Game Change

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the latest se r v ic i ng Or ig i nat ion SECONDARY MARKET As Interest Rates Dip, Loan Amounts Rise in May The average interest rate in May was 3.4 percent, a steep decline from April. s e c on da r y m a r k e t a na ly t ic s I Rating Agency Analyzes GSE Risk-Sharing Ability Fitch Ratings took a look at Fannie Mae and Freddie Mac's capability to handle risk-sharing transactions. I n recent months, Fannie Mae and Freddie Mac took important steps toward transparency with the release of historical credit performance data. Additionally, the move also paved the way for credit risk sharing transactions as the Federal Housing Finance Agency (FHFA) looks to reduce the GSEs' role in housing finance. "These transactions, a key goal of the FHFA Strategic Plan for Enterprise Conservatorships, will allow Fannie Mae and Freddie Mac to gradually contract their dominant presence in the marketplace and help lay the foundation for the U.S. housing finance system of the future," the FHFA stated. 76 | The M Report In an effort to help investors "evaluate upcoming creditsensitive securitization proposals from the GSEs," Fitch Ratings completed an analysis of the historical data in a recent report. Overall, the report determined loans originated from 2009 and beyond should outperform earlier vintages. "Similar to what we've observed in the private market, post-crisis GSE originated loans have recorded strong performance to date," said managing director Rui Pereira. "The recent performance reflects both better credit quality and improved underwriting controls." In its analysis, Fitch also compared agency performance to non-agency prime jumbo collateral and observed agency datasets originated from 2005 to 2008 outperformed non-agency loans. However, when controlling for variables such as borrower/loan attributes and economic environments, Fitch found performance for agency and non-agency loans was similar when it came to default behavior. All else being equal, the rating agency found borrowers with higher property values tended to perform better than those with lower property values. While recently originated loans for agency and non-agency loans should see lower levels of default compared to earlier vintages, Fitch determined new agency pools will see "modestly higher defaults" compared to non-agency loans due to specific credit attributes. "The main drivers behind the higher default expectations are higher combined loan-to-value (CLTV) ratios, lower property values, and less liquid reserves," Fitch explained. nterest rates declined 0.15 percent in May, according to the Federal Housing Finance Agency (FHFA), which observes interest rates on a composite of mortgage loans written for fixed- and adjustable-rate mortgages for previously occupied singlefamily homes. The average interest rate for mortgage loans closed in May was 3.4 percent, a 15-basis-point decline from April, when the average rate was 3.55 percent, according to FHFA data. At the same time, the average loan amount for a conventional, 30-year, fixed-rate mortgage increased $14,100 to $280,600. The effective rate, which is calculated to reflect loan interest rates plus initial fees and charges, was 3.57 percent for the month of May, reflecting a 12-basispoint decline from 3.69 percent in April. The average interest rate for conventional, 30-year, fixed-rate loans written in May was 3.58 percent, down 19 basis points from April, according to FHFA.

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