This email was sent to you by:
Anonymous |
|
Mortgage News Daily
|
Message: YOUR MESSAGE HERE |
Email alerts, such as this one, are a
free service provided by Mortgage News Daily. If you would like to receive an alert when important news breaks please
register to join our community.
Register with Mortgage News Daily - Registration is free and offers many benefits.
Manage your Email Alerts - Once you're registered, you can manage all MND email alerts on one page, turning subscriptions on or off with one click.
About MND:
Mortgage News Daily combines the expertise of some of the housing industry's leading minds with the power of social media to offer an always lively, constantly evolving web community. MND communicates breaking news, streams video, and provides expert opinion and commentary to a community of interested market professionals and curious consumers.Conservator's Report: A Different View of the GSE's Demise
The first
Conservator's Report on the Enterprises' Financial Performance issued by the
Federal Housing Finance Agency on Thursday makes an argument that the
Government Sponsored Enterprises' role in the housing market was and still is vital. It also paints a picture of
their fall prior to being placed in federal conservatorship in the fall of
2008. Some observers are already
pointing to it as a map for the eventual reorganization of the two government
sponsored enterprises. Another way of
viewing the report is that is presents a strong argument for leaving the GSEs in charge.
According to the
report, in 2003, 62 percent of all mortgages originated in the country were
conventional/conforming loans. Another
20 percent or so were FHA or jumbo loans; only 8 percent were subprime and
Alt-A loans were virtually non-existent.
By 2006 the conventional loan share had dropped to 33 percent while
subprime loans had ballooned to 20 percent and Alt-A represented 13 percent of
the market and the Home Equity share of the pie had more than doubled to 14
percent. During this same period the Enterprise's share
of the MBA market literally fell off a cliff.
[Image or graph removed from email. View full article with images]
In 2003 the combined enterprises issued over two-thirds of the almost
$300 billion MBS volume, in 2004, the volume dropped dramatically to under $200
billion and the Enterprises had ceded over half of that to private
issuers. When the size of the market
shot back up in 2005, it was the private market driving it; the Enterprises
participation remained relatively flat. According
to the report, the Enterprises were guaranteeing primarily traditional
mortgages while the private market took the lead in securitizing higher-risk
products. It is no coincidence that the
trouble began when the Enterprises no longer dominated the market.
[Image or graph removed from email. View full article with images]
When the crash came,
however, Freddie and Fannie were among the early casualties. The report indicates that the cause of their collapse
was apparently different from what has been popularly reported.
At the end of 2007, the GSEs had combined
capital of $71 billion (Fannie Mae $44b, Freddie Mac $27b). From that point through the end of last
quarter the two have suffered capital reductions totaling $225 billion (Fannie,
$136b; Freddie $90b). However, the bulk
of the losses, $166 billion ($109b & $58b) came from the Enterprises'
Single Family Credit Guarantee segment.
This is 73 percent of the capital reduction to date.
[Image or graph removed from email. View full article with images]
This is particularly
interesting in light of the frequent and loud warnings circa 2005 to 2007 from
Federal Reserve Chairman Alan Greenspan and others about the dangers of the
large investment portfolios owned by the Enterprises. In the portfolio segment of their businesses,
they bought and held mortgage securities, some of which were guaranteed and
some of which weren't; these portfolios ultimately accounted for $21 billion or
9 percent of the capital reduction.
Since the
conservatorship began in 2008, the mortgage market has swung back to the model
that existed pre-2003, with 63 percent represented by conforming/conventional
loans and FHA absorbing a large share of the remaining market; Alt-A, Subprime, and home equity loans have
virtually ceased to exist, and the private MBA market has also
disappeared. The Enterprises and Ginnie
Mae are now almost the entire market, which is itself shrunken to around $100
billion in volume.
The source of credit
losses suffered by the Enterprises are disproportionately concentrated in loans
originated in 2006 and 2007, but they are even more heavily skewed toward Alt-A
loans and interest only loans and to loans written in four states - California,
Florida, Arizona, and Nevada. While the
unpaid principal balance of loans in those states is only 27 percent of Fannie
Mae's Single Family Book of Business and 25 percent of Freddie Mac's, those
states account for 49 percent of the Fannie's 2008 vintage loans and 58 percent
of the 2009 vintage and for Freddie, 53 percent and 64 percent respectively.
Alt-A and interest-only loans represent 19 percent of each Enterprise's Book,
but between 73 and 100 percent of the delinquent loans.
[Image or graph removed from email. View full article with images]
With the Enterprises
and FHA virtually the only game in town, the conservators have been able to
insist on strengthened underwriting, and are now touting the safety of the
newest loans it has acquired or guaranteed. The current loan profile is quite
different than it was pre-conservatorship. For example, around 20 percent of the loans
acquired by the Enterprises in 2006 were Alt-A and 15-17 percent were interest
only. Today those two loan types
combined are around 1 percent of Freddie and Fannie's single family
business. The average LTV of a new loan
in 2006 was 73 percent; today it is 69-70 percent. The average credit score in 2006 was under
720, today it is over 750.
[Image or graph removed from email. View full article with images]
While these loans
are still young, there are some promising indications of their safety. For example, loans originated in 2007 had a
delinquency rate of 22.29 percent by midway through the second year following origination. The 2008 vintage loans had a 13.65 rate at
the same point in the lifecycle, while loans written in 2009 are running a 1.07
delinquency rate.
