Democrats are giving Republicans the hearing they’ve been demanding to dig into the failures of Fannie Mae and Freddie Mac, but it won’t happen until after the election.
It's already starting if Obama wins the election with a control of the house and senate going to the democrats. The only agenda the democrats are going to push is there's and it make no since for them to investigate Fannie Mae and Freddie Mac when the Democrats are up to necks in corruption. One party control offers no checks and balances for either party and only makes for more corruption in one party. If the election does go this way it will only be short lived.
“It seems highly suspicious that Chairman Waxman has delayed this particular hearing - which doubtless will focus on the desperate need for reform and Fannie and Freddy, and the equally desperate efforts by Democratic leaders to block those reforms,” said Michael Steel, spokesman for House Minority Leader John Boehner (R-Ohio).
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Showing posts with label Freddie Mac. Show all posts
Showing posts with label Freddie Mac. Show all posts
Tuesday, October 21, 2008
Tuesday, September 30, 2008
Fannie Mae Eases Credit To Aid Mortgage Lending Sept 30, 1999
By STEVEN A. HOLMES
Published: September 30, 1999
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
Published: September 30, 1999
In a move that could help increase home ownership rates among minorities and low-income consumers, the Fannie Mae Corporation is easing the credit requirements on loans that it will purchase from banks and other lenders.
The action, which will begin as a pilot program involving 24 banks in 15 markets -- including the New York metropolitan region -- will encourage those banks to extend home mortgages to individuals whose credit is generally not good enough to qualify for conventional loans. Fannie Mae officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been pressing Fannie Mae to help them make more loans to so-called subprime borrowers. These borrowers whose incomes, credit ratings and savings are not good enough to qualify for conventional loans, can only get loans from finance companies that charge much higher interest rates -- anywhere from three to four percentage points higher than conventional loans.
''Fannie Mae has expanded home ownership for millions of families in the 1990's by reducing down payment requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief executive officer. ''Yet there remain too many borrowers whose credit is just a notch below what our underwriting has required who have been relegated to paying significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one study indicates that 18 percent of the loans in the subprime market went to black borrowers, compared to 5 per cent of loans in the conventional loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980's.
''From the perspective of many people, including me, this is another thrift industry growing up around us,'' said Peter Wallison a resident fellow at the American Enterprise Institute. ''If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a mortgage with an interest rate one percentage point above that of a conventional, 30-year fixed rate mortgage of less than $240,000 -- a rate that currently averages about 7.76 per cent. If the borrower makes his or her monthly payments on time for two years, the one percentage point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not lend money directly to consumers. Instead, it purchases loans that banks make on what is called the secondary market. By expanding the type of loans that it will buy, Fannie Mae is hoping to spur banks to make more loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to all potential borrowers who can qualify for a mortgage. But they add that the move is intended in part to increase the number of minority and low income home owners who tend to have worse credit ratings than non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the economic boom of the 1990's. The number of mortgages extended to Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according to Harvard University's Joint Center for Housing Studies. During that same period the number of African Americans who got mortgages to buy a home increased by 71.9 per cent and the number of Asian Americans by 46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag behind non-Hispanic whites, in part because blacks and Hispanics in particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio be made up of loans to low and moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is investigating allegations of racial discrimination in the automated underwriting systems used by Fannie Mae and Freddie Mac to determine the credit-worthiness of credit applicants.
Friday, July 11, 2008
Fannie, Freddie: 45% and sinking fast
By Chris Isidore, CNNMoney.com senior writer
NEW YORK (CNNMoney.com) -- The growing anxiety over Fannie Mae and Freddie Mac escalated on Friday as shares of the mortgage finance giants plunged in early trading.
Immediately after the market open shares of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) were both off more 45% from their already battered close on Thursday.
In the first four trading days of the week, the shares of Fannie have lost 30% of their value, while Freddie shares have tumbled 45%. For the year, Fannie is down 67% and Freddie 77% through Thursday's close.
