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OCC REPORTS Q2 FINDINGS ON LOAN PERFORMANCE AND MODS FREDDIE MAC TO REV UP ON BUYBACK CLAIMS On the heels of the Federal Housing Finance Agency's (FHFA) announcement of its revised representation and warranty guidelines came news Freddie Mac will increase its repurchase claims in the near future. The revised rep and warranty guidelines were designed to provide more clarity in the market; but in the meantime, the FHFA Office of Inspector General (FHFA-OIG) reports Freddie Mac will increase repurchase requests to between $0.8 billion and $1.2 billion this year and between $2.2 billion and $3.4 billion overall. In the past, Freddie Mac generally reviewed loans that defaulted within two years. However, the FHFA-OIG suggests the GSE should also review loans that default within two or three years after origination, according to FBR Capital Markets. FBR reports much of the repurchase claims by large national and federal savings banks weakened in the second quarter of 2012, according to the Office of the Comptroller of the Currency (OCC). The percentage of current and performing Mortgage performance for loans serviced quarterly by 17.9 percent but declined 8.8 percent year-over-year. Monthly principal and interest payments New home retention actions increased mortgages stood at 88.7 percent at the end of Q2, a slight drop from Q1 when 88.9 percent of loans were current and performing. Loan performance in Q2 was still better than the same quarter in 2011 when 88.1 percent of loans were categorized as current and performing. The report covers about 60 percent of all first-lien mortgages in the United States, or 30.5 million first liens, totaling $5.2 trillion in outstanding balances. The share of mortgages past due 30-59 days were reduced for 90.4 percent of modified loans, saving borrowers an average of $381 a month. HAMP mods, however, provided greater sav- ings for borrowers, $576 (35.3 percent reduction) on average, while other mods reduced payments by $295 (19.9 percent reduction) on average. HAMP mods performed better than other will likely go to Bank of America, which reached a settlement with FHFA regarding put-back claims last year. However, Freddie Mac's new repurchase claims will reach other institutions as well. FBR says, "It is likely that banks have reserved for this anticipating Freddie Mac would ultimately be as aggressive in repurchase claims as Fannie Mae." VERBOSITY was 2.8 percent, a 12.1 percent quarterly increase, but a 7.5 percent drop from a year earlier. On the other hand, seriously delinquent mortgages—those 60 or more days past due or held by bankrupt borrowers whose payments are 30 or more days past due—fell 0.8 percent from Q1 to 4.4 percent, the lowest level in three years. Year-over-year, the rate of seriously delinquent mortgages dropped 9.2 percent. Home retention actions from servicers exceeded foreclosure starts with servicers imple- menting 416,036 new home retention actions during the second quarter compared to 302,636 new foreclosures. 48 mods with 64.8 percent of HAMP mods since the third quarter of 2009 still current compared to 50.7 percent of other mods implemented during the same time period. According to the report, loans that receive HAMP mods perform better because of the emphasis on lower monthly payments, affordability relative to borrower income, required income verification, and the successful required trial period. The report also revealed principal reductions were applied to 11.4 percent of modified loans. Overall, since the beginning of 2008, ser- vicers modified 2,645,290 mortgages through the end of the first quarter of 2012. As of the end of Q2, 48.6 percent of the modi- fied loans remained current or were paid off; 7.6 percent were 30 to 59 days delinquent; and 14.9 percent rolled into serious delinquency status. In addition, 10.5 percent were in the foreclosure pro- cess, and 6.5 percent were completed foreclosures. "The most significant caveat to any conversations about the impact of the election is the $600 billion year- end budget to-do list known as the fiscal cliff. The incentives for brinkmanship remain extremely high regardless of the outcome of the election." —FBR Capital Markets

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