The Mortgage Corner
Government-sponsored enterprises Fannie Mae and Freddie Mac brought in a combined second-quarter net income of $5 billion, nearly half of the $9.3 billion the two made in the first quarter of 2014, the Federal Housing Finance Agency’s Quarterly Performance Report of the Housing GSEs stated. But the decline is attributed mainly to lower income from private-label mortgage-related securities settlements.
On the other hand, both enterprises reported that continued improvement in national home prices contributed to releases of loan loss reserves at both enterprises, with combined loan loss reserves decreased $4.5 billion during the quarter. Since Dec. 31, 2013, combined loan loss reserves at the GSEs declined 10%, or $7.1 billion to $64.9 billion.
To put it in perspective, for the first half 2014, the Fannie and Freddie reported combined net income of $14.3 billion, driven by proceeds from legal settlements in the first quarter, as GSE and FHFA continued to reach agreements with a number of financial institutions to cover claims in connection with the purchases of Private Label Securities. Bank of America is the latest to settle a record $16.5 billion lawsuit on its mortgage malpractices, much of it due to the purchase of Countrywide Financial with its subprime mortgages.
The Case-Shiller Price Index of 3-month same-home prices continues to slow, but is still up 6.7 percent year-over-year. Fourteen for the 20-city sample show declines in the month with Chicago and Minneapolis showing the most severe declines, at minus 1.6 percent in the month. Three cities show no change leaving three with gains led by Las Vegas at only plus 0.3 percent.
Lawrence Yun, NAR chief economist, says price increases are balancing out to the benefit for both buyers and sellers. “National median home prices began their most recent rise during the first quarter of 2012 but had climbed to unsustainable levels given the current pace of inflation and wage growth,” he said. “At this slower but healthier rate, homeowners can continue steadily building equity. Meanwhile, for buyers, increased supply with moderate price gains is giving them better opportunities to choose.”
So the real problem is how to preserve the home owning advantages that Fannie Mae and Freddie Mac guaranteed mortgages have enabled since World War II. The Obama administration wants to abolish and replace the GSEs with some kind of secondary market clearing house that will guarantee and package these conforming and Hi-Balance conforming mortgages for investors that provide the same security to investors with their strict underwriting criteria that has kept default rates low, historically.
There really is no reason to attempt to reinvent these very successful ‘wheels’ that only failed because of the Great Recession. They have already made the US Treasury a profit on what was lent to them, and with adequate capitalization would continue to service homeowners in ways that the so-called Private Label mortgages have never been able to do.
Harlan Green © 2014
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