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» IN THE NEWS Freddie Mac Begins Securitizing Modified Loans, Reports Slower Growth in April Freddie Mac is in the process of securitizing more than $1 billion in performing loans that were modified. The loans are pooled into new Freddie Mac fixed-rate modified participation certificates (modified PCs), according to a statement from the GSE. The modified loans have been performing for at least six consecutive months and were held in the company's mortgage portfolio. The loans are not TBA deliverable and none of the loans were modified through the government's Home Affordable Mortgage Program (HAMP). "As we continually seek to provide more transparency to the investment community, we are providing additional information on these securities which should aid in their valuation," said Neil Hughes, VP and interim head of single-family securitization at Freddie Mac. The GSE purchased most of the loans out of its related PCs when the loans became at least 120 days past due. Generally, Freddie explained, it buys delinquent loans out of the PCs and holds them in its mortgage-related investments portfolio while a resolution is sought. "Securitizing loans that have been modified and are now performing will allow Freddie Mac to better manage its mortgagerelated investments portfolio," said Adama Kah, Freddie Mac VP of distressed assets management. "We are taking another important step that creates liquidity and taxpayer value for these modified loans through PC securitization. Freddie Mac's goal is to help families stay in their homes and provide alternatives to foreclosure." Freddie Mac also reported its mortgage portfolio expanded in April, but growth slowed as purchase and issuance activity declined from March. Freddie Mac's total portfolio grew at an annualized rate of 0.6 percent in April, a setback compared to March's 4 percent growth rate but still above January and February's contracting figures. The GSE reported about $42.3 billion in purchases and issuances, down from $52 billion the prior month. As of the end of April, the portfolio's ending balance was about $1.95 trillion. VISIT US ONLINE @ DSNEWS.COM The mortgage-related securities portfolio and other guarantees expanded at an annualized rate of 4.1 percent, a little less than half of March's growth rate of 8.9 percent. Single-family refinance loan purchase and guarantee volume was $35.8 billion in April, representing 76 percent of total mortgage portfolio purchases and issuances. The single-family seriously delinquent rate dropped to 2.91 percent in April, a major step down from 3.03 percent in March. The multifamily delinquency rate was down to 0.09 percent. Freddie Mac, headquartered in McLean, Virginia, reported 6,068 loan modifications in April. Year-to-date, the company has recorded 26,681 modifications. to make payments on their existing loans. By providing financing for the borrowers, the bank was able to disguise non-earning assets as earning assets. Edward Woodard also had the bank pay out about $100,000 in invoices for its Suffolk branch, but the funds were actually used for renovations at his son Troy's residence, according to SIGTARP. Over the three-year period ending in 2011, the bank lost nearly $115 million and its failure cost the FDIC an estimated $268 million. Convictions Handed Down for Fraud Scheme that Brought Down Virginia Bank The "juice" that will fuel the economic recovery is housing, or more specifically, new home sales, Freddie Mac stated in its economic and housing outlook report for May. Although the unemployment rate has been falling, the GSE explained the reduction is due to a decline in the labor force participation rate, not an increase in employment. According to Freddie Mac, the labor force participation rate, which remained at 63 percent in April, was the lowest since 1980. However, as the building of new homes adds to the availability of jobs, the unemployment rate is expected to inch down, the GSE said. "Based on historical correlations, every additional 100 thousand housing units started brings down the unemployment rate for construction workers by about three-fourths of a percentage point," the GSE's report noted. For 2013, Freddie Mac forecasts housing starts will increase by 200,000, which would support more than 100,000 new construction jobs. Adding to this count are the additional households that will naturally form. "Household formations are expected to gradually rise to a 1.2 to 1.4 million annual pace in coming years, supporting a sustained level of construction," said Frank Nothaft, Freddie Mac VP and chief economist. "Supplement this with replacement of existing stock and building for the second-home market, housing starts should rise to 1.7 to 1.8 million dwellings by 2017. This will supply the juice to help strengthen the recovery." Another reason for the GSE's confidence in construction is because unlike the general labor market, the construction sector is not facing a "structural" problem. Currently, one of the biggest challenges within the labor market is that workers don't have the skills to match available jobs. According to the GSE, based on historical averages, the unemployment rate Three former executives of the Bank of the Commonwealth and a borrower were convicted by a federal jury in Norfolk, Virginia, for their roles in a fraud scheme that eventually led to the bank's failure in 2011, the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) said in a recent release. Edward J. Woodard, former bank CEO and chairman; Stephen G. Fields, former EVP; Troy Brandon Woodard, the CEO's son and former employee; and Dwight A. Etheridge, a favored borrower, were convicted in the scheme. All four face a maximum penalty of 30 years in prison. According to SIGTARP, evidence from the trial shows many of the bank's loans were funded and provided without adhering to industry standards or the bank's own internal controls, leading to a buildup of troubled loans and foreclosures by 2008. From 2008 to 2011, Edward Woodard and Fields attempted to hide the bank's financial problems and the troubled assets by overdrawing demand deposit accounts to make loan payments, using funds from related entities to make loan payments, using change-in-terms agreements to make loans appear current, and extending new loans or additional principal on existing loans to cover payment shortfalls, SIGTARP stated. The insiders also showed favor to troubled borrowers by providing financing so the borrowers could purchase bank-owned properties even though they were already struggling Report: Housing Is the Economic Recovery's 'Juice' 93

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