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AGENCY REVIEW A LOOK AT THE GSES' LATEST DELINQUENCY NUMBERS AND TOP HEADLINES 5.59% fannie single family freddie single family 5.07% June 2013 fannie » 2.77% freddie » 2.79% 4.55% 4.03% 3.51% 3.00% 2.48% note: Delinquent loans reported here include all single-family loans 90 or more days past due as a percentage of portfolio size. Historical data covers a moving 12-month period. Source: Fannie Mae June 2013 Monthly Summary and Freddie Mac June 2013 Monthly Volume Summary. 1.96% 1.44% 0.92% 0.40% /13 06 /13 /13 04 05 /13 /13 03 02 /12 /13 01 /12 /12 12 11 /12 10 /12 09 08 /12 /12 06 07 /12 /12 05 /12 04 /12 03 /12 01 02 /11 /11 12 /11 11 /11 09 10 /11 /11 08 /11 07 06 Freddie Mac Offers Risk-Sharing Transaction to Engage Private Sector To attract more private capital into the mortgage market, Freddie Mac recently announced the offering of a single-family creditrisk sharing transaction. The $500 million offering of Structured Agency Credit Risk (STACR) securities seeks to reduce taxpayer risk while introducing more private capital into the market. "We're pleased with the market's response to STACR, which is a new asset class in the market," said Freddie Mac CEO Donald H. Layton. "Due to investor demand, the size of the offering was increased from $400 million to $500 million, and about 50 broadly-diversified investors participated in the offering, including mutual funds, hedge funds, REITS, pension funds, banks, insurance companies, and credit unions," he added. The amount of principal paid by Freddie Mac is based on the performance of a large and diversified reference pool with a mortgage balance of $22.5 billion. The pool consists of newer 30-year fixed-rate single-family mortgages acquired in the third quarter of 2012. 28 The loans have original LTVs between 60 percent and 80 percent and have fully documented incomes, according to analysts with Barclays. In addition, they note the "tail characteristics of the pool are very well controlled compared to historical Freddie Mac vintages" and the collateral has experienced about 9-10 percent increases in home prices since origination. According to Freddie Mac, STACR debt notes "limit investor uncertainty by utilizing a predefined calculated severity feature." In addition, the GSE stated, "A large and highly-diversified reference pool may provide more stable and predictable performance." The STACR debt notes are not guaranteed by Freddie Mac. While the initiative helps the GSE with meeting one of its strategic goals, the offering is not without concerns. "We believe that the structure provides good protection in a low prepayment/high default environment, but worry that in a high prepayment/high default environment it would provide less protection," wrote analysts with Amherst Securities Group LP. GSES UPDATE GUIDES FOR IMPLEMENTATION OF ABILITY TO REPAY RULE Fannie Mae and Freddie Mac have both updated their seller guides to incorporate the Consumer Financial Protection Bureau's (CFPB) Ability to Repay rule under the Truth in Lending Act (TILA). The rule goes into effect January 10, 2014. The Federal Housing Finance Agency (FHFA) worked with the GSEs to update their respective seller guides in alignment with one another. The basic goal of the Ability to Repay rule is to ensure lenders act in good faith to determine a borrower can repay his or her loan before extending the financing. After January 10, Fannie Mae and Freddie Mac will only purchase loans that are fully amortizing, have terms of 30 or fewer years, and have points and fees that equal no more than 3 percent of the total loan amount. The GSEs will not accept loans with prepayment penalties after the rule's implementation date. Freddie Mac says, though, that it will continue to accept prepayment penalty mortgages until January 10 if the settlement dates are on or before July 31, 2014. The GSEs are also revising their rules regarding relief refinances for higher-priced mortgage loans. The maximum debt-to-income ratio for these loans is 45 percent, and lenders must verify the borrower's income source and amount. Both Fannie and Freddie stress that it will be the seller's responsibility to ensure compliance with the CFPB's rules before selling loans to the GSEs. "Freddie Mac will not make the determination of whether a mortgage is exempt from, or complies with, the CFPB final rule or whether a seller's designation of the status of a mortgage under the CFPB final rule is correct. These determinations of compliance with the CFPB final rule and other applicable laws are the seller's responsibility," Freddie Mac explained. STAT INSIGHT 149,417 GSEs' combined REO inventory at the end of this year's first quarter. Source: Federal Housing Finance Agency

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