The two firms own or back more than $5 trillion of home mortgages and are a crucial source of funding for banks and other home lenders looking to make additional loans. If they were unable to do so, it would significantly raise the cost and restrict the availability of mortgage loans, causing significantly more problems for already battered housing prices and sales.
The New York Times reported Friday that senior Bush administration officials are considering a plan to have the government take over one or both of the companies if their problems worsen.
The Wall Street Journal reported a number of scenarios it said are being discussed by bankers and analysts to deal with investors' current crisis of confidence in the firms, including possibly having the Federal Reserve purchasing some of their debt or mortgage-backed securities, having the Fed make large, 10-year loans to the companies or even having the Treasury buying stock in the companies.
The paper's report did not indicate if the government is moving to take any of these steps, but it reported comments from many leading officials that the firms are too important to the housing market and the overall economy to be allowed to fail.
Under current law, the Office of Federal Housing Enterprise Oversight, the regulator of Fannie and Freddie, could take control of the firms if their capital falls too far below required levels. It is unclear how the firms would operate in that situation, known as a conservatorship.
It is also unclear if current shareholders would see their holdings wiped out under some of these options - leading to the pre-market sell-off.
A Fannie spokesman said Friday morning that the company had no comment, while a spokeswoman for Freddie was not available for immediate comment. Both firms issued statements on Thursday saying they had the necessary capital to continue operating, adding they would not comment on the decline in their stock value. But the decline in their stock makes raising additional capital that much more expensive and difficult.
NEW YORK (CNNMoney.com) -- The growing anxiety over Fannie Mae and Freddie Mac escalated on Friday as shares of the mortgage finance giants plunged in early trading.
Immediately after the market open shares of Fannie (FNM, Fortune 500) and Freddie (FRE, Fortune 500) were both off more 45% from their already battered close on Thursday.
In the first four trading days of the week, the shares of Fannie have lost 30% of their value, while Freddie shares have tumbled 45%. For the year, Fannie is down 67% and Freddie 77% through Thursday's close.
The two firms own or back more than $5 trillion of home mortgages and are a crucial source of funding for banks and other home lenders looking to make additional loans. If they were unable to do so, it would significantly raise the cost and restrict the availability of mortgage loans, causing significantly more problems for already battered housing prices and sales.
The New York Times reported Friday that senior Bush administration officials are considering a plan to have the government take over one or both of the companies if their problems worsen.
The Wall Street Journal reported a number of scenarios it said are being discussed by bankers and analysts to deal with investors' current crisis of confidence in the firms, including possibly having the Federal Reserve purchasing some of their debt or mortgage-backed securities, having the Fed make large, 10-year loans to the companies or even having the Treasury buying stock in the companies.
The paper's report did not indicate if the government is moving to take any of these steps, but it reported comments from many leading officials that the firms are too important to the housing market and the overall economy to be allowed to fail.
Under current law, the Office of Federal Housing Enterprise Oversight, the regulator of Fannie and Freddie, could take control of the firms if their capital falls too far below required levels. It is unclear how the firms would operate in that situation, known as a conservatorship.
It is also unclear if current shareholders would see their holdings wiped out under some of these options - leading to the pre-market sell-off.
A Fannie spokesman said Friday morning that the company had no comment, while a spokeswoman for Freddie was not available for immediate comment. Both firms issued statements on Thursday saying they had the necessary capital to continue operating, adding they would not comment on the decline in their stock value. But the decline in their stock makes raising additional capital that much more expensive and difficult.
Thursday, July 10, 2008
Six months, 343,000 lost homes
Through the first half of 2008, the foreclosure rate shows little sign of letting up.
By Les Christie, CNNMoney.com staff writer
Last Updated: July 10, 2008: 8:27 AM EDT
NEW YORK (CNNMoney.com) -- The number of Americans losing their homes to foreclosure continued to soar in June, according to a report released Thursday.
RealtyTrac, an online marketer of foreclosed properties, reported that lenders repossessed 71,563 homes in June. A year ago, just 26,369 homes were taken back.
