GSEs’ Delinquency Numbers Tell Different Stories

The nation's two largest mortgage companies are still grappling with an elevated number of past-dues, although both have reported a steady falloff in the rate of loans classified as seriously delinquent -- 90 or more days overdue -- since early this year. The latest figures from the GSEs, however, show the rate continuing to head down for one, up for the other.
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""Fannie Mae's"":http://www.fanniemae.com serious delinquency rate on single-family mortgages stood at 4.56 percent as of the end of September. That's down from 4.70 percent in August and 4.72 percent in September 2009. It's the first time since April of 2007 that Fannie has reported a year-over-year decline in the rate of seriously delinquent home loans. As recently as February, the rate was at 5.59 percent â€" the high-water mark of the past 12-month period.

""Freddie Mac"":http://www.freddiemac.com says its single-family seriously delinquent rate came in at 3.82 percent as of the end of October. (Fannie Mae's reporting of its past-due numbers lags sibling Freddie Mac by one month.) Freddie's rate is up slightly from 3.80 percent in September. It's the first increase recorded by the GSE since February of this year, when the delinquency rate stood at 4.20 percent.

Both Fannie and Freddie have dialed up the pressure for big banks to buy back bad loans they sold to the GSEs. But the lenders themselves are doing their own dialing up, only it's in the form of stronger resistance to the mortgage giants' repurchase requests.

Edward DeMarco, acting director of the ""Federal Housing Finance Agency"":http://www.fhfa.gov (FHFA) ""told lawmakers in September"":http://dsnews.comarticles/lenders-have-failed-to-repurchase-11b-in-bad-loans-from-gses-2010-09-24 that

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as of the end of the second quarter of 2010, lenders had failed to fulfill their obligation to repurchase over $11 billion in soured mortgages -- $4.7 billion from Fannie and $6.4 billion from Freddie.

As of the end of the third quarter, the two companies volume of outstanding repurchases had grown to $13 billion. According to a ""recent report by _Bloomberg_"":http://www.bloomberg.com/news/2010-11-30/banks-in-u-s-resisting-calls-to-repurchase-fannie-mae-freddie-mac-loans.html, a third of those buyback requests had been outstanding for four months or more, and at least Freddie Mac has begun to assess penalties for the delays.

Bloomberg says lenders claim they are resisting buybacks because Fannie and Freddie are second-guessing old appraisals, accusing originators of failing to verify income, or pinning failed loans on minor technical errors.

John Courson, CEO of the ""Mortgage Bankers Association"":http://www.mortgagebankers.org explained to the news agency that typically, about 40 percent of repurchase requests are rescinded after lenders provide additional paperwork.

Freddie Mac says it will raise the fees it charges lenders who sell riskier loans, beginning March 1. Up-front fees will increase from 25 to 75 basis points ""for certain mortgages"":http://www.freddiemac.com/sell/guide/bulletins/pdf/bll1030.pdf, depending on the loan-to-value ratio and whether the borrower is using other mortgages as part of the financing.

Patricia J. McClung, VP of offerings management at Freddie Mac, said in the notice to lenders, ""The changes help to ensure that we are adequately compensated for the continued provision of essential liquidity to the mortgage market, and are able to continue our support for affordable lending while being diligent stewards of taxpayer funding.""

Fannie Mae, too, is instituting ""new lending guidelines"":https://www.efanniemae.com/sf/guides/ssg/annltrs/pdf/2010/sel1013.pdf that take effect mid-December. The GSE is lowering its debt-to-income threshold for a conventional mortgage to 45 percent, adjusting its criteria for borrowers with revolving debt, and prohibiting borrowers who've been foreclosed on from obtaining a Fannie-backed mortgage for seven years.

That last point calls for the same seven-year window of ineligibility Fannie said it would impose on strategic defaulters when the GSE moved to increase penalties for borrowers who walk away ""back in June"":http://dsnews.comarticles/fannie-mae-intensifies-penalties-for-strategic-defaulters-2010-06-23.