The Three Percent Solution

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Th e M Rep o RT | 59 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 new acquisitions drive Up Business at Fannie It's all ups and downs for the mortgage giant. F annie Mae's gross mortgage portfolio took a huge downward turn in November, while the mortgage giant's book of business inched upward, according to Fannie Mae's November 2014 Monthly Summary. The balance of the gross mort- gage portfolio dropped from $436 billion in October down to $424 billion in November, marking the 52nd time in the last 53 months Fannie Mae's portfolio declined month-over-month. With the exception of December 2012, when the portfolio grew in value at a compound annualized rate of 1 per- cent, the value of the portfolio has declined every month since June 2010. At the end of that month four and a half years ago, the portfolio's value was almost $818 billion. Year-to-date for the first 11 months of 2014, the gross mort- gage portfolio has declined by an average compound annualized rate of 14.7 percent. November's decline of 28.9 percent marked the fourth-largest month-over- month decline the portfolio has experienced since the conserva- torship began in September 2008. In January 2010, it declined by 44.8 percent; and in back-to-back months in July and August 2013, it declined by 29.6 percent and 32.4 percent, respectively. Meanwhile, Fannie Mae's book of business increased in November at a compound annualized rate of 0.7 percent up to $3.12 trillion, marking only the second time in the last 12 months the book of business has in- creased month-over-month. Year- to-date, the book of business has declined at an average compound annual rate of 1.5 percent. Also in November, the serious delinquency rate on Fannie Mae's conventional single-family mort- gage loans declined by one basis point from October down to 1.91 percent. November marked the 36th month in a row the serious delinquency rate declined at least one basis point month-over- month; the last time the rate did not decline was when it held steady at 4 percent from October to November 2011. The value of Fannie Mae's mortgage-backed securities and other guarantees totaled $2.791 tril- lion in November, representing an annualized compound rate month- over-month decline of 1 percent after experiencing an increase in three of the previous four months. Year-to-date for the period ending November 30, 2014, MBS and other guarantees for Fannie Mae has declined at an average compound annualized rate of 0.5 percent. Fannie Mae completed 7,417 loan modifications in November, down from 9,540 completed in October. Year-to-date for the pe- riod ending November 30, 2014, Fannie Mae has completed 113,872 loan mods. Federal reserve to exercise restraint on rate Hikes Despite an improved labor market, employment is still making a slow recovery. So there's no reason to move more quickly, Fed policymakers say. t he Federal Reserve an- nounced in December that it intends to take a slow approach to raising interest rates in the coming year, even as the economy continues to strengthen. In a policy statement released following the last 2014 meet- ing of the Federal Open Market Committee (FOMC), the central bank reaffirmed its view that the economy is expanding at a "mod- erate pace," pointing to continued improvements in the labor market tempered by still-high numbers of unemployed and underemployed Americans and slower growth in the housing sector. Given the current climate, the committee hinted that it will take steps to raise short-term interest rates in 2015, though it still would not commit to a timeframe, saying only that "it will likely be appro- priate to maintain ... the [current] federal funds rate for a consider- able period of time." "Based on its current assessment, the committee judges that it can be patient in beginning to normalize the stance of monetary policy," the Fed said in its statement. While the phrase "consider- able period of time"—commonly interpreted by analysts to be around six months—is not a new addition to the Fed's language, policymakers did clarify that they're counting the time from when the central bank ended its asset purchase program in October. If the interpretations hold out, that could signal an increase as soon as April, though many econo- mists expect June is more likely. In a survey, 15 of 17 officials at the Fed predicted an increase in interest rates starting next year, with the other two saying the first hikes will come in 2016. At the same time, their forecast for rates slipped to 1.125 percent by year-end 2015, down from the last outlook in September. Perhaps encouraged by re- cent monthly payroll numbers, officials predicted the unemploy- ment rate next year will drop to 5.2–5.3 percent, a more optimistic outlook than in September. As of November, the national unemploy- ment rate was 5.8 percent. Economic growth, meanwhile, was pegged at 2.6–3 percent for 2015, unchanged despite a rosier outlook for 2014. "Based on its current assessment, the committee judges that it can be patient in beginning to normalize the stance of monetary policy." —Fed Statement

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