The GSEs Are Helping to Stabilize an Unstable Mortgage Market

Transcription

1 Update on the Single-Family Credit Guarantee Business Rick Padilla Director, Corporate Relations & Housing Outreach The Changing Economy: The New Community Lending Environment June 1, 29 The GSEs Are Helping to Stabilize an Unstable Mortgage Market The mortgage market continues to be plagued by falling house prices, rising loan delinquencies, a credit crunch, and a deep recession Freddie Mac and Fannie Mae are helping to offset these effects by: Supporting most new home loans Keeping mortgage rates low for homebuyers Helping homeowners in financial difficulty avoid foreclosure Under conservatorship, the GSEs are able to focus on supporting mortgage markets 2 1

2 House Prices Have Continued to Decline U.S. Quarterly Percentage Growth Q1'5 Q3'5 Q1'6 Q3'6 Q1'7 Q3'7 Q1'8 Q3'8 Source -- Freddie Mac. Based on Freddie Mac s SF portfolio. 3 A Large Inventory of Unsold Homes Has Slowed A Housing Recovery K Thousands Homes for Sale in Excess of Historic i Norms Source U.S. Census Bureau. Reflects 4Q figures/year. 4 2

3 Mortgage Delinquencies Have Been Rising Percent Serious Mortgage Delinquency Rate (All Loans) 1Q '5 2Q '5 3Q '5 Source MBA 4Q '5 1Q '6 2Q '6 3Q '6 4Q '6 1Q '7 2Q '7 3Q '7 4Q '7 1Q '8 2Q '8 3Q '8 4Q '8 5 Federal Policymakers Are Relying on GSEs to Support the Housing Market Placed Freddie and Fannie in conservatorship Enable GSEs to continue supporting mortgage markets Inject capital as needed (up to $2 billion per GSE) Provide a liquidity backstop Using GSEs to help implement the President s Homeowner Affordability & Stability Plan Help reduce mortgage rates Spur mortgage refinancing Expand loan modifications Purchasing up to $1.25 trillion in GSE MBS to further reduce mortgage rates and enhance market liquidity 6 3

4 During A Time of Market Volatility, We Are Focused on Being A Reliable Partner Provide essential liquidity Promote responsible lending Sustain homeownership 7 We Provide Liquidity through Single Family Credit Guarantees $ in Billions Single-Family il PC Portfolio $1.83 T $838 B Source -- Freddie Mac annual reports and monthly volume summaries 8 4

5 The GSEs Are A Consistent Source of Liquidity Percent of MBS Issuances 28 74% % 6% Private Label Ginne Mae GSEs 9 Refis Are Producing A Surge in Our Volumes 6 $ in Billions 29 Single-Family Purchases 4 2 Jan Feb March April Source -- Freddie Mac monthly volume summaries 1 5

6 GSEs Are Keeping Conforming Rates Lower 2 15 bps Effective Spread Between Jumbo and Conforming 3-Year FRM Record: 184 bps 12/19/8 Subprime Crisis 1 5 S&L Crisis Recession 21 Recession Current: 142 bps 5/1/9 Iraq War Source: HSH Associates. Rates as of Feb. April 3, 29. Effective spread adds fees and points. 11 New Super-Conforming Offering Will Further Expand Our Liquidity Congress has modified GSE loan limits $417, conforming $729,75 super conforming in high-cost areas (29 only; resets to $625, in 21) Executions Cash Guarantor Super-conforming TBA eligible (up to 1 percent of loan pool) Loan Prospector and Selling System updates 12 6

7 We Are Promoting Responsible Lending Practices Focus on the credit parameters of individual loans Define appropriate credit characteristics Apply three C s of underwriting Factor in housing market conditions Make credit policies durable Enhance the lender process to validate loan information Inform the industry of the increasing errors we are seeing Distribute tools to improve collateral accuracy and detect fraud Ensure compliance with underwriting requirements and guidelines (e.g., new Home Valuation Code of Conduct) 13 We Are Also Working to Sustain Homeownership In 28, increased foreclosure alternatives by 69 percent to 88, loans Boosted in-house Servicing staff by 6 percent Increased financial incentives to Servicers Extended foreclosure timelines in 21 states to 3 days Implemented REO rental program 14 7

8 GSEs Support A Majority of Home Loans but Comprise A Small Share of All Delinquencies Freddie Mac 7% 24% Fannie Mae Lender Portfolios Ginnie Mae/FHA 13% 15% 11% 11% 11% 33% Non-Agency MBS 15% 5% % 1% 2% 3% 4% 5% 6% Share of All Serious Loan Delinquencies Share of All Loans Outstanding Sources -- Fed Flow of Funds, Freddie Mac, Fannie Mae, MBA, First American. Data as of 4Q 28. Delinquencies are 9+ days or in foreclosure. Other not reflected on the chart represents 3% of MDO and 8% of serious delinquencies. 15 We Are Implementing the President s Making Home Affordable Plan New product: Freddie Mac Relief Refinance Mortgage SM Who is it for? Homeowners who are current and would benefit from refis, including those with underwater mortgages Loans already owned or guaranteed by Freddie Mac Features Simplified refis for loans up to 15 LTV Rep-and-warrant relief (collateral only) for loans using HVE No new or increased mortgage insurance Minimal delivery fees 16 8

9 Loan Modification Is Also Part of the President s Plan Administration initiative: Home Affordable Modification Freddie Mac s Role Help at-risk homeowners where lower mortgage payments could prevent foreclosure Target loans already owned or guaranteed by Freddie Mac Features More aggressive loan modification directive Reduce borrower mortgage payments to as low as 31% DTI Additional financial incentives for Servicers Suspend foreclosure sales for those eligible for this program 17 The Net Effect of All Our Activities Stabilize an unstable housing finance system Keep mortgage markets liquid for lenders Keep mortgage rates low for homebuyers Reduce foreclosures for homeowners 18 9

10 1