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» REPORT: FHFA NEEDS GUIDELINES FOR COMPENSATORY FEES, MSR TRANSFERS The Federal Housing Finance Agency Office of Inspector General (FHFA OIG) overall approves of Fannie Mae's $11.6 billion settlement earlier this year, though it does raise some questions regarding FHFA's treatment of compensatory fees and servicing transfers. After more than a year of negotiating, Fannie Mae reached an $11.6 billion settlement with Bank of America regarding losses the GSE incurred from Bank of America and Countrywide loans. Bank of America acquired Countrywide in 2008. FHFA, per a recommendation from the OIG, issued new guidance for repurchase settlement agreements in June of last year. The Bank of America settlement was OIG's first chance to review the implementation of the new guidance. "FHFA, to its credit, adhered to its established policy in reviewing the representation and warranty settlement between Fannie Mae and Bank of America," the inspector general stated. "Its policy did not apply, however, to the resolution of compensatory fees and the transfer of mortgage servicing." FHFA OIG believes FHFA needs to establish clear guidance for compensatory fees. Another concern the OIG labeled is the transfer of servicing rights to specialty servicers. While this was not an official part of the Bank of America settlement, "Fannie Mae would not consent to Bank of America's proposed transfer of the MSR [mortgage servicing right] until Bank of America agreed to a resolution of Fannie Mae's claims for compensatory fees," OIG stated in its report. The OIG report was not the first time concerns were voiced regarding the GSEs' transfer of servicing rights. "The rapid growth of specialty servicers in the market increased Fannie Mae's operational risk, particularly in light of the fact that Bank of America had plans to transfer significant servicing portfolios to these entities," OIG stated. The OIG suggests there are "several opportunities for improvement" among FHFA's guidelines. Specifically it suggests FHFA establish guidance for compensatory fees and "significant MSR transactions." VISIT US ONLINE @ DSNEWS.COM FANNIE MAE UPDATE ADDRESSES SHORT SALE CREDIT REPORTING ISSUE Because of a shortcoming in Fannie Mae's software, many homeowners who sold their homes through short sales have suffered undue harm to their credit and additional penalties preventing them from attaining new mortgage loans for several years, according to Sen. Bill Nelson (D-Florida), who worked with the Consumer Financial Protection Bureau (CFPB) and Sen. Claire McCaskill (D-Missouri) to find a solution. Florida suffered some of the highest foreclosure and underwater rates in the nation during the housing crisis, and Sen. Nelson took an interest in the misrepresentation that has harmed many of his constituents. Earlier this year, reports surfaced of short sales that were erroneously reported as foreclosures on consumer credit reports. When the matter was investigated, the issue turned out to be a computer problem. According to reports, the standardized computer software the credit industry was relying on lacked a specific code for short sales. In an updated notice, Fannie Mae addressed the reporting issue, stating it "has been made aware that there are often inconsistencies in the credit data" for short sales. Currently, lenders are having to manually underwrite loans to help borrowers be considered for a loan after the appropriate waiting period. However, Fannie Mae is updating its automated underwriting system, known as Desktop Underwriter (DU), to allow lenders to disregard erroneous foreclosure information. More specifically, lenders will be able to input certain codes in an explanation field of the online loan application to indicate a short sale or deed-in-lieu. When DU sees the specific code, foreclosure information will be overlooked. Fannie Mae typically requires a seven-year waiting period after a foreclosure and a twoyear period for a short sale. The changes to DU will apply to loan casefiles submitted to DU starting November 16. "Regardless of the cause, I'm glad Fannie Mae is fixing the problem," Nelson said. "You can't punish homeowners who went upside down solely because of the economic downturn and loss of value in their home." Consumers whose short sales have been mislabeled as foreclosures can visit the CFPB website and submit a complaint. The CFPB also encourages them to obtain a letter from their former lender explaining that their home was not foreclosed but rather sold through a short sale. The individual can then present this letter to lenders when applying for home loans or other credit in the future. GSE'S OVERDUES CONTINUE TO HEAD SOUTH Fannie Mae's past-due loans continue to decline. The GSE reported the conventional single-family serious delinquency rate was 2.7 percent in July, down seven basis points from June. The multifamily serious delinquency rate dropped 10 basis points to 0.18 percent. Fannie Mae completed 11,870 loan modifications during the month, bringing the year's total to 95,381 for the first seven months of 2013. The GSE's total book of business shrank for the second consecutive month in July as its gross mortgage portfolio continued to decline, the company reported in its monthly volume summary. According to Fannie Mae, the company's book of business shrank at a compound rate of 1.7 percent in July, slowing down slightly from June's rate of 1.9 percent. Year-to-date, the book's monthly movement averaged -1.1 percent as of July 31. The book's value totaled approximately $3.169 trillion at the end of the month, down about $5 billion from June. After slowing in June, the ongoing contraction in Fannie Mae's gross mortgage portfolio picked up speed, climbing to an annual rate of -32.4 percent. The last time the GSE's portfolio plummeted that quickly was January 2010, when the rate was -44.8 percent. Year-to-date through July, the portfolio's average monthly contraction rate was -22.1 percent. Meanwhile, new business acquisitions did a little better, edging up to $73.4 billion from June's $72.6 billion. KNOW THIS The GSEs' combined second-quarter earnings totaled $15.1 billion, the Federal Housing Finance Agency reported, marking the sixth straight quarter they were both in the black. 25

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