New Fannie Mae, Freddie Mac Structures Should Ensure Availability of Mortgage Capital and Protect Taxpayer Dollars, Says NAR

Washington, March 23, 2010

