FannieMae asked to take more risk? We're not kidding.

The Wall Street Journal leads off today with:

Back when the housing mania was taking off, Massachusetts Congressman Barney Frank famously said he wanted Fannie Mae and Freddie Mac to "roll the dice" in the name of affordable housing. That didn't turn out so well, but Mr. Frank has since only accumulated more power. And now he is returning to the scene of the calamity -- with your money. He and New York Representative Anthony Weiner have sent a letter to the heads of Fannie and Freddie exhorting them to lower lending standards for condo buyers.

What's going on here? Mr. Frank wants Fannie and Freddie to take more risk in condo developments with high percentages of unsold units, high delinquency rates or high concentrations of ownership within the development.

While the taxpayers are footing the bill for FannieMae's and FreddieMac's loss of billions upon billions gambling of the mortgage market, more losses are on the way because their

"new "mission" has become to do whatever it takes to prop up the housing market. The last thing they need is lawmakers like Mr. Frank, who did so much to lay the groundwork for their collapse, telling them to play faster and looser with their lending standards.

Read "Barney the Underwriter. Telling Fannie Mae to take more credit risk. Now there's an idea."

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Mortgage Modification Program a Bust - Ask this homeowner

The New York Times reports on what we have been reporting all along--the Obama administration's mortgage modification programs are not working. In Promised Help Is Elusive for Some Homeowners the Times relates the story of Arizona homeowner, Eileen Ulery, and her efforts to modify her mortgage. Her problem? She's current on her payments.

Yes, she was teetering toward delinquency. She was among millions of homeowners rapidly sliding toward danger for whom the Obama administration had devised an aid program — some already in foreclosure proceedings, others headed that way as they ran out of means to make their payments. But unlike those in imminent peril of losing their homes, Ms. Ulery had never missed a payment.

“I don’t know who this bailout is helping,” she said. “We’ve given these banks all this money and they’re not doing what they say they’redoing. Something’s not working right. They keep saying they’re doing all this, but we don’t see it down here at this level.”

More than three months after the Obama administration outlined a new program aimed at rescuing millions of distressed homeowners by compensating banks that modify mortgages, Ms. Ulery’s experience illustrates the mixture of confusion, frustration and limited assistance that now reigns.

Good luck to Ms. Ulery and the thousands of other homeowners just like her as they attempt to weather the financial storm. In fact, good luck to us all.

Vested Title Inc.
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Would you buy a used loan from these guys?

Rachel Beck, the national business columnist for The Associated Press, writes about PennyMac, a business previously mentioned on this blog, and its proposed public offering.

"Countrywide Financial placed itself at the epicenter of the housing crisis by making far too many risky loans to homeowners who ultimately couldn't afford them. Those missteps cost CEO Angelo Mozilo his job when the lender was taken over by Bank of America a year ago at a fire sale price."

"Mozilo is now spending most of his time dealing with the dozens of lawsuits naming him as a defendant, but his one-time No. 2 executive and a team of Countrywide alumni are still in the game — shopping around a new business called PennyMac that buys up distressed mortgages and modifies borrowers' loans."

"So, the same people who helped create the housing mess are now trying to make money cleaning it up. As off-putting as that sounds, there's a certain logic to it."

Beck details the history of PennyMac's founder and just how the business is structured to maximize profits. Will investors bite? "PennyMac's leadership could help fix the economy, or stuff they own pockets. Let's hope capitalism doesn't rule."

Of course, the full story is yet to be written. But you can read Rachel Beck's coverage here.

(We are proud to add that Rachel Beck is the daughter of one our firm's clients.)

Vested Title Inc.
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College grads and their loans

While not real estate oriented, many of our readers have college-age students or have just graduated college. The AP is reporting on college grads and their loans.

“Graduating into a barren job market is stressful enough. When massive student loans await, the rite of passage can be downright terrifying.”

The AP provides some tips for college new grads confronting their loans.

Step 1: Know what you owe. “Although the interest rate on federal loans tends to be favorable, it kicks into gear as soon as the loan is taken out. That means you've got four years of interest on top of your loans by the time you graduate.”

Step 2: Pick a plan, but not just any plan. Picking a short term repayment plan is smartest. “If you can't keep up with the payment schedule you picked, you can always switch plans. You're allowed at least one change a year with federal loans.”

Step 3: Consider postponing payment. Payment can be deferred on federal loans under “select circumstances.” On private loans, deferment terms are set by the lender.

Step 4: See if you should consolidate. “A consolidation loan lets you combine loans to make a single monthly payment. You also get a fixed interest rate for the life of the new loan.” The drawback—“consolidation usually extends repayment, meaning the overall cost of the loan will be higher.”

Step 5: Avoid default. Defaults do turn up on your credit report and they could impact other credit applications. “The good news is that defaults on student loans can be rehabilitated and erased from your credit report. With federal loans, that requires nine full payments during a span of 10 months. Private lenders might not offer rehabilitation programs.”

For the full article, read The Asbury Park Press, Know Your Loan Options. We hope you find it helpful.

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Defaults after mortgage modification worse than expected?

The Wall Street Journal addresses mortgage modifications and earlier predictions about high redefault rates. In fact, according to WSJ, "some redefault rates may reach 75%."

A central tenet of Washington economic policy for the past three years has been that the key to ending the recession is stopping mortgage foreclosures, whatever the cost. Well, another new study shows that mortgage-servicing companies are having a terrible time of it, not least because the mortgages are continuing to sour at a rate nearly as fast as they can be modified.

Yesterday's Journal reports that Fitch Ratings looked at mortgages bundled into securities between 2005 and 2007 and managed by some 30 mortgage companies. Fitch found that a conservative projection was that between 65% and 75% of modified subprime loans will fall delinquent by 60 days or more within 12 months of having been modified to keep the borrowers in their homes. This is an even worse result than previous reports by federal regulators. Even loans whose principal was reduced by as much as 20% were still redefaulting in a range of 30% to 40% after 12 months.

The reasons for the high redefault rate aren't surprising. Many of the borrowers never could afford these homes in the first place, yet the political pressure has been strong to modify loans even for these borrowers. As home prices continue to fall in some markets, borrowers remain underwater and many of them simply walk away from the home and thus redefault.

This study has to come as a blow to the Federal Deposit Insurance Corporation, which has invested a great deal of political capital in the modification thesis. It also means that to the extent that public money has guaranteed any of these loan modifications, the taxpayer will be an even bigger loser. Banks don't like to foreclose on borrowers, so the best public policy was always voluntary renegotiation. As for the housing market, the quickest way to begin a recovery is to more quickly let prices find a bottom. On the evidence so far, the mortgage modification fervor has been a giant political exercise with little impact on housing prices.

Vested Title Inc.
648 Newark Avenue, P.O. Box 6453, Jersey City, NJ 07306
Tel 201-656-9220 - Fax 201-656-4506
E-mail vti@vested.com - www.vested.com

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