DS News

» VISIT US ONLINE @ DSNEWS.COM 45 REPORT: GSEs PURCHASED RISKY LOANS DESPITE RED FLAGS About four years after the Federal Housing Finance Agency (FHFA) directed the GSEs to develop a uniform collateral data portal, the Office of the Inspector General of the Federal Housing Finance Agency (FHFA OIG) finds the portal is not being used to its potential, and the GSEs continue to purchase loans with red flags. After "extensive" development and testing, the OIG concluded in a recent audit, "more remains to be done to use the portal's data to minimize the risk of loss." Both enterprises continue to purchase loans despite warning messages from the portal, ac- cording to an OIG report. Fannie Mae purchased 56,000 loans for a total of $13 billion from January through June of last year despite warnings from the portal indicating the loans might not meet the GSE's underwriting requirements, according to the OIG. Meanwhile, Freddie Mac purchased 29,000 loans for a total of $6.7 billion from June through September despite warnings regarding the prop- erties' valuations, according to the OIG. Each of the 56,000 loans purchased by Fannie Mae came with between one and nine caution messages regarding the loan's quality. e messages dealt with such issues as confirmation of repairs and "unauthorized use of single-family loan funds," according to the OIG, and in each case the warning message was disregarded using an automatic override. Fannie Mae purchased the loans and "focused its efforts on reviewing the loans for conformance with its requirements after it bought them," according to the OIG. Fannie reportedly "did not require lenders to explain or resolve potential problems ranging from formatting issues to violations of its under- writing requirements," according to the OIG. Similarly, Freddie Mac purchased more than 29,000 loans despite the portal's warning that "either no property value could be provided or the value of the property was in question," accord- ing to the OIG. In fact, in some cases the portal could not even verify that the address existed. Like Fannie, Freddie's approach was to over- ride the warnings and review the loans for issues after purchasing them. In fact, Fannie Mae and Freddie Mac both claimed they did not want to "burden lenders with having to respond to messages," according to the OIG. e OIG audit also detected 414,000 instances in which the portal found that an ap- praiser's license could not be verified. e "uniform collateral data portal is intended to improve appraisal data quality and risk man- agement for the enterprises by collecting appraisal data to help them make informed decisions about the loans they buy," the OIG reported. "However, as demonstrated by the results of this audit, these goals are at risk of not being achieved," the OIG stated. On the bright side, the audit did cause the GSEs to consider 23 loans totaling $3.4 million for repurchase. Interest Rate Declines Continue into February February brought more news of declines in mortgage interest rates, according to releases from Freddie Mac and Bankrate.com. In its weekly published Primary Mortgage Market Survey, Freddie Mac put the average 30-year fixed mortgage rate at 4.23 percent (0.7 point) for the week ending February 6, down from 4.32 percent previously. A year ago, the 30-year fixed-rate mortgage (FRM) sat at 3.53 percent. e 15-year FRM averaged 3.33 percent (0.7 point) that week, down from the previous week's 3.4 percent. Averages on adjustable-rate mortgages (ARMs) also fell, with the five-year Treasury- indexed hybrid ARM dropping 4 basis points to 3.08 percent (0.5 point) and the one-year ARM decreasing the same amount to 2.51 percent (0.5 point). Frank Nothaft, VP and chief economist for Freddie Mac, once again pointed to weak- er housing data as a factor in the week's rate changes, noting declines in December pend- ing home sales and a negative contribution to GDP from fixed residential investment. "Also, the Institute for Supply Management reported a significant slowing in growth in the manufacturing industry in December than the market consensus forecast," Nothaft added. In its own weekly survey, Bankrate reported a drop of 7 basis points in the 30-year fixed average to 4.43 percent, with the 15-year fixed falling 6 points to 3.5 percent. e 5/1 ARM also declined, decreasing 10 basis points to 3.27 percent. "Worries about a slowdown in the U.S. and global economics and continued skittishness about the health of emerging markets is pushing investors into safe haven U.S. Treasury securities," Bankrate said in a release. "is has brought the benchmark 10-year Treasury yield from 3 percent down into the 2.6 percent neighborhood, with mort- gage rates hitting levels last seen just before anksgiving."

• Cover