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41 » VISIT US ONLINE @ DSNEWS.COM BANK OF AMERICA DIRECTS RELIEF TO HARDEST HIT AREAS Bank of America is nearly two-thirds of the way toward fulfilling its obligation under its 2014 RMBS settlement in which it agreed to pay $7 billion in consumer relief as part of a $16.65 billion settlement with the government and six states. In his fifth report on Bank of America's progress toward fulfilling its settlement obligation, Professor Eric D. Green, Independent Monitor of the settlement, reported that he had conditionally approved approximately $295 million in consumer relief for Q 4 2015. is brings Bank of America's approved credit up to $4.44 billion, about 63 percent of the $7 billion the bank is required to pay under the terms of the settlement. e majority of the $295 million the bank provided in Q 4 was for modifications to an additional 5,172 loans ($244 million, or 83 percent). About $46 million of the relief went to new loans extended to 4,496 low- and moderate first-time homebuyers, borrowers in Hardest Hit Areas, or borrowers deposed by foreclosures or short sales. Approximately $4.76 million of the relief went toward facilitating affordable housing, according to the Monitor's report. Green stated that more than half of the relief provided by Bank of America so far has gone to those defined as Hardest Hit Areas by HUD, or the areas disproportionately affected by the foreclosure crisis. e relief provided by the bank has resulted in loan modifications in every state and the District of Columbia, or 47,117 census blocks total, according to the Monitor. e settlement has also financed 5,000 rental housing units so far, 68 percent of which are for HUD-designated Critical Needs Family Housing. "Most importantly, the data indicate that modifications for first lien principal reductions—the largest piece of intended consumer relief—are having their intended effect," Green said. "e average principal reduction is 50.5 percent, the average loan-to- value ratio has been drastically reduced from 178 percent to 75 percent, the average interest rate has been more than cut in half from 5.42 percent to 2.11 percent, and critically, the average monthly payment has been reduced by $604 a month—nearly 38 percent. is directly and materially assists homeowners struggling to afford to stay in their homes." Having paid nearly two-thirds of the consumer relief obligation, Bank of America is on pace to fulfill its consumer relief requirement well before the August 2018 deadline. On August 20, 2014, Bank of America settled with the Department of Justice and six states for a record $16.65 billion to resolve claims that the bank as well as its Countrywide, Merrill Lynch, and First Franklin divisions packaged and sold toxic mortgage-backed securities and collateralized debt obligations in the years leading up to the financial crisis. Under the settlement agreement, Bank of America agreed to pay $9.16 billion directly to federal agencies and six states; $7 billion in consumer relief, which may include first-lien principal forgiveness or forbearance, second-lien extinguishment, and community reinvestment and neighborhood stabilization; and $490 million for the payment of consumer tax liability as a result of consumer relief. WHAT IS DRIVING THE GSE DEFAULT RATE DOWN? e credit quality of loans purchased by both Fannie Mae and Freddie Mac has greatly improved since 2008, thus leading to cumulative defaults for both GSEs on a pace to fall below pre-2003 levels, according to data released by the Urban Institute. e composition of loans purchased by both GSEs has shifted toward higher FICO scores; for loans purchased by Fannie Mae, 69.2 percent of loans originated from 2011 to early 2015 were to borrowers with FICO scores higher than 750. For loans originated at the height of the housing bubble in 2007, the share purchased by Fannie Mae featuring 750-or-higher FICO borrowers was only 40.7 percent. From 1999 to 2004, it was even lower, at 36.7 percent. Freddie Mac has experienced similar trends with the single-family residential loans it has purchased since 2008. About 64.8 percent of loans purchased by Freddie Mac that were originated between 2011 and 2015 with 750-or- higher FICO borrowers. at share shrank to 38.9 percent for loans originated in 207 and 33.3 percent for loans originated from 1999 to 2004. "While the composition of Fannie Mae and Freddie Mac loans originated in 2007 was similar to that of 2004 and earlier vintage years, 2007 loans experienced a much higher default rate due to the sharp drop in home values in the recession," the report stated. "Originations from 2009 and later have pristine credit characteristics and a more favorable home price environment, contributing to very low default rates." e result has been much lower rates of default on GSE-backed loans in the last seven years. For loans guaranteed by Fannie Mae and Freddie Mac with 1999 to 2003 vintages, the cumulative default rate was only 2 percent as of the end of March 2016, according to the Urban Institute. Conversely, the cumulative default rate on loans backed by the GSEs that were originated in 2007 was about 13 percent. e cumulative default rate for both is on pace to fall below 2003 levels, according the Urban Institute. at rate for Fannie Mae- backed loans originated from 2009-10 is 0.76 percent, while the rate on loans originated from 2011 to the first quarter of 2015 is only 0.17 percent, compared to 0.77 percent on GSE- backed loans originated from 1999 to 2003. For Freddie Mac, the cumulative default rate on loans insured by Freddie Mac that were originated from 2009-10 is 0.71 percent, while the rate is 0.10 percent for loans originated from 2011 to Q1 2015. For loans originated from 1999 to 2003, the cumulative default rate is 0.73, according to Urban Institute. The number of REO properties owned by the GSEs as of the end of Q1 2016, a 9 percent decline from the previous quarter, as property dispositions continued to outpace property acquisitions. Source: FHFA STAT INSIGHT 66,277

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