The Three Percent Solution

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58 | Th e M Rep o RT O r i g i nat i O n s e r v i c i n g a na ly t i c s s e c O n da r y m a r k e t SECONDARY MARKET The laTesT "Making mortgage money more expensive is simply lock- ing many borrowers out of the market and serves no benefit to the GSEs," McGrath said. "Renegotiating the (agreement) now is a common-sense ap- proach to ensuring the safety and soundness of the GSEs." As an alternative, CMLA also recommended lowering guaranty fees to remove the "unnecessary tax" the group says is keeping low- and moderate-income borrowers out of the mortgage market. "Mortgage bankers have now joined the civil rights groups and community banks in asking for this important, common-sense change," McGrath said. In addition to some housing groups, investors in the GSEs have been vocal in the last year about the amended payment agreement, which they say cre- ated a windfall for the govern- ment at the expense of share- holders who are entitled to the companies' profits. Some of the biggest GSE inves- tors, including Fairholme Funds, Perry Capital, and the largest non-government shareholder, Pershing Square, have taken their complaints to court. While the Perry Capital and Fairholme suits have been dismissed, both have appealed the ruling. But when the FHFA announced in December that the agency will divert GSE money to the Housing Trust Fund and Capital Magnet Fund, U.S. Rep. Ed Royce (R-California), a senior member of the House Financial Services Committee, issued a statement calling the plan "outrageous." FHFA made the announce- ment in December directing Fannie Mae and Freddie Mac to begin allocating money to the Housing Trust Fund and Capital Magnet Fund pursuant to the Housing and Economic Recovery Act of 2008 (HERA). Under authorization from the HERA, FHFA notified the two GSEs on November 13, 2008, that these allocations were temporar- ily suspended. In recent weeks, FHFA wrote letters to both Fannie Mae and Freddie Mac informing the GSEs that the temporary suspension of these allocations had been lifted. "Contrary to what Fannie and Freddie apologists claim, the GSEs have yet to repay any of the taxpayer-funded bailout funds they received, which makes today's announcement by the FHFA outrageous," Royce said in a statement. "Money coming in from the GSEs should go to the taxpayers instead of a slush fund for ideological hous- ing groups to play around with." Rep. Randy Neugebauer (R-Texas), chairman of the House Financial Services Subcommittee on Housing and Insurance, expressed sentiments similar to those of Royce regarding FHFA's announcement. "I am outraged by Director Watt's decision to fund the Housing Trust Fund at a time when taxpayers remain on the hook for the operations of Fannie and Freddie," Neugebauer said in a prepared statement. "To add insult to injury, today's decision comes at the 11th hour just before Congress finishes its legislative work for the 113th Congress. The timing could not be more suspect." Royce and Rep. Jeb Hensarling (R-Texas), chairman of the House Financial Services Committee, wrote a letter to Watt back in April urging FHFA to continue suspension of the allocation of funds to the Housing Trust Fund and Capital Magnet Fund. During consideration of the FY 2015 Transportation, Housing, and Urban Development Appropriations, the House unanimously adopted an amend- ment authorized by Royce to prevent the GSEs from allocating money to those two funds. While Royce, Hensarling, and others such as Bob Corker (R-Tennessee) were critical of FHFA's policy change regarding the allocation of GSE money, oth- ers such as Rep. Maxine Waters (D-California), who is a ranking member of the House Financial Services Committee, and Tim Johnson (D-South Dakota), chairman of the Senate Banking Committee, offered praise. Continued from Page 56 Progress remains slow but steady for rmBs sector Despite increased oversight, mortgage-backed securities seem to be on the rebound. But there's still more work to be done. W hile the onslaught of new mortgage regulations in the last year has created headaches for lenders, it's had a clear positive impact in one area, Fitch Ratings says in a new report: the residential mortgage- backed securities (RMBS) sector. In its latest look at the RMBS segment, the company said that while the market still has some rebuilding left to do, it "has seen some rather substantial improvements of late," ow- ing in large part to improved loan underwriting standards in recent years. According to Fitch Managing Director Rui Pereira, the performance of recent vin- tage mortgage loans is the best on record so far. "New legislation has complete- ly eliminated some problem loan types, like no-documentation loans, and has increased the liability of lenders that make ir- responsible loans," Pereira said. Another major improvement, Fitch says, is the quality of loan-level data that's available at issuance now that the industry has created expanded, standard- ized review and verification processes. "These factors allow for more reliable credit analysis and ear- lier detection of negative credit trends," the agency said in its report. Fitch isn't the only firm project- ing a bright outlook for the sector. In December, Moody's predicted a slow increase in private-label RMBS issuance and continued strengthening in credit quality. Despite those strengths, Fitch's report also pointed to areas that "still require close attention," chief of which is the issue of reps and warranties in new deals. "While there have been no- table improvements for rep and warranty enforceability, a lack of standardization across transac- tions is keeping investors wary," Pereira said. The agency also said the RMBS market remains vulnerable to political and regulatory risk, specifically from outside-of-trust settlements and government ac- tions that could affect investors.

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