November 2012

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THE LATEST SECONDARY MARKET Delinquencies Expand Among Vintage Prime Mortgages Recent findings from Fitch demonstrate dropping performance levels for prime residential mortgage-backed securities classes. P FHFA Proposes Increased G-fees Regional real estate markets are in the spotlight on Capitol Hill as the FHFA considers plans to raise guarantee fees according to states' pace of recovery. T the GSEs charge on single-family mortgages. Starting in 2013, g-fees will be higher in some states than others, according to a notice sent to the Federal Register. Currently, g-fees are the same he Federal Housing Finance Agency (FHFA) plans to change the guarantee fees (g-fees) costs," the FHFA stated. The proposed method of ad- throughout the country. However, the FHFA has noticed "a wide variation among states in the costs that the Enterprises incur from mortgage defaults," according to its notice to the Federal Register. As per the current national model, "borrowers in states with lower default-related carrying costs are effectively subsidizing borrowers in states with higher 72 | THE M REPORT justing the g-fees considers three aspects of a state's foreclosure en- vironment, including the number of days it generally takes a GSE to foreclose a property and "obtain marketable title to the collateral," the daily carrying cost to the GSE in the state, and "the expected national average default rate on single-family mortgages acquired by the Enterprises." FHFA notes the five highest- cost states include Connecticut, Florida, Illinois, New Jersey, and New York. In these states, lenders would pay a g-fee increased by between 15 and 30 basis points. Lenders could pass the fee on to borrowers by adjusting the interest rate. However, FHFA states, "Because the upfront fee is paid only once, its impact on the annual interest rate is much smaller than the upfront fee itself. a 30-year fixed-rate loan in the amount of $200,000 would pay between $3.50 and $7 per month. "The size of the fee adjust- For example, a borrower with " ments are intended to reflect the disparity in costs, as compared to the national average, cepting public comment on its proposed methodology. stated in a press release announc- ing its notice. The FHFA states it may reassess its methodology and adjust for updates to state laws and industry regulations in the future. The FHFA is currently ac- " the FHFA degrade, Fitch Ratings revealed in a report. The ratings agency announced erformance on vin- tage prime residential mortgage-backed securi- ties (RMBS) continues to mance in pre-2005 RMBS has been driven by adverse selection in the small remaining mortgage pools," Fitch said in a release. "Record-low mortgage rates driven by the Federal Reserve and sustained by economic uncer- tainty have led most pre-2005 bor- rowers to refinance. Consequently, the remaining mortgage pools are increasingly concentrated with borrowers unable to refinance due to credit obstacles." As delinquency rates increase a downgrade on 6 percent of its rated prime RMBS classes, many of which fall into the pre-2005 category. Fitch attributed the downgrade to increased delin- quency rates in certain pools. "The deterioration in perfor- in older prime pools, performance has improved for Alt-A, subprime, and more recent vintage prime pools. The rate of remaining pre-2005 borrowers rolling into delinquency is 1.5 times higher today than three years ago, and total delinquency is roughly 1.3 times higher than 2011 levels. Fitch placed 15 percent of all rated prime RMBS classes on Rating Watch Negative in September, citing much of the same data. As of the most recent review, approximately 14 percent of all classes remain on negative watch and are at risk for a fur- ther 1-2 rating category revision. SECONDARY MARKET ANALYTICS SERVICING ORIGINATION

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