April 2008 Meeting Presentation (PowerPoint)


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April 2008 Meeting Presentation (PowerPoint)

  1. 1. Current Market Conditions, Review of Recent Policy Changes, Pricing Changes, and Loss Mitigation Presented by Tom Updegraff Senior Account Manager Fannie Mae
  2. 2. Agenda <ul><li>Market Overview </li></ul><ul><ul><li>Home Prices And The Rise of Subprime </li></ul></ul><ul><ul><li>Fall to Earth: Growing Inventories, Delinquencies and Illiquidity </li></ul></ul><ul><li>What’s New? </li></ul>
  3. 3. Home Price Appreciation Source: Fannie Mae Five-Year Annualized Home Price Growth as of Q4 2007 State Growth Rate Below -10% -10% - 5% -5% - 0% 0% - 5% Above 5% United States 6.3% West North Central 3.1% Mountain 7.2% West South Central 3.5% East South Central 4.9% East North Central 2.3% New England 4.7% Middle Atlantic 7.8% South Atlantic 7.8%
  4. 4. Substantial Declines in Housing Affordability Source: National Association of Realtors Affordability Index (1996 - 2007) 25-Year High = 133
  5. 5. Surge in Subprime and Alt-A Originations as a Share of Single-Family Originations Source: Fannie Mae Estimates, Inside Mortgage Finance
  6. 6. One-Year Annualized Home Price Growth As Of Q4:2007 Source: Fannie Mae Home Price Appreciation West North Central -1.1% Mountain -7.6% West South Central 2.4% East South Central 3.0% East North Central -2.3% New England -1.6% Middle Atlantic -1.2% South Atlantic -4.5% Pacific -6.7% United States -3.1% State Growth Rate Below -10% -10% - 5% -5% - 0% 0% - 5% Above 5%
  7. 7. Inventories of Single-Family Homes on the Market (Through August 2007) Thousands of Units Thousands of Units Sources: Census Bureau, NAR New Homes (left axis) Existing Homes (right axis)
  8. 8. Loan Rate Resets Dollar Volume of Loans Backing Outstanding MBS/ABS (as of June 2007) Scheduled to Reset in 2007 or 2008 by Loan Type Source: LoanPerformance, Agency MBS Disclosures
  9. 9. Rising Subprime Delinquency Source: LoanPerformance.
  10. 10. Source: HSH And Lender Rate Sheets. The subprime – PCC spread on 8/31/07 was 473 bps. Subprime Market Now: Less Liquidity, Higher Rates
  11. 11. Realigning to the Market <ul><li>Fannie Mae’s mission is to provide liquidity, stability, and affordability to the mortgage finance system in good times and turbulent times. </li></ul><ul><li>To ensure that we can continue to fulfill that mission, it is critically important that Fannie Mae, as an investor, have sustainable economics. </li></ul><ul><li>It is equally important that our underwriting and eligibility criteria foster sustainable homeownership for borrowers. </li></ul><ul><li>The dramatic shifts in market dynamics over the past several months have prompted us to review the full spectrum of our </li></ul><ul><ul><li>Risk appetite </li></ul></ul><ul><ul><li>Eligibility requirements </li></ul></ul><ul><ul><li>Automated underwriting risk assessment </li></ul></ul><ul><ul><li>Pricing </li></ul></ul>
  12. 12. What’s New? How Fannie Mae is Striving to Help our Customers <ul><li>HomeStay ™ Initiative </li></ul><ul><li>Desktop Underwriter ® (DU ® ) Changes </li></ul><ul><li>Underwriting Standards and Practices </li></ul><ul><li>Pricing Adjustments </li></ul><ul><li>Loss Mitigation </li></ul>
