FHFA Archives - Page 2 of 2 - Real Estate News and Commentary

October 27, 2011August 2, 2019

The housing solution trap

When we’re feeling pain or anguish, immediate relief is often sought. So, it would make sense that, when we’re feeling pinched financially, a short term money fix might help. However, quick fixes don’t always address the underlying issues that precipitated or contribute to the problem.

According to recent reports, Americans are increasingly “feeling” the pain as the economy continues to stagger amid volatile financial markets and gloomy housing reports. The Misery Index, which can be construed as a quantitative measure of “pain” associated with an economy, was recently reported to have risen to its highest levels in 28 years. (Introduced in the 1960’s, the Misery Index is found by adding the unemployment rate to the rate of inflation. Obviously, the lower the index – the better.)

So it should come as no surprise that as the push for a jobs bill continues the focus has once again turned to the housing market. This week, the Federal Housing Finance Agency (FHFA.gov) announced that the Home Affordable Refinance Program (HARP) will be “enhanced” to accommodate more under-water home owners.

When the program was initiated in 2009, the intention was to assist the refinancing of home owners whose home values declined. It was estimated that it would assist millions of home owners. However, as has been widely reported recently, only about 900,000 home owners have been helped; and of those home owners, about 72,000 are under-water.

Seeking immediate relief for home owners, HARP’s eligibility requirements have become the center of attention. This week’s announcement to remove the “impediments” to refinancing is expected to increase the pool of home owners seeking refinancing of underwater mortgages.

HARP’s initial eligibility requirements included: having a mortgage guaranteed by Fannie Mar or Freddie Mac; the mortgage must not be an FHA, VA, or USDA loan; mortgage payments are current and payments must not have been more than 30 days late in the last year; the first mortgage amount must not exceed 125% of the home’s value; the refinance should improve the long-term affordability of the mortgage; and you’re able to make the new payments.

The new HARP guidelines announced by FHFA this week include lowering or eliminating certain borrower fees, removing the 125% loan to value ceiling, and extending the program to December 31, 2013.

In addition to helping already stressed home owners, it is expected that the money saved on mortgages will be pumped back into the economy. However, critics say that the revised guidelines will do little, if anything, to address the wider problem that exists in the housing market. Additionally, some critics point to the added burden on an already troubled Fannie Mae and Freddie Mac.

So, if the recent adjustment to HARP won’t do much for the housing market, as critics point out; what is the solution? Short term fixes may immediately reduce the pain. However, there should be little doubt that housing and employment are closely linked. Aside from monetary policy that might focus on flattening inflation; addressing long term sustainable economic growth, along with an expansion of permanent full time employment is the key to reviving the housing market.

Nothing feels better than taking pain away quickly and effortlessly. However, like many deep seated problems, the solution may very well lie in a long term plan that may require feeling some pain along the way.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

August 24, 2011July 28, 2019

The $1 foreclosure solution

The buzz last week came from a Federal Housing Finance Agency’s (FHFA) request for information (RFI). The RFI is “seeking input on new options” on the disposition of foreclosed properties that are held by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). FHFA (fhfa.gov) is the “the regulator and conservator of Fannie Mae and Freddie Mac and the regulator of the 12 Federal Home Loan Banks.”

The August 10th release stated that the FHFA, in consultation with HUD, is seeking to stabilize the housing market by exploring “alternatives for maximizing value to taxpayers and increasing private investment in the housing market, including approaches that support rental and affordable housing needs.” FHFA Acting Director Edward DeMarco stated that although individual homes will continue to be sold, there is an interest in “pooling” (i.e., bulk sales) assets if it can “reduce Enterprise credit losses and help stabilize neighborhoods and home values…”

Among the objectives outlined in the RFI, included are: a reduction of REO portfolios; a focus on property repair and rehabilitation; and a focus on neighborhood and price stabilization. However, it appears as if the outcome may already be weighted towards a rental solution (“FHFA, Treasury and HUD anticipate respondents may best address these objectives through REO to rental structures”), even though an objective of the RFI is to use “analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental, or, in certain instances, demolition.”

