two companies are better run then anyone will admit, which means their takeover by the government is highly questionable. The average Fannie Mae or Freddie Mac borrower has a credit score of 725 and the typical loan has a loan-to-value ratio of 74 percent, meaning not a lot of loopy loans with toxic terms.

Few Bad Loans

As of March 31th, the percentage of Fannie Mae and Freddie Mac loans that were at least two payments past due (60 plus days delinquent) was 3.6 percent. This compares to 6.1 percent for VA loans, 10.2 percent for FHA loans and 9.2 percent for the industry average.

For all the yelling and screaming about Fannie Mae and Freddie Mac, the bottom-line reality is that their mortgage portfolios are sound and solid, a reality which contrasts with the quickie nationalization of the two companies in the summer of 2008.

The Untold Story Behind Fannie Mae & Freddie Mac is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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That’s a big jump for a seven-day period, but let’s have some context here: Last year at this time the same loan was priced at 6.09 percent.

“Thirty-year fixed-rate mortgage rates caught up to the recent rise in long-term bond yields this week to reach a 25-week high,” said Frank Nothaft, Freddie Mac vice president and chief economist.

“Yet, there are signs that the housing market may be moderating. Housing affordability rose in April to the second highest reading since January 1971 when records began, according the National Association of Realtors?,?? (NAR). As a result, pending existing home sales rose for the third consecutive month by 6.7 percent in April and represented the largest monthly increase since October 2001. Three of the four regions experienced increases, led by a 33 percent jump in the Northeast, the NAR reported.”

Affordability

Of course affordability is up. If the price of corn goes from $10 for five ears to $5 for five ears you can buy more corn — but do you really want to buy more?

As to sales, a huge percentage of sales are not everyday transactions between buyers and sellers, they are now transactions which involve the purchase of lender-owned properties, typically at discount.

Negative Interest Rates

Despite the big increase this week, the point remains that mortgage rates are ridiculously low. A year ago no one would have thought they could get 5 percent financing, now you can and such rates are characterized as “high” in some quarters.

You’re kidding. These are the rates of a lifetime. it’s possible that rates may again go into the 4 percent range and in theory it’s possible that they could go even lower — during the Great Depression U.S. securities were actually priced with negative interest levels. As Forbes magazine has reported, “T-bills got so popular that for brief periods between 1938 and 1941 they carried negative interest rates.” (See: “A Brief History of Stock Fads,” September 14, 1992)

In other words, you gave the government $100 and a year later maybe you got back $99. Why would people make such an investment? Because the banks were so iffy at the time that it was safer to lose a little with the government than with banks that paid interest — but might close.

We are now into the traditional home buying season. Whether you want to buy or refinance, now is a very good time to speak with lenders and brokers. Look into fixed-rate loans, forget about adjustables. If rates do go down again, and if they go down enough, then consider refinancing with a “no cost” closing — there’s a cost in the form of a rate somewhat above market level but not in the sense of a lot of cash (or maybe any cash) needed at closing.

Are Low Mortgage Rates Over? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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Better than most news reports might suggest.

Testifying before the House Financial Services Committee, the chief regulator of Fannie Mae and Freddie Mac, James Lockhart, testified that the two companies own or guarantee 56% of the single family mortgages in this country or $5.4 trillion.

Lockhart also said for both companies that “first quarter net losses were $23.2 billion at Fannie Mae and $9.9 billion at Freddie Mac. The provision for credit losses — to build loan loss reserves — remains a primary driver of net losses at both Enterprises. Loan loss reserves at both Enterprises increased substantially in the first quarter to reflect higher expectations of credit losses from increasing mortgage delinquencies. Loan loss reserves increased by 70 percent at Fannie Mae to $42 billion and by 50 percent at Freddie Mac to $23 billion.”

Translation: The loss reserves were increased so, for accounting purposes, there was a “loss” at each company. However, loss reserves are a guess, they are NOT actual losses. Who decided how much the loss reserves should be? The federal government which took over the two companies last year.

The Fiction of Loss Reserves

In other words, by increasing loss reserves the government also creates accounting losses that are reported to the public.

But how are Fannie Mae and Freddie Mac actually doing? On page 22 of his 23 pages of testimony, Lockhart offered the delinquency chart below. Here’s how the delinquency picture actually looks:

Subprime ARMs Seriously Delinquent: 36.5%
Subprime Loans Seriously Delinquent: 24.9%
All Loans Seriously Delinquent: 7.2%
Prime Loans Seriously Delinquent: 4.7%
Fannie Mae Delinquencies: 3.2%
Freddie Mac Delinquencies: 2.3%

Anybody notice something curious here? Fannie Mae and Freddie Mac have far fewer delinquencies than lenders in general. Less than half the rate for all mortgages. Far less than even prime mortgages.

Unlike loss reserves, delinquency counts are real and objective. Hmmm. Makes you wonder why Fannie Mae and Freddie Mac were taken over by the Bush Administration….

Fannie Mae & Freddie Mac — How Are They Really Doing? is a post from: OurBroker.com -- Refinance, Home Mortgage Loans & Rates, Home Equity Loan

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