During the first six months of 2008, 343,159 Americans lost their homes, up 136% from 145,696 recorded during the same period in 2007.
The report revealed that foreclosure filings of all types, including notices of default, notices of auction sales and bank repossessions, rose 53% from June 2007, to 252,363. For the first six months, total filings rose 56% to 1.4 million.
"June was the second straight month with more than a quarter-million properties nationwide receiving foreclosure filings," said James Saccacio, chief executive officer of RealtyTrac.
There was a shred of good news: When compared with May, filings declined 3%.
Part of that decline may be traced to the actions of states, including Maryland and Massachusetts, that have put moratoriums on foreclosures, according to Rick Sharga, a spokesman for RealtyTrac.
"Massachusetts put a 90-day hold on new foreclosures," he said, "and filings dropped 3% there over last year."
But big increases were more common. In 13 states, filings more than doubled from a year earlier, including in Arizona, Nebraska and Oregon.
"The year-over-year increase of more than 50% indicates we have not yet reached the top of this foreclosure cycle," said Saccacio.
Adding to foreclosure woes is that home prices have been falling all year, down more than 14% in the first quarter, according to the latest figures from the S&P Case-Shiller Home Price Index.
Price declines strip homeowners of equity, making many mortgage borrowers owe more than their homes are worth. When they're underwater, they can't borrow against home equity to help out during a rough financial stretch.
Underwater properties are hard to sell because any deal would be for a sum below the mortgage balance - the bank would have to agree to take a loss. Many of these "short sales" get turned down and wind up as bank-owned properties.
"The real explosion has been in bank repossessions," said Sharga. "There's really no place else for these places to go except back to the lenders when they're underwater."
Two things work against short sales, according to Duane LeGate, president of HouseBuyerNetwork.com, a short-sale specialist. One is there is often a question of who has authority over the loan. Mortgage servicers are loath to make decisions that will result in losses of mortgage principal of loans in investor pools, even if it means smaller losses than foreclosures produce.
The second is manpower. Servicers simply don't have the personnel to handle the volume of short-sale and other loss-mitigation requests they've been receiving. Delays in processing short sales can mean approvals come too late.
"We hear about all these streamlined mortgage lending programs," said LeGate. "Where are the streamlined processes to undo the mortgages they originated?"
Sun Belt still hard hit
Nevada led all states in the rate of foreclosure activity for the 17th consecutive month, with one filing for every 122 households, a total of 8,713. California had the most filings with 68,666, one for every 192 households.
Other states with very high foreclosure rates included Arizona, one for every 201 households, Florida (one for every 211), Michigan (one in 375) and Ohio (one in 382).
California had seven of the 10 metropolitan areas worst hit by foreclosure. Stockton had one for every 72 households - more than six times the national average of one for every 501 households. Merced, was second with one for every 77 households, and Modesto - one in 86 - was third.
Cape Coral-Fort Myers, Fla., where one in every 91 households received a foreclosure filing, had the fourth highest rate. In Las Vegas, the only city outside of California and Florida with a foreclosure rate ranking among the top 10, one in 99 households received a foreclosure filing in June.
First Published
By Les Christie, CNNMoney.com staff writer
Last Updated: July 10, 2008: 8:27 AM EDT
NEW YORK (CNNMoney.com) -- The number of Americans losing their homes to foreclosure continued to soar in June, according to a report released Thursday.
RealtyTrac, an online marketer of foreclosed properties, reported that lenders repossessed 71,563 homes in June. A year ago, just 26,369 homes were taken back.
During the first six months of 2008, 343,159 Americans lost their homes, up 136% from 145,696 recorded during the same period in 2007.
The report revealed that foreclosure filings of all types, including notices of default, notices of auction sales and bank repossessions, rose 53% from June 2007, to 252,363. For the first six months, total filings rose 56% to 1.4 million.