  13. 13. HomeStay Initiative <ul><li>Fannie Mae’s HomeStay Initiative offers lenders financing for sustainable homeownership with: </li></ul><ul><ul><li>flexible mortgage products that provide options for borrowers </li></ul></ul><ul><ul><li>underwriting guidelines that emphasize the borrower’s ability to repay the debt </li></ul></ul><ul><ul><li>servicing policies that emphasize keeping borrowers in their homes </li></ul></ul>More on HomeStay …
  14. 14. HomeStay Initiative (continued) <ul><li>Investing in state/local housing finance agency (HFA) mortgages – $500mm toward targeted refinances </li></ul><ul><li>Making grants to nonprofit groups engaged in foreclosure prevention </li></ul><ul><li>Continuing commitment to loss mitigation activities </li></ul>More on HomeStay … HomeStay is not a product, but rather a label for the collective actions Fannie Mae is taking to support lenders and fill market gaps in the wake of the subprime collapse. HomeStay means:
  15. 15. HomeStay Initiative (continued) <ul><li>Escrow Accounts Provide Peace of Mind to Homeowners </li></ul><ul><li>Mortgage Insurance Supports Affordable Home Financing </li></ul><ul><li>Avoiding Foreclosure </li></ul>More on HomeStay … As part of our HomeStay Initiative and to support sustainable homeownership, we offer consumer-friendly borrower information templates – in English and Spanish – that lenders and other professionals can download free of charge and customize. Current topics: Visit eFannieMae.com to view and download the customizable templates
  16. 16. HomeStay Initiative (continued) <ul><li>Recent Results </li></ul><ul><li>Lenders have used DU for several hundred thousand loan refinance applications from borrowers previously with subprime lenders </li></ul><ul><li>Lenders have been able to return a “yes” and qualify more than 70 percent of those applicants with the help of DU </li></ul><ul><li>Fannie Mae has directly funded more than 68,000 such loans for more than $14.5 billion in 2007 </li></ul>
  17. 17. Changes to the DU Risk Assessment <ul><li>Continue to analyze each loan casefile using validated, statistically significant variables that have been shown to be predictive of mortgage default; and </li></ul><ul><li>No longer consider the existence of mortgage insurance as a mitigating risk factor when evaluating higher-LTV loans, most notably for the purchase of a one-unit property that will be the borrower’s principal residence. </li></ul>DU Version 7.0 will include a comprehensive update to DU’s credit risk assessment. With this release, DU will: <ul><li>These changes are intended to help Fannie Mae’s customers: </li></ul><ul><li>Better manage default risk </li></ul><ul><li>Underwrite to current market realities </li></ul><ul><li>Provide reasonable, prudent, and sustainable homeownership options to borrowers </li></ul>
  18. 18. What Customers Will See <ul><li>With DU Version 7.0, customers should expect to see: </li></ul><ul><ul><li>All DU recommendation levels will reflect improved credit quality, especially Expanded Approval ® (EA). </li></ul></ul><ul><ul><li>Some loan casefiles will receive more conservative recommendations, while others may receive improved recommendations compared to similar loan casefiles submitted to DU Version 5.7. </li></ul></ul><ul><ul><li>Reduced Approve and/or EA recommendation rates, although the overall impact will vary depending on the mix of business the customer submits to DU. </li></ul></ul>DU users: Your Fannie Mae Customer Account Team can provide more information to help you understand how DU 7.0 may be expected to impact your business.
