Fannie Mae in the Post-Bailout World
The securities fraud and bailout from 2008 have caused many ripples among homeowners, mortgage companies, and the government. A concern has arisen that both Fannie Mae and Freddie Mac would exhaust the government support guaranteed them during the bailout four years ago. Under the new arrangement, Fannie Mae’s portfolio cannot exceed $650 billion by the end of 2012. The company must also accelerate the reduction of its mortgage holdings more quickly than had been anticipated earlier. The cap must now reach $250 billion by 2018, four years prior to the first date set. The Treasury Department announced on August 17, 2012, that it was changing the terms of the agreement in order to reach both portfolio caps. Fannie Mae also announced its first profit margins in the first quarter of 2012; it estimates that that its lowest financial point was passed by December 31, 2011.
In an effort to encourage market competition, the Federal Housing Finance Agency announced at the end of August 2012 that is has directed Fannie Mae to raise the guaranteed fees it charges on single-family mortgages. The increases must be an average of 10 basis points. Edward DeMarco, the acting director of the FHFA, announced that the change will “represent a step toward encouraging greater participation in the mortgage market by private firms.” At the same time, approximately 77 percent of homeowners who had received government-supported mortgage modifications in July 2012 (and who did not have a mortgage backed by Fannie Mae) saw their loans cut. The government announced these reductions on its latest report of loan modification programs. The median reduction was $63,580 per mortgage, which represents a significant assistance to homeowners.
Other reviews of the financial collapse of 2008 have wondered whether critics of Fannie Mae were tracking the wrong numbers. Those who feared a collapse were looking at the interest rates, convinced that a sudden rise in interest rates would lead to devastating losses. Few looked at the over-extended home buyers themselves, whose mortgages were guaranteed by Fannie Mae. That is one reason why the collapse was so swift and unexpected.
Home-buyers
There are several steps to buying a house, and Fannie Mae has useful suggestions to ease the process. While the process may seem daunting at the beginning, professional lenders and escrow account managers will be able to guide their clients through every step. One of Fannie Mae’s ultimate goals is neighborhood stabilization: giving families and individuals safe, reliable, and comfortable neighborhoods in which to live. The steps below will help potential home-buyers walk through the process smoothly and successfully.
1 Gather the necessary information in order to qualify for a mortgage. This information includes current income, savings balance, and down payment options. A down payment of 20 percent or more of the house purchase price generally gives the new owner immediate equity in the home.
2 Consider gettingpreapproved for a mortgage loan. Though this step is not essential, it is extremely helpful when the time comes to get a mortgage. The preapproval letter not only demonstrates that you are a serious buyer; it also shortens the time needed for the lender to complete the mortgage application. Additionally, this step lets you shop around for a lender; compare interest rates, loan terms, and fees; and gives you a better understanding of the process.
3 Set up anescrow account. This account manages your monthly tax and insurance payments, along with giving the buyer peace of mind that nothing will be forgotten. On the lender’s side, it ensures that the home is protected by the necessary insurance and tax payments.
4 Find your dream house. Though some people choose to look through local advertisements, many enlist the help of a licensed real estate agent. This agent also has access to the Multiple Listings Service, which usually offers the most comprehensive listing of available homes. He or she is adept at working with a family’s needs and budget to find them the right house.
Fannie Mae has also created theFirst Look program to assist families with buying foreclosed homes. The goal of these sales is to increase owner occupancy rates, thus promoting neighborhood stabilization. In order to give preference to owner occupants, Fannie Mae eliminates market competition from investors for the first 15 days and often offers flexibleHomePath financing as well.
Homeowners
Homeowners who have worked with Fannie Mae in the past know the process of buying a house and have walked through all the steps. There is generally no need for the company to continue being involved – unless the homeowners begin to face bankruptcy. This is a scary time for many people as they struggle to make mortgage payments.Fannie Mae recommends that such homeowners contact their mortgage company as soon as possible. This ensures that the company is aware of the problems from the beginning. Owners should be prepared to answer questions about their income, other debts or loans, past mortgage payments, and recent financial changes. It is also helpful to know whether the owner expects the financial trouble to be short-term (one spouse lost a job) or long-term (a divorce).