"June was the second straight month with more than a quarter-million properties nationwide receiving foreclosure filings," said James Saccacio, chief executive officer of RealtyTrac.
There was a shred of good news: When compared with May, filings declined 3%.
Part of that decline may be traced to the actions of states, including Maryland and Massachusetts, that have put moratoriums on foreclosures, according to Rick Sharga, a spokesman for RealtyTrac.
"Massachusetts put a 90-day hold on new foreclosures," he said, "and filings dropped 3% there over last year."
But big increases were more common. In 13 states, filings more than doubled from a year earlier, including in Arizona, Nebraska and Oregon.
"The year-over-year increase of more than 50% indicates we have not yet reached the top of this foreclosure cycle," said Saccacio.
Adding to foreclosure woes is that home prices have been falling all year, down more than 14% in the first quarter, according to the latest figures from the S&P Case-Shiller Home Price Index.
Price declines strip homeowners of equity, making many mortgage borrowers owe more than their homes are worth. When they're underwater, they can't borrow against home equity to help out during a rough financial stretch.
Underwater properties are hard to sell because any deal would be for a sum below the mortgage balance - the bank would have to agree to take a loss. Many of these "short sales" get turned down and wind up as bank-owned properties.
"The real explosion has been in bank repossessions," said Sharga. "There's really no place else for these places to go except back to the lenders when they're underwater."
Two things work against short sales, according to Duane LeGate, president of HouseBuyerNetwork.com, a short-sale specialist. One is there is often a question of who has authority over the loan. Mortgage servicers are loath to make decisions that will result in losses of mortgage principal of loans in investor pools, even if it means smaller losses than foreclosures produce.
The second is manpower. Servicers simply don't have the personnel to handle the volume of short-sale and other loss-mitigation requests they've been receiving. Delays in processing short sales can mean approvals come too late.
"We hear about all these streamlined mortgage lending programs," said LeGate. "Where are the streamlined processes to undo the mortgages they originated?"
Sun Belt still hard hit
Nevada led all states in the rate of foreclosure activity for the 17th consecutive month, with one filing for every 122 households, a total of 8,713. California had the most filings with 68,666, one for every 192 households.
Other states with very high foreclosure rates included Arizona, one for every 201 households, Florida (one for every 211), Michigan (one in 375) and Ohio (one in 382).
California had seven of the 10 metropolitan areas worst hit by foreclosure. Stockton had one for every 72 households - more than six times the national average of one for every 501 households. Merced, was second with one for every 77 households, and Modesto - one in 86 - was third.
Cape Coral-Fort Myers, Fla., where one in every 91 households received a foreclosure filing, had the fourth highest rate. In Las Vegas, the only city outside of California and Florida with a foreclosure rate ranking among the top 10, one in 99 households received a foreclosure filing in June.
First Published
Tuesday, June 24, 2008
Fannie, Freddie Fail to Relieve Housing by Shunning Jumbo Loans
June 24 (Bloomberg) -- Three months after Fannie Mae and Freddie Mac won the freedom to step up home-loan purchases, the government-chartered mortgage-finance companies are doing what critics in the Federal Reserve and Congress had predicted.
Instead of using powers granted by Congress to buy jumbo loans for the first time, Freddie Mac and Fannie Mae are purchasing their own mortgage-backed securities, helping reduce losses, company filings show. The large loans, above $417,000, made up almost a third of the U.S. market last year, according to the Mortgage Bankers Association.
Since the rule change took effect in March, Fannie Mae has packaged $24 million of jumbo loans into securities, while Freddie Mac added $220 million, according to the Inside Mortgage Finance newsletter. In April, the companies spent more than $32.4 billion to buy their own instruments, regulatory filings show.
``They were granted expanded opportunity to help recovery in a troubled housing market and yet have appeared to focus on their own recovery,'' said former U.S. Representative Richard Baker, a critic of the companies who left office earlier this year to run the Managed Funds Association in Washington.
Congress had kept Fannie Mae and Freddie Mac out of the jumbo market to force them to concentrate on low- and moderate- income borrowers.