  19. 19. DU’s Risk Assessment Factors <ul><li>Credit risk factors </li></ul><ul><ul><li>Credit history </li></ul></ul><ul><ul><li>Delinquent accounts </li></ul></ul><ul><ul><li>Mortgage accounts </li></ul></ul><ul><ul><li>Revolving credit utilization </li></ul></ul><ul><ul><li>Public records, foreclosures, and collection accounts </li></ul></ul><ul><ul><li>Credit inquiries </li></ul></ul><ul><li>Non-credit risk factors </li></ul><ul><ul><li>Borrower’s equity and loan-to-value (LTV)/ combined loan-to-value (CLTV) ratios </li></ul></ul><ul><ul><li>Liquid reserves </li></ul></ul><ul><ul><li>Loan purpose </li></ul></ul><ul><ul><li>Amortization term and type </li></ul></ul><ul><ul><li>Occupancy type </li></ul></ul><ul><ul><li>Total expense ratio </li></ul></ul><ul><ul><li>Property type </li></ul></ul><ul><ul><li>Co-borrowers </li></ul></ul>DU’s risk assessment of a loan casefile considers these credit and non-credit risk factors (review the Version 7.0 Release Notes for details):
  20. 20. DU 7.0 General Eligibility Updates <ul><li>Due to higher credit quality underlying each DU 7.0 recommendation, these products, features, and transaction types will become eligible with Approve, EA-I, EA-II, and EA-III recommendations : </li></ul><ul><ul><li>MyCommunityMortgage ® (MCM ® ) </li></ul></ul><ul><ul><li>Manufactured housing </li></ul></ul><ul><ul><li>Flexible Mortgages with CLTVs up to 100% </li></ul></ul><ul><ul><li>Mortgage loans with CLTVs up to 105% with an eligible Community Seconds ® mortgage </li></ul></ul><ul><ul><li>30-year FRM with 10-year interest-only (IO) period </li></ul></ul><ul><ul><li>Certain 5/1 ARMs with 10-year IO periods and 2/2/5 caps (ARM plans 3515 and 3516) </li></ul></ul><ul><ul><li>3- and 4-unit properties </li></ul></ul><ul><ul><li>Cash-out refinance on </li></ul></ul><ul><ul><ul><li>2-unit primary residence </li></ul></ul></ul><ul><ul><ul><li>Second home </li></ul></ul></ul><ul><ul><ul><li>Investment property </li></ul></ul></ul><ul><ul><li>Investment properties with LTVs over 80% </li></ul></ul>
  21. 21. <ul><li>Minimum Credit Score </li></ul><ul><li>LTV Ratio Changes for Manually Underwritten Loans </li></ul><ul><li>MyCommunityMortgage Eligibility </li></ul>Announcement 08-08: General Eligibility Changes For DU and Manual Underwriting (effective for loan application dates on or after June 1, 2008)
  22. 22. Minimum Credit Score <ul><li>Minimum credit score: 580 </li></ul><ul><ul><li>Loans underwritten manually </li></ul></ul><ul><ul><li>Loans underwritten through DU </li></ul></ul><ul><ul><li>Exceptions: </li></ul></ul><ul><ul><ul><li>Insured government loans </li></ul></ul></ul><ul><ul><ul><li>Loans with nontraditional credit </li></ul></ul></ul><ul><ul><ul><li>Some Streamlined Refinances (Fannie Mae to Fannie Mae) </li></ul></ul></ul><ul><li>Addition of minimum credit scores to all standard eligibility guidelines for manual underwriting based on borrower equity, occupancy, property type, and amortization type </li></ul><ul><ul><li>Applied based on higher of LTV, CLTV, or HCLTV, as applicable </li></ul></ul><ul><li>Minimum credit score changes for certain manually underwritten products and transactions </li></ul><ul><ul><li>MCM </li></ul></ul><ul><ul><li>Interest-only feature </li></ul></ul><ul><ul><li>HomeStyle products </li></ul></ul><ul><ul><li>Streamlined Refinance Mortgages </li></ul></ul>
  23. 23. LTV Ratio Changes for Manually Underwritten Loans <ul><li>Reducing these maximum ratios </li></ul><ul><ul><li>HCLTV (home equity combined loan-to-value ratio) for all loans </li></ul></ul><ul><ul><li>LTV and CLTV for all three- and four-unit properties </li></ul></ul><ul><ul><li>LTV and CLTV for second homes </li></ul></ul><ul><ul><li>LTV and CLTV for MCM (except with Community Seconds) </li></ul></ul><ul><ul><li>LTV and CLTV for HomeStyle Renovation investment properties </li></ul></ul><ul><ul><li>LTV and CLTV for certain Streamlined Refinance products </li></ul></ul>
