TheMReport

TH E M R EP O RT | 63 SECONDARY MARKET THE LATEST O R I G I NAT I O N S E R V I C I N G DATA G O V E R N M E N T S E C O N DA R Y M A R K E T The Case for the GSE Patch The GSE patch primarily helps minority and lower-income borrowers, and some are calling for its extension. A ccording to recent data, the GSE patch— p which allows higher debt-to-income (DTI) ratio mortgages to qualify for the protections provided under the qualified mortgage (QM) rule—disproportionately benefits minority and lower-income borrowers. The Urban Insti - tute and data from Recursion Co., a financial analytics firm, revealed that letting the patch expire in 2021 with no change will disadvantage these already underserved groups. The patch is currently set to expire in 2021. In a report, Laurie Goodman, VP, Housing Finance Policy at the Urban Institute not - ed that approximately 19% of GSE loans in the 2014 to 2018 period, or 3.3 million loans, were made pos- sible by the patch. High DTI GSE borrowers are disproportionately minority borrowers with incomes that are, on average, less than those of borrowers with lower DTIs, according to Goodman. "This new evidence firmly establishes that the GSE patch dis - proportionately benefits minority borrowers and borrowers whose incomes are at the lower end for new homeowners," Goodman said. "This finding suggests that if the patch is not extended, a replacement should be found that supports credit availability for minority borrowers." Moving forward, the patch could potentially be impacted by the end of GSE conservatorship, recently called for by President Donald J. Trump in a memo - randum tasking the Treasury Department and Department of Housing and Urban Development (HUD) with preparing a reform plan for Fannie Mae and Freddie Mac. In the memorandum, the President specifically called for a "comprehensive" plan for remov - ing Fannie and Freddie from the government conservatorship under which they have been op- erating since September 2008. The memo stated that "in the decade since the financial crisis, there has been no comprehensive reform of the housing finance system despite the need for it, leaving taxpayers exposed to future bailouts." The memo went on to claim that "the Department of Housing and Urban Development's (HUD) housing programs are exposed to high levels of risk and rely on outdated business processes and systems." FHFA Discusses GSE Foreclosure Prevention The GSEs have completed nearly 4.3 million foreclosure prevention actions since 2008. S ince the start of conser- vatorships in Septem- ber 2008, Fannie Mae and Freddie Mac have completed a total of 4,283,836 foreclosure prevention actions, according to the Q 4 2018 Fore - closure Prevention Report from the Federal Housing Finance Agency (FHFA). In Q 4 2018, the GSEs completed 41,062 foreclosure prevention actions. According to the FHFA, 3,591,985 of the foreclosure preven - tion actions completed since 2008 have been resulted in homeown- ers staying in their homes, while 2,314,121 actions have been perma- nent loan modifications. In Q 4 2018, 28% of modifications were those with principal forbearance. Modifications with extend-term only accounted for 65% of all loan modifications during the quarter. Q 4 2018 also saw 1,781 complet - ed short sales and deeds-in-lieu, which brings Fannie and Freddie's total to 691,851. "The number of completed short sales and deeds-in-lieu de - creased 18% in the fourth quarter compared with the third quarter of 2018," the FHFA stated. "These foreclosure alternatives help to re- duce the severity of losses result- ing from a borrower's default and minimize the impact of foreclo- sures on borrowers, communities, and neighborhoods." The GSE's mortgage per- formance improved overall in Q 4 2018: The percentage of 60+ days delinquent loans dropped from 1.13% at the end of the third quarter to 1.08% at the end of the fourth quarter. Additionally, Fannie and Freddie's serious (90 days or more) delinquency rate decreased to 0.73% at the end of the fourth quarter. This compared with 3.8% for Federal Housing Administration loans, 2% for Veterans Affairs loans, and 2.1% for all loans. Foreclosure starts increased 11% to 36,002 while third-party and foreclosure sales decreased 8% to 11,510 in Q 4 2018. Increased housing prices over the past couple years have increased home equity for homeowners, even for delinquent borrowers, leading to different loan modification options for bor - rowers, the reported stated. "This new evidence firmly establishes that the GSE patch disproportionately benefits minority borrowers and borrowers whose incomes are at the lower end for new homeowners." —Danny Goodman, COO, 55places.com

• Cover