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» FITCH EXAMINES GSEs' CREDIT RISK IN LIGHT OF RISK SHARING EFFORTS In recent months, Fannie Mae and Freddie Mac took important steps toward transparency with the release of historical credit performance data. Additionally, the move also paved the way for credit risk sharing transactions as the Federal Housing Finance Agency (FHFA) looks to reduce the GSEs' role in the nation's housing finance market. "These transactions, a key goal of the FHFA Strategic Plan for Enterprise Conservatorships, will allow Fannie Mae and Freddie Mac to gradually contract their dominant presence in the marketplace and help lay the foundation for the U.S. housing finance system of the future," FHFA stated. In an effort to help investors "evaluate upcoming credit-sensitive securitization proposals from the GSEs," Fitch Ratings completed an analysis of the historical data in a recent report. Overall, the report determined loans originated from 2009 and beyond should outperform earlier vintages. "Similar to what we've observed in the private market, post-crisis GSE-originated loans have recorded strong performance to date," said Rui Pereira, Fitch managing director. "The recent performance reflects both better credit quality and improved underwriting controls." In its analysis, Fitch also compared agency performance to non-agency prime jumbo collateral and observed agency datasets originated from 2005 to 2008 outperformed non-agency loans. However, when controlling variables such as borrower/loan attributes and economic environments, Fitch found performance for agency and non-agency loans were similar when it came to default behavior. All else being equal, the rating agency found borrowers with higher property values tended to perform better than those with lower property values. While recently originated loans for agency and non-agency loans should see lower levels of default compared to earlier vintages, Fitch determined new agency pools will see "modestly higher defaults" compared to nonagency loans due to specific credit attributes. "The main drivers behind the higher default expectations are higher combined loan-to-value (CLTV) ratios, lower property values, and less liquid reserves," Fitch explained. VISIT US ONLINE @ DSNEWS.COM GSEs HELP 130K BORROWERS AVOID FORECLOSURE IN Q1 As Fannie Mae and Freddie Mac continue their efforts to prevent foreclosures, delinquency rates are also declining, with the companies' 60-plus-day delinquencies down to their lowest level since the first quarter of 2009, according to a report from the Federal Housing Finance Agency (FHFA). So far, efforts from the GSEs have led to nearly 2.8 million foreclosure prevention actions since the start of their September 2008 conservatorship, the FHFA reported. More than 2.3 million of the foreclosure prevention actions allowed struggling homeowners to keep their homes, including nearly 1.4 million permanent loan modifications. In the first quarter of this year, 130,000 foreclosure prevention actions were completed, essentially the same as in the previous quarter. Of the Q1 actions, about 63,800 were loan modifications, with half of those loan mods reducing borrowers' monthly payments by more than 30 percent. By the end of March, about 12 percent of GSE loans modified in the second quarter of 2012 were past due by two or more payments, according to the FHFA's report. During Q1 2013, FHFA reported there were about 25,800 completed short sales and 4,400 deeds-in-lieu, leading to 30,200 home forfeiture but foreclosure prevention actions, down 7 percent from the previous quarter. Meanwhile, home retention actions—including the 63,800 loan mods granted—totaled 99,800 in the first quarter. FHFA also found the serious delinquency rate for GSE borrowers decreased to 3 percent, compared to 8 percent for Federal Housing Administration (FHA) loans. However, more than half of the GSEs' seriously delinquent borrowers were past due by more than a year in the first quarter. Florida kept its spot as the state with the highest share of GSE borrowers who have not paid their mortgage in more than a year, with 62 percent of borrowers in this category. New Jersey took second place, at 52 percent, followed by Hawaii with 50 percent, Nevada with 45 percent, and New York at 44 percent. On the upside, the total number of borrowers who were past due by more than 60 days declined 11 percent in the first quarter to the lowest level since the first quarter of 2009. The GSEs' foreclosure starts saw an increase in Q1, rising to 141,000 from 135,000 in the fourth quarter of last year. Starts peaked at 339,000 in the third quarter of 2010. Third-party sales and foreclosure sales fell to 60,000 in the first quarter, down from 63,000 in the previous quarter. Foreclosure sales reached a high of 138,000 in the third quarter of 2010. REO inventory for the GSEs continued to trend downward. At the end of the first quarter, Fannie and Freddie's combined REO inventory stood at 149,417 homes, down from 154,737 in the fourth quarter of last year. The GSEs disposed of more REOs in Q1 than they acquired, with REO dispositions at 61,918 during the first three months of this year compared to 56,598 acquisitions. FHFA'S HOME PRICE INDEX RECORDS ANNUAL GAIN OF 7.4% The Federal Housing Finance Agency (FHFA) reported a 7.4 percent annual gain and a 0.7 percent monthly increase in its House Price Index (HPI) for April. As of April, the index stood at a reading of 200.8. March's index, meanwhile, was revised upward to 199.4 (a 1.5 percent increase as opposed to the original estimated gain of 1.3 percent). The latest increase marks the 15th straight monthly price improvement in the purchase-only, seasonally adjusted index, which is calculated using home sales price information from mortgages sold to or guaranteed by the GSEs. For the nine Census divisions, year-overyear price changes ranged from a low of +2.9 percent in the Middle Atlantic division to +17.1 percent in the Pacific division. KNOW THIS The Fannie Mae Servicing Support Center has changed its business hours to 9:00 a.m.–6:00 p.m. Monday through Friday in order to dedicate more resources to peak times and respond to servicers faster. 23

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