  24. 24. MCM Eligibility Changes: Manually Underwritten Loans <ul><li>Minimum credit scores </li></ul><ul><ul><li>640 for 1- and 2-unit properties </li></ul></ul><ul><ul><li>680 for 3- and 4-unit properties </li></ul></ul><ul><li>Maximum LTV and CLTV ratios – 1-unit property </li></ul><ul><ul><li>97% max LTV for borrowers with traditional credit history </li></ul></ul><ul><ul><li>95% max LTV for borrowers with nontraditional credit history </li></ul></ul><ul><ul><li>CLTV max now will mirror LTV max except with Community Seconds </li></ul></ul><ul><ul><li>105% max CLTV with qualifying Community Seconds only (no change from current policy) </li></ul></ul>MyCommunityMortgage changes for manual underwriting, effective for loan application dates on or after June 1, 2008:
  25. 25. Announcement 08-08: Policy Updates and Product/Feature Retirements <ul><li>Foreclosure and Delinquency Policy Changes </li></ul><ul><li>Retirement of </li></ul><ul><ul><li>Timely Payment Rewards ® Feature for EA Loans </li></ul></ul>
  26. 26. Foreclosure and Delinquency Policy Changes <ul><li>Foreclosure policy change </li></ul><ul><ul><li>Change from four (4) years (manual underwriting) or two (2) years (DU) to five (5) years time required since prior foreclosure </li></ul></ul><ul><ul><li>Extenuating circumstances provision changes from years two through four after foreclosure to years three through five after foreclosure </li></ul></ul><ul><li>Excessive mortgage delinquency policy change </li></ul><ul><ul><li>Loans with excessive prior mortgage delinquencies ineligible for delivery </li></ul></ul><ul><ul><li>Defined as having one or more 60-, 90-, 120-, or 150-day mortgage delinquencies in the past 12 months prior to the credit report date </li></ul></ul><ul><li>Both policy changes effective for </li></ul><ul><ul><li>Manually underwritten loans with application date on or after June 1, 2008 </li></ul></ul><ul><ul><li>All DU 7.0 loans </li></ul></ul>
  27. 27. Feature/Product Retirements <ul><li>Timely Payment Rewards (TPR) feature for EA loans </li></ul><ul><ul><li>TPR feature retired with DU 7.0 </li></ul></ul><ul><ul><li>Outstanding TPR loans will continue to be subject to the existing servicing requirements </li></ul></ul><ul><li>Deliver TPR loans for </li></ul><ul><ul><li>Whole loan purchase on or before October 31, or </li></ul></ul><ul><ul><li>MBS issue dates on or before October 1 </li></ul></ul>
  28. 28. National Flow Pricing Changes <ul><li>Effective March 1, 2008 changes: </li></ul><ul><li>Implemented new LLPAs for loans with LTVs of 70.01% and above, combined with certain “representative” credit scores (excludes MCM; EA, with or without the TPR feature; and mortgages with terms of 15 years or less) </li></ul><ul><li>Implemented revised LLPAs for loans with subordinate financing based on representative credit score, CLTV/subordinate financing type, and whether the loan has an interest-only (IO) feature (excludes MCM) </li></ul><ul><li>Extended our existing 0.50% LLPA for loans on 2-unit properties with LTVs of 90.01% to 95.00% to also apply to 2-unit loans with LTVs of 75.01% to 90.00% (excludes MCM) </li></ul>More on Flow Pricing Changes …
  29. 29. National Flow Pricing Changes <ul><li>Several new LLPAs, effective for whole loans purchased or loans delivered into MBS with issue dates on or after June 1, 2008 </li></ul><ul><li>We introduced a revised national price structure to address segments of the business that have been identified as among the riskiest based on loan characteristics, loan performance, and other performance trends </li></ul><ul><ul><li>Range of LTVs combined with representative credit scores </li></ul></ul><ul><ul><li>Cash-out refinances </li></ul></ul><ul><ul><li>Two-to Four-Unit - Two-Units: 0.50% to all LTVs - Three- to- Four Units: 1.0% to all LTVs </li></ul></ul>