If one intention of the FHFA and HUD is to implement a rental program, then it seems only appropriate to examine how the “lease for deed” program, that Fannie Mae embarked upon in 2009, has performed and impacted neighborhood home values and stabilization.

However, another possible solution with a focus on home ownership and community involvement comes from the recently deceased Governor William Donald Schaefer. Although many may remember the former Governor of Maryland, but many probably do not remember William Donald Schaefer as Mayor of Baltimore. As Mayor of Baltimore, Schaefer oversaw some of the most intensive urban renewal and revitalization projects of the 1970’s, some of which were mimicked around the country. One of the most memorable, at least to longtime Baltimore residents, is the $1 home.

As the deterioration of downtown Baltimore escalated, the City was faced with a growing number of vacant homes that among other things significantly depreciated property values. Along with commercial redevelopment, such as the Inner Harbor projects, a plan for residential renewal was undertaken that at the outset appeared risky and incomprehensible.

The program involved the City purchasing blocks of homes and then selling them to owner- occupants for $1. The idea was to basically provide affordable housing to home owners who would agree to not only rehabilitate the property (rehab loans were provided by the City), but to also live in the home for a number of years – thus turning rows of vacant homes into desirable neighborhoods that shouted pride of ownership as well as increasing property values and stabilizing the community (dollarhomes.wordpress.com).

Although the FHFA may be focused on “transferring” their REO portfolios by selling as many homes as they can non-resident investors, hoping for renovations and affordable housing from an absentee owner; however, a more viable solution may be found in owner-occupants, who are invested in maintaining their homes and participating in their communities.

by Dan Krell
© 2011

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

July 15, 2010November 28, 2020

Mortgage oversight agency (FHFA) could stall county greening efforts

Last week, a federal oversight agency raised concerns about a green retrofitting loan program in an effort to protect consumers and the integrity of lending practices. Normally, this would not seem unusual; however on June 6th the Federal Housing Finance Agency (FHFA) issued a statement that affects many Property Assessed Clean Energy (PACE) programs across the country, and may affect Montgomery County’s Home Energy Loan Program (HELP) even before it officially kicks off later this year.

As part of a national initiative to reduce energy consumptions and curb greenhouse gases, PACE (pacenow.org) programs are intended to make green retrofitting affordable for home owners. The program generates funds for the retrofitting through “tax lien oriented financing” by selling “PACE bonds,” and is repaid by the home owner through annual tax assessments.

Enacted through Council Bill 6-09 (April 2009), HELP is Montgomery County’s local green retrofitting loan program, which is part of a first wave of PACE programs implemented throughout the country. Although HELP is awaiting a green light from the County Council to get underway, the county’s Department of Environmental Protection is preparing to manage the program. HELP’s financing arrangement is anticipated to allow a home owner to repay the “loan” over fifteen years through their property tax bill.

As the oversight agency for Fannie Mae, Freddie Mac and the Federal Home Loan Banks, FHFA’s (fhfa.gov) statement cited concerns about “certain energy retrofit lending programs,” specifically referring to local tax assessment loan programs by PACE. “Safety and soundness” concerns were cited because the PACE tax liens could interfere and disrupt a “fragile housing finance market” due to the “absence of robust underwriting standards to protect homeowners and the lack of energy retrofit standards to assist homeowners, appraisers, inspectors and lenders [to] determine the value of retrofit products…”

Although FHFA has collaborated with government agencies, state and local officials to work through their concerns, the issue appears to be unresolved. FHFA’s statement asserts that the tax assessment created through a PACE loan is unlike the typical tax assessment; such that the term and amount of a PACE related tax assessment exceeds a typical local assessment and do not have the usual community benefit that is associated with local tax initiatives. Additionally, the concern over such modifications would “present significant risk to lenders and secondary market entities, may alter valuations for mortgage-backed securities and are not essential for successful programs to spur energy conservation.”