The change places taxpayers at greater risk ``without facilitating the policy goals I believe the Congress had in mind when they eased these portfolio limits,'' said Baker, 60, a Louisiana Republican.
Worse Slump
The slowness of Fannie Mae and Freddie Mac in injecting cash for new jumbo loans may have exacerbated the housing slump in markets including California and Florida, where prices have already fallen more than the national average, said Jerry Howard, 53, president of the National Association of Home Builders.
``Had they been quicker into the marketplace, they could have helped slow the downward spiral in housing prices,'' Howard said.
Congress created Washington-based Fannie Mae and Freddie Mac of McLean, Virginia, to promote home ownership by increasing financing and providing market stability. The companies own or guarantee almost half of the $12 trillion in U.S. residential mortgage debt. They profit by holding assets that yield more than their debt costs and from fees charged to guarantee bonds they create.
Fannie Mae and Freddie Mac posted record losses of $11.8 billion in the past three quarters as defaults on mortgages soared to the highest in 30 years.
Less Impact
The National Association of Realtors estimated last year that Fannie Mae and Freddie Mac would buy $150 billion of jumbo loans in 2008. UBS AG analysts now say the amount may be $74 billion; the companies' own projections indicate that they may not even reach that figure.
Freddie Mac said it would purchase $10 billion to $15 billion in jumbo loans and securities in 2008. Fannie Mae hasn't made any public commitments to buy a set amount of the assets this year.
``So far, we haven't seen as much impact as we anticipated,'' said Paul Bishop, managing director of research for the Realtors.
Fannie Mae added $4.05 billion in net purchases of its mortgage-backed securities in April, taking its portfolio to $728.4 billion, according to company filings. Freddie Mac net purchases were $28.4 billion, bringing holdings to $737.5 billion, filings show. Buying existing debt may help prop up prices for the companies' instruments.
The $168 billion fiscal-stimulus bill signed by President George W. Bush on Feb. 13 temporarily allowed Fannie Mae and Freddie Mac to buy jumbo loans in 91 of the most expensive U.S. housing markets.
Increased Limits
The increased lending power, combined with an agreement to reduce the companies' capital requirements, are part of congressional efforts to revive housing starts and the economy following restrictions placed on the companies two years ago.
Both ousted their chief executives after more than $11 billion in accounting errors were revealed. Fannie Mae restated earnings for 2002 through 2004. Freddie Mac did the same for 2000 through 2002.
Fannie Mae shares have fallen 29 percent and Freddie Mac has lost 31 percent in New York trading since Bush signed the bill.
House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said in February that Fannie Mae and Freddie Mac should buy bigger mortgages ``because we're in an economic crisis and need a short-term response.'' Frank has since said that the companies are moving too slowly and should get ``more bang for the buck'' from their spending power. Making the higher limits permanent may encourage purchases, he said.
`Some Liquidity'
Fannie Mae has moved to ``help provide some liquidity and impact on rates in this market segment,'' spokesman Brian Faith said in an e-mail. ``We're eligible to buy these loans and we want that business.''
The companies' entry into the jumbo market has increased financing and lowered rates where they are allowed to compete, Freddie Mac spokesman Brad German said. Fannie Mae and Freddie Mac can't buy multimillion mortgages so some data from high-cost markets such as Los Angeles may be skewed, he said.
``In the products where we are competing, the rates are a lot lower than for the products we can't buy,'' German said. ``We're doing what Congress intended us to do.''
Freddie Mac may do more jumbo business than it estimated this year, he said.
While jumbo loans accounted for about 29 percent of the $2.42 trillion of mortgages issued last year, they represented a fifth of applications in May, according to Inside Mortgage Finance and the Mortgage Bankers Association. About half of the market should be available for purchase by Fannie Mae and Freddie Mac. Stricter criteria set by the companies mean that less than 16 percent of loans eligible for the program actually can qualify, according to UBS and Mortgage Bankers Association data.