  30. 30. Adverse Market Delivery Charge (Announcement 07-21) <ul><li>0.25% Adverse Market Delivery Charge </li></ul><ul><ul><li>applies to ALL mortgages delivered to Fannie Mae under standard or negotiated terms; includes Long-Term Standby Commitments, whole loan structured transactions, government loans, recourse loans, subprime loans, and reverse mortgages </li></ul></ul><ul><ul><li>effective for whole loans purchased or loans delivered into MBS with issue dates on or after March 1, 2008 </li></ul></ul><ul><li>While we do not know at this point how long the charge will remain in effect, we expect to be able to remove it when market conditions improve </li></ul>
  31. 31. <ul><li>Expanded Approval Loans </li></ul><ul><li>MyCommunityMortgage Loans </li></ul>Announcement 08-08: Pricing and Delivery Changes Related to DU Version 7.0
  32. 32. EA Pricing and SFCs for DU 7.0 Loans <ul><li>For EA loans that are submitted to DU Version 7.0, these LLPAs apply to whole loans purchased on or after June 1, 2008, or loans delivered into MBS with issues dates on or after June 1, 2008. These LLPAs are IN ADDITION to the standard Credit Score/LTV LLPAs and are NOT in lieu of those LLPAs. </li></ul><ul><li>This LLPA is in addition to all other applicable LLPAs. </li></ul>Expanded Approval – Additional Credit Score/LTV-Based LLPAs for EA (1) Effective on or after 6/1/2008 for DU Version 7.0 Loans Credit Scores < 95.00% 95.01 – 97.00% 97.01 – 100% SFC > 740 0.000% 0.500% 1.000% 716 720–739 0.250% 0.750% 1.250% 716 700–719 0.250% 0.750% 1.250% 716 680–699 0.500% 1.000% 1.500% 716 660–679 0.500% 1.000% 1.500% 716 640–659 0.750% 1.250% 1.750% 716 620–639 0.750% 1.250% 1.750% 716 < 620 1.250% 1.750% 2.250% 716 CLTV/HCLTV EA with High CLTV or HCLTV LLPA (2) SFC > 95.00% 1.500% 716
  33. 33. MCM Pricing and SFCs for Loans Under-written through DU 5.7, DU 7.0, or Manually MCM loan casefiles underwritten through DU 7.0 will be eligible with recommendations of Approve, EA-I, EA-II, and EA-III Underwriting Method LLPA Special Feature Codes <ul><li>MCM loans underwritten through DU Version 7.0 </li></ul><ul><li>MCM loans manually underwritten using eligibility guidelines in effect 6/1/08 </li></ul>0.750% 612 (new) plus other applicable SFC(s) (460/480/481/519) <ul><li>MCM loans underwritten through DU Version 5.7 </li></ul><ul><li>MCM loans manually underwritten using eligibility guidelines in effect prior to 6/1/08 </li></ul><ul><li>Negotiated lender variances that are subject to standard MCM pricing </li></ul>1.000% 460/480/481/519
  34. 34. Delinquency and Foreclosure Prevention (Loss Mitigation) Maintaining the Dream of Homeownership
  35. 35. Unforeseen events interrupt dream <ul><li>Loss of employment or reduction in hours </li></ul><ul><li>Major illness or injury </li></ul><ul><li>Disability </li></ul><ul><li>Divorce or separation </li></ul><ul><li>Death in family </li></ul><ul><li>Disaster (hurricanes, tornadoes, floods, fire damage) </li></ul>
  36. 36. What are some the homeowners issues? <ul><li>Many are not aware of the opportunities available </li></ul><ul><li>Some file bankruptcy believing it is the only option </li></ul><ul><li>Some are referred to an attorney to begin a foreclosure action before options are considered </li></ul><ul><li>Is it too late to save your customer’s home when this happens? – NO </li></ul>