Notwithstanding some critics concerns over the obsolescence of a green retrofit before such a loan is repaid, additional concerns raised by FHFA include: the shift of traditional lending priorities (PACE investors have minimal risk due to the first lien position); PACE program’s collateral based underwriting does not take into account the home owner’s ability to pay; the lack of lending disclosures (such as required by the Truth-in-Lending Act and other consumer protections); “and uncertainty as to whether the home improvements actually produce meaningful reductions in energy consumption.”

It remains to be seen whether HELP will be affected by FHFA’s new guidelines to Fannie Mae and Freddie Mac to deal with PACE loans. However, FHFA stated that the concerns were not raised to undermine programs meant to reduce consumer energy consumption, but rather to encourage the implementation of retrofitting loan programs with “appropriate underwriting guidelines and consumer protection standards.”

September 10, 2008October 5, 2019

FHFA takes Fannie and Freddie: Government begins restructuring troubled mortgage giants

by Dan Krell

If you haven’t yet heard, the newly created Federal Housing Finance Agency (FHFA) wasted little time in pursuing its regulatory authority over Fannie Mae and Freddie Mac by taking over as conservator. The agency was established as the new regulatory agency for Government Sponsored Enterprises (GSE) when President Bush signed the Housing and Economic Recovery Act of 2008 on July 30th. The takeover is a coordinated effort between the FHFA, the United States Treasury Department and the Federal Reserve.

In a statement made on Sunday, FHFA secretary James Lockhart outlined the reasons for the takeover of Fannie Mae and Freddie Mac as well as the goals of the conservatorship. (The Secretary’s statement can be found at: www.ofheo.gov/media/statements). Secretary Lockhart stressed the importance of Fannie Mae’s and Freddie Mac’s role in the housing industry. However, the FHFA felt it was necessary to take action because of Fannie and Freddie’s ongoing capitalization problems, poor financial performance and deteriorated market conditions.

Treasury Secretary Henry Paulson also underscored the importance of Fannie and Freddie’s survival (the Secretary’s statement can be seen at www.treas.gov/press/releases). Secretary Paulson stated that the failure of Fannie Mae and Freddie Mac would cause great turmoil in local and global markets. The turmoil would in turn negatively impact everyone personally, reducing savings and restricting credit (all forms of credit would be affected).

Due to the fragility and uncertainty of Fannie and Freddie in recent weeks, Treasury Secretary Paulson stated that the risk of funneling money to these institutions “in their current form” was not in the best interest of the tax payers. As the FHFA takes over operations in Fannie and Freddie, the role of the U.S. Treasury will be to ensure that Fannie and Freddie maintain a positive net worth through preferred stock purchases. By maintaining a positive net worth, Fannie and Freddie dodge the bullet of receivership (which could trigger a global financial meltdown).

The Treasury’s second role will be to purchase mortgage backed securities (MBS) from Fannie and Freddie. Although the MBS purchases will be temporary, it is anticipated that the special MBS purchases will increase mortgage availability and affordability.

Additionally, special credit facilities will be made available to the FHFA entities (which include Fannie Mae and Freddie as well as the twelve Federal Home Loan Banks) to sustain their liquidity. Secretary Lockhart stated that the Federal Home Loan Banks will most likely not use the recently made available facilities as they have “preformed well over the last year.”

The conservatorship is intended to be temporary; there is no timeline for transition. However, as Fannie and Freddie are required to reduce their mortgage portfolios starting in 2010, it is anticipated the new model will allow for a more streamlined and profitable organization at both Fannie Mae and Freddie Mac.

Although many agree that the takeover will positively affect interest rates temporarily, modestly lowered interest rates will not be enough to fix the real estate problem. The real story (that will evolve in ensuing months) will be Fannie and Freddie’s encouragement and support of banks to modify delinquent loans rather than foreclosing, which will play a role in the stabilization of home values and ultimately the real estate market.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 8, 2008. Copyright © 2008 Dan Krell.