November 2012

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Page 56 of 79

LOCAL EDITION SERVICING nies—which include Genworth Mortgage Insurance, Mortgage Guaranty Insurance, and Radian Guaranty—reported a total of $397.5 billion in primary insurance in force for August, an increase from $396.4 billion in July. The total primary insurance in MICA's member compa- force received a boost from re- ported month-to-month increases in dollar volume, certificates issued, and applications. MICA member companies re- an increase in cures, report- ing 20,612 during the month of August. The only statistic that fell from July was the number of defaults—24,731 in August—in- dicating a positive trend among distressed mortgages. MICA members also posted Did Fannie Mae Overpay for MSRs? ported a total $11.2 billion volume of new MI written on newly originated conventional mort- gage loans in August, a step up from $10.1 billion in July. Dollar volume on new insurance has risen steadily each month since the start of the year. In addition, members estimated A REVIEW OF THE GSE'S PREVIOUS DEAL WITH BOFA SPURNS CONCERNS OVER FANNIE'S DECISION TO FORGO ADDITIONAL OVERSIGHT MEASURES. that 43,949 borrowers used private MI to buy or refinance a home during the month, continuing July's upward trend. Meanwhile, the number of private MI applica- tions received was an estimated 46,891 in August, up from 42,229 a month prior. 56 | THE M REPORT DISTRICT OF COLUMBIA // As part of its High Touch Servicing Program, Fannie Mae entered a deal with Bank of America (BofA) in July 2011 to purchase mortgage-servicing rights (MSR) for about 384,000 high-risk loans the GSE guaranteed. The Federal Housing Finance Agency Office of Inspector General (FHFA-OIG) recently reviewed the deal and the pro- gram in general. The idea behind Fannie Mae's High Touch Servicing program is to purchase the servicing rights for portfolios of high-risk loans it guarantees and transfer them to specialty servicers to mitigate losses. At the time of the BofA deal, the portfolio in question had an 11 percent delinquency rate. Fannie Mae estimated it would reduce losses by between $1.7 billion and $2.7 billion by turn- ing the loans over to a specialty servicer. The GSE has the option of FHFA-OIG stated in its report, "Fannie Mae, as guarantor of the mortgages in the BOA portfolio, faced the prospect of significant losses were it not to purchase the MSR; thus, the value of the MSR to Fannie Mae might well have exceeded the value to a purchaser with no such liability." The FHFA-OIG did find some After reviewing the purchase, gotiated between Fannie Mae and BofA required the GSE to pay 2.4 times the annualized servicing fee—$512 million instead of $427 million. While the FHFA held reserva- tions about the price of the deal, it ultimately approved it. transferring servicing rights "for cause" without paying any fees to the current servicer, or "without cause" at a rate of twice the an- nualized servicing fee. However, the ultimate deal ne- findings as to the validity of the independent valuator's valuation model or the accuracy of its valu- ation of the BOA portfolio." The terms of the BofA deal were fault with Fannie Mae's approach in negotiating the deal. The GSE relied solely on one independent valuator's review of the portfolio and "did not avail itself of its internal Model Risk Oversight Group to assess the independent valuator's process or conclusions." The FHFA-OIG "ventures no not out of line with other similar deals, according to the report. However, the FHFA-OIG sug- gests, "The High Touch Servicing Program would benefit from a more rigorous valuation process." SECONDARY MARKET ANALYTICS SERVICING ORIGINATION

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