  37. 37. Short Term Solutions <ul><li>Repayment Plan </li></ul><ul><li>Lender may be able set up a plan that will get the borrower back on track in 3-6 months </li></ul><ul><li>Verbal agreement between borrower and lender if less than three months </li></ul><ul><li>Borrowers agree to make payments in addition to the regular monthly payments until you become current </li></ul>
  38. 38. Long Term Solutions <ul><li>Loan modification </li></ul><ul><li>Modify the terms of your original mortgage in different ways </li></ul><ul><ul><li>Extend the maturity date (up to 40 years) </li></ul></ul><ul><ul><li>Capitalize the past due payments (sometimes called a recast) </li></ul></ul><ul><ul><li>In some very rare instances based on hardship, reduce the interest rate for a period of time </li></ul></ul><ul><li>Written agreement between borrower and lender </li></ul><ul><li>$500 fee can be assessed to cover cost/expenses </li></ul>
  39. 39. <ul><li>PreSale </li></ul><ul><li>A Pre-Sale (or “short-sale”) allows lenders to work with the homeowner as they attempt to sell their home through a Realtor </li></ul><ul><li>What if the house has decreased in value? </li></ul><ul><ul><li>Lender can work with homeowner to accept an amount lower than the total debt if the true market value has declined </li></ul></ul><ul><ul><li>Borrower may be asked to sign Promissory Note to pay that difference </li></ul></ul><ul><ul><li>Each individual situation is evaluated to determine whether a promissory note is necessary </li></ul></ul>Other Possible Solutions More Possible Solutions …
  40. 40. <ul><li>Deed-in-Lieu </li></ul><ul><li>Borrower voluntarily relinquishes the deed to satisfy the debt and avoid foreclosure </li></ul><ul><li>Borrower has a hardship and unable to sell your home </li></ul><ul><li>Lender acquires property earlier than it would under foreclosure </li></ul><ul><ul><li>Property has been listed at its market value for three or more months without a reasonable offer </li></ul></ul><ul><ul><li>MI company </li></ul></ul><ul><ul><li>Not subject to junior liens </li></ul></ul>Other Possible Solutions (continue)
  41. 41. What if homeowner is already in Foreclosure? <ul><li>It is not too late! </li></ul><ul><li>Lender or Attorney should notify borrowers of all the options available </li></ul>
  42. 42. What if borrower has filed bankruptcy already, or filed in the past? <ul><li>It is not too late! </li></ul><ul><li>Bankruptcy Attorney or Bankruptcy Trustee should notify borrowers about their options </li></ul><ul><ul><li>Attorney/Trustee should process bankruptcy in timely manner </li></ul></ul><ul><ul><li>Recognize and negotiate loss mitigation options whenever possible </li></ul></ul><ul><ul><li>Each individual situation should be fully evaluated to determine if options are available to the homeowner </li></ul></ul>
  43. 43. What Does the Future Hold? <ul><li>Minimize the hurt </li></ul><ul><li>Maximize market liquidity </li></ul><ul><li>Keep on expanding housing opportunity </li></ul><ul><li>Return to fundamentals </li></ul>Despite the market turmoil, Fannie Mae has confidence in the future of the housing finance system, and we are focused on taking steps to a brighter future:
  44. 44. Resources <ul><li>eFannieMae.com – your one-stop shop for </li></ul><ul><ul><li>product information </li></ul></ul><ul><ul><li>“ Know Your Mortgage” customizable templates </li></ul></ul><ul><ul><li>training – access recorded training sessions any time </li></ul></ul><ul><ul><li>lender announcements </li></ul></ul><ul><ul><li>DU Release Notes </li></ul></ul><ul><ul><li>Guide to Underwriting with DU </li></ul></ul><ul><ul><li>Technology registration </li></ul></ul><ul><ul><li>Loan Limits </li></ul></ul><ul><ul><li>Loan level price adjustment matrix (LLPA) </li></ul></ul><ul><li>Your Fannie Mae Customer Account Team </li></ul><ul><li>Customer Support Center 1-888-FANNIE-8 (1-888-326-6438) </li></ul>