For those needing mortgage help, the programKnowYourOptions makes it easy to find necessary information. The Options Finder helps owners decide whether they want to stay in their homes through refinancing, repayment, loan modification, or forbearance, or whether they can avoid foreclosure by a short sale or a deed-in-lieu of foreclosure. Variouscalculators also help homeowners walk through real-life scenarios to determine the potential consequences, good and bad, of their financial decisions.
Even if owners are not facing foreclosure, it may be helpful to evaluate their loan and whether their needs have changed. TheHome Affordable Refinance Program (HARP) and theHome Affordable Modification Program (HAMP) are great places to start. Available only to those who loaned through Fannie Mae, these programs are designed to make a mortgage more affordable.
Business Partners
Originallychartered by Congress in 1938, Fannie Mae’s biggest partner is the U.S, government. Thegoal of the charter was to provide stability, liquidity, and affordability in the secondary mortgage market, which is where mortgage-related assets are bought and sold. By the terms of the charter, the company cannot gather funding or lend money directly to consumers in the primary mortgage market.
Fannie Mae welcomes other companies who seek tobecome a business partner, selling or servicing Fannie Mae loans. The partnership can increase a company’s profitability, reduce its risk, manage its liquidity, and provide benefits to the borrowers.
There are seven steps to becoming a Fannie Mae partner. The company must first open thePath to Approval toolkit and take the self-assessment tutorial. When those are completed, the application becomes available and a Fannie Mae sponsor will contact the business within 48 hours of receiving the application. Following that, the sponsor will determine the company’s eligibility and readiness to become a partner; the company will also submit documentation to support the application. Once the company is approved, in step six, Fannie Mae provides the necessary training and will work with the company for the first month, to ensure a smooth transition.
Business partners who seek to expand their options are encouraged to contact their Fannie MaeCustomer Account Team for more information. These options include the ability to deliver additional loan types, such as second loans, cooperative mortgages, Texas Section 50 (a)(6), and rehabilitation loans.
Investors
Since September 6, 2008,Fannie Mae has been under conservatorship, with the Federal Housing Finance Agency as the conservator. Additionally, the company entered into a senior preferred stock purchase agreement with the U.S. Department of the Treasury. The Treasury agreed to provide funding as long as specific conditions are followed. Much of the information regarding both agreements can be found in the company’s 2011 Securities and Exchange Commission (SEC) filings, on Form 10-K. Financial information from 2002-2004 can also be found on the company’s 2006 SEC filings, rather than in their quarterly or annual reports.Monthly Summary Archives are also available, as the company seeks professional and financial honesty.
For all stock that is registered with Fannie Mae, theComputershare Trust Company manages those holdings. Anyone who holds stock with a broker should, of course, contact the broker for any updates. Fannie Mae provides periodic stock news updates as well, along withcurrent stock information. This information is updated regularly, allowing for a 20 minute pricing delay. Investors seeking to contact either Fannie Mae or the Computershare Trust Company have arange of options for reaching knowledgeable professionals who can answer their questions.
The Future with Fannie Mae
As with all errors, progress is slow in coming. Some3.6 million homes are in or facing foreclosure, once their owners are three months behind on the payments.Foreclosure times are also longer, sitting at 400 days rather than 340 days in 2011.
Economic activity slowed during the first half of 2012, especially in June, when retail spending fell for the first time since August 2011. However, strong sales in July assuaged many fears, especially when coupled with stronger-than-usual job growth. Fannie Mae’sChief Economist Doug Duncan is cautiously optimistic. “The debt ceiling debate, as well as current legislation that could create a drag of more than 4 percent on the GDP in 2013, may spur further caution among consumers and businesses alike. On the bright side, we continue to see positive trends in the housing sector, which is showing signs of a durable, long-term recovery.”
As with every piece of an economy, home sales and foreclosures are dependent on a variety of other factors. The tighter credit restrictions and slow job growth are perhaps the two biggest factors contributing to the housing market fluctuations. But it is likely that the U.S. housing market hashit the bottom and can only rise from here. For the first time since 2005, residential investment is expected to again contribute to the GDP this year. A fairly tight supply of housing options have inched homebuilding upwards in some areas, andhome sales are expected to increase 9 percent over the 2011 average. These numbers are good news, both for homeowners and potential buyers, as they look forward to life in their own homes.