[Image or graph removed from email. View full article with images]
Regardless of the
form the Enterprises take under eventual reform, it appears that their role
should return to what it had traditionally been; a virtual gatekeeper for the
industry. At the recent "Future of Housing Finance" conferece, hosted by the Obama Administration, Treasury Secretary Timothy Geithner was quoted saying there would be a "wind down" of the Enterprises' portfolios, but, "There is a strong case to be made for a carefully designed
guarantee in a reformed system, with the objective of providing a measure of
stability in access to mortgages, even in future economic downturns."
More from MND:
If you would like to opt-out of receiving email forwards from this person please click here to remove your email address.
This email was sent to you by:
|
Mortgage News Daily
|
 |
Anonymous Anonymous |
|
Message:
YOUR MESSAGE HERE
Conservator's Report: A Different View of the GSE's Demise
The first
Conservator's Report on the Enterprises' Financial Performance issued by the
Federal Housing Finance Agency on Thursday makes an argument that the
Government Sponsored Enterprises' role in the housing market was and still is vital. It also paints a picture of
their fall prior to being placed in federal conservatorship in the fall of
2008. Some observers are already
pointing to it as a map for the eventual reorganization of the two government
sponsored enterprises. Another way of
viewing the report is that is presents a strong argument for leaving the GSEs in charge.
According to the
report, in 2003, 62 percent of all mortgages originated in the country were
conventional/conforming loans. Another
20 percent or so were FHA or jumbo loans; only 8 percent were subprime and
Alt-A loans were virtually non-existent.
By 2006 the conventional loan share had dropped to 33 percent while
subprime loans had ballooned to 20 percent and Alt-A represented 13 percent of
the market and the Home Equity share of the pie had more than doubled to 14
percent. During this same period the Enterprise's share
of the MBA market literally fell off a cliff.
In 2003 the combined enterprises issued over two-thirds of the almost
$300 billion MBS volume, in 2004, the volume dropped dramatically to under $200
billion and the Enterprises had ceded over half of that to private
issuers. When the size of the market
shot back up in 2005, it was the private market driving it; the Enterprises
participation remained relatively flat. According
to the report, the Enterprises were guaranteeing primarily traditional
mortgages while the private market took the lead in securitizing higher-risk
products. It is no coincidence that the
trouble began when the Enterprises no longer dominated the market.
When the crash came,
however, Freddie and Fannie were among the early casualties. The report indicates that the cause of their collapse
was apparently different from what has been popularly reported.
At the end of 2007, the GSEs had combined
capital of $71 billion (Fannie Mae $44b, Freddie Mac $27b). From that point through the end of last
quarter the two have suffered capital reductions totaling $225 billion (Fannie,
$136b; Freddie $90b). However, the bulk
of the losses, $166 billion ($109b & $58b) came from the Enterprises'
Single Family Credit Guarantee segment.
This is 73 percent of the capital reduction to date.
This is particularly
interesting in light of the frequent and loud warnings circa 2005 to 2007 from
Federal Reserve Chairman Alan Greenspan and others about the dangers of the
large investment portfolios owned by the Enterprises. In the portfolio segment of their businesses,
they bought and held mortgage securities, some of which were guaranteed and
some of which weren't; these portfolios ultimately accounted for $21 billion or
9 percent of the capital reduction.
Since the
conservatorship began in 2008, the mortgage market has swung back to the model
that existed pre-2003, with 63 percent represented by conforming/conventional
loans and FHA absorbing a large share of the remaining market; Alt-A, Subprime, and home equity loans have
virtually ceased to exist, and the private MBA market has also
disappeared. The Enterprises and Ginnie
Mae are now almost the entire market, which is itself shrunken to around $100
billion in volume.
The source of credit
losses suffered by the Enterprises are disproportionately concentrated in loans
originated in 2006 and 2007, but they are even more heavily skewed toward Alt-A
loans and interest only loans and to loans written in four states - California,
Florida, Arizona, and Nevada. While the
unpaid principal balance of loans in those states is only 27 percent of Fannie
Mae's Single Family Book of Business and 25 percent of Freddie Mac's, those
states account for 49 percent of the Fannie's 2008 vintage loans and 58 percent
of the 2009 vintage and for Freddie, 53 percent and 64 percent respectively.
Alt-A and interest-only loans represent 19 percent of each Enterprise's Book,
but between 73 and 100 percent of the delinquent loans.
With the Enterprises
and FHA virtually the only game in town, the conservators have been able to
insist on strengthened underwriting, and are now touting the safety of the
newest loans it has acquired or guaranteed. The current loan profile is quite
different than it was pre-conservatorship. For example, around 20 percent of the loans
acquired by the Enterprises in 2006 were Alt-A and 15-17 percent were interest
only. Today those two loan types
combined are around 1 percent of Freddie and Fannie's single family
business. The average LTV of a new loan
in 2006 was 73 percent; today it is 69-70 percent. The average credit score in 2006 was under
720, today it is over 750.
While these loans
are still young, there are some promising indications of their safety. For example, loans originated in 2007 had a
delinquency rate of 22.29 percent by midway through the second year following origination. The 2008 vintage loans had a 13.65 rate at
the same point in the lifecycle, while loans written in 2009 are running a 1.07
delinquency rate.
Regardless of the
form the Enterprises take under eventual reform, it appears that their role
should return to what it had traditionally been; a virtual gatekeeper for the
industry. At the recent "Future of Housing Finance" conferece, hosted by the Obama Administration, Treasury Secretary Timothy Geithner was quoted saying there would be a "wind down" of the Enterprises' portfolios, but, "There is a strong case to be made for a carefully designed
guarantee in a reformed system, with the objective of providing a measure of
stability in access to mortgages, even in future economic downturns."
If you would like to opt-out of receiving email forwards from this person please click here to remove your email address.