10 Percent
For a loan of more than $417,000, Fannie Mae and Freddie Mac require a minimum down payment of 10 percent and a credit score of 660. That compares with 3 percent and 580 for loans under $417,000 at Fannie Mae; and 5 percent, with no minimum score, at Freddie Mac. The rankings, which range from 300 to 850, are used by lenders to predict whether a borrower will repay.
``Fannie and Freddie are catering to low-risk homeowners with high credit scores and a lot of equity in their homes,'' said Dan Green, a loan broker at Mobium Mortgage Group Inc. in Cincinnati and Chicago. ``I'm sure there will be some high-cost areas in the country that will benefit. They just don't happen to be Florida, Michigan, California, Nevada.''
Jumbo loans bought by Fannie Mae and Freddie Mac carry an interest rate of 6.59 percent, more than a percentage point below regular jumbo rates of 7.68 percent, according to HSH Associates Inc.
Few Loans
Los Angeles borrowers are paying an average 7.87 percent, while Miami mortgage seekers are being charged 8.03 percent, indicating that few loans with low rates from Fannie Mae and Freddie Mac are being offered, according to HSH.
The companies' purchases of their own securities are making them riskier because they retain 100 percent of the credit and interest-rate exposure on those assets, said William Poole, president of the St. Louis Federal Reserve until March and now a senior fellow at the Cato Institute.
``Any legislation today that simply expands what they do is going in the wrong direction,'' Poole, 71, said. ``It's potentially digging the taxpayer in deeper.''
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.
Instead of using powers granted by Congress to buy jumbo loans for the first time, Freddie Mac and Fannie Mae are purchasing their own mortgage-backed securities, helping reduce losses, company filings show. The large loans, above $417,000, made up almost a third of the U.S. market last year, according to the Mortgage Bankers Association.
Since the rule change took effect in March, Fannie Mae has packaged $24 million of jumbo loans into securities, while Freddie Mac added $220 million, according to the Inside Mortgage Finance newsletter. In April, the companies spent more than $32.4 billion to buy their own instruments, regulatory filings show.
``They were granted expanded opportunity to help recovery in a troubled housing market and yet have appeared to focus on their own recovery,'' said former U.S. Representative Richard Baker, a critic of the companies who left office earlier this year to run the Managed Funds Association in Washington.
Congress had kept Fannie Mae and Freddie Mac out of the jumbo market to force them to concentrate on low- and moderate- income borrowers.
The change places taxpayers at greater risk ``without facilitating the policy goals I believe the Congress had in mind when they eased these portfolio limits,'' said Baker, 60, a Louisiana Republican.
Worse Slump
The slowness of Fannie Mae and Freddie Mac in injecting cash for new jumbo loans may have exacerbated the housing slump in markets including California and Florida, where prices have already fallen more than the national average, said Jerry Howard, 53, president of the National Association of Home Builders.
``Had they been quicker into the marketplace, they could have helped slow the downward spiral in housing prices,'' Howard said.
Congress created Washington-based Fannie Mae and Freddie Mac of McLean, Virginia, to promote home ownership by increasing financing and providing market stability. The companies own or guarantee almost half of the $12 trillion in U.S. residential mortgage debt. They profit by holding assets that yield more than their debt costs and from fees charged to guarantee bonds they create.
Fannie Mae and Freddie Mac posted record losses of $11.8 billion in the past three quarters as defaults on mortgages soared to the highest in 30 years.
Less Impact
The National Association of Realtors estimated last year that Fannie Mae and Freddie Mac would buy $150 billion of jumbo loans in 2008. UBS AG analysts now say the amount may be $74 billion; the companies' own projections indicate that they may not even reach that figure.
Freddie Mac said it would purchase $10 billion to $15 billion in jumbo loans and securities in 2008. Fannie Mae hasn't made any public commitments to buy a set amount of the assets this year.
``So far, we haven't seen as much impact as we anticipated,'' said Paul Bishop, managing director of research for the Realtors.
Fannie Mae added $4.05 billion in net purchases of its mortgage-backed securities in April, taking its portfolio to $728.4 billion, according to company filings. Freddie Mac net purchases were $28.4 billion, bringing holdings to $737.5 billion, filings show. Buying existing debt may help prop up prices for the companies' instruments.
The $168 billion fiscal-stimulus bill signed by President George W. Bush on Feb. 13 temporarily allowed Fannie Mae and Freddie Mac to buy jumbo loans in 91 of the most expensive U.S. housing markets.
Increased Limits
The increased lending power, combined with an agreement to reduce the companies' capital requirements, are part of congressional efforts to revive housing starts and the economy following restrictions placed on the companies two years ago.
Both ousted their chief executives after more than $11 billion in accounting errors were revealed. Fannie Mae restated earnings for 2002 through 2004. Freddie Mac did the same for 2000 through 2002.
Fannie Mae shares have fallen 29 percent and Freddie Mac has lost 31 percent in New York trading since Bush signed the bill.
House Financial Services Committee Chairman Barney Frank, a Massachusetts Democrat, said in February that Fannie Mae and Freddie Mac should buy bigger mortgages ``because we're in an economic crisis and need a short-term response.'' Frank has since said that the companies are moving too slowly and should get ``more bang for the buck'' from their spending power. Making the higher limits permanent may encourage purchases, he said.
`Some Liquidity'
Fannie Mae has moved to ``help provide some liquidity and impact on rates in this market segment,'' spokesman Brian Faith said in an e-mail. ``We're eligible to buy these loans and we want that business.''
The companies' entry into the jumbo market has increased financing and lowered rates where they are allowed to compete, Freddie Mac spokesman Brad German said. Fannie Mae and Freddie Mac can't buy multimillion mortgages so some data from high-cost markets such as Los Angeles may be skewed, he said.
``In the products where we are competing, the rates are a lot lower than for the products we can't buy,'' German said. ``We're doing what Congress intended us to do.''
Freddie Mac may do more jumbo business than it estimated this year, he said.
While jumbo loans accounted for about 29 percent of the $2.42 trillion of mortgages issued last year, they represented a fifth of applications in May, according to Inside Mortgage Finance and the Mortgage Bankers Association. About half of the market should be available for purchase by Fannie Mae and Freddie Mac. Stricter criteria set by the companies mean that less than 16 percent of loans eligible for the program actually can qualify, according to UBS and Mortgage Bankers Association data.
10 Percent
For a loan of more than $417,000, Fannie Mae and Freddie Mac require a minimum down payment of 10 percent and a credit score of 660. That compares with 3 percent and 580 for loans under $417,000 at Fannie Mae; and 5 percent, with no minimum score, at Freddie Mac. The rankings, which range from 300 to 850, are used by lenders to predict whether a borrower will repay.
``Fannie and Freddie are catering to low-risk homeowners with high credit scores and a lot of equity in their homes,'' said Dan Green, a loan broker at Mobium Mortgage Group Inc. in Cincinnati and Chicago. ``I'm sure there will be some high-cost areas in the country that will benefit. They just don't happen to be Florida, Michigan, California, Nevada.''
Jumbo loans bought by Fannie Mae and Freddie Mac carry an interest rate of 6.59 percent, more than a percentage point below regular jumbo rates of 7.68 percent, according to HSH Associates Inc.
Few Loans
Los Angeles borrowers are paying an average 7.87 percent, while Miami mortgage seekers are being charged 8.03 percent, indicating that few loans with low rates from Fannie Mae and Freddie Mac are being offered, according to HSH.
The companies' purchases of their own securities are making them riskier because they retain 100 percent of the credit and interest-rate exposure on those assets, said William Poole, president of the St. Louis Federal Reserve until March and now a senior fellow at the Cato Institute.
``Any legislation today that simply expands what they do is going in the wrong direction,'' Poole, 71, said. ``It's potentially digging the taxpayer in deeper.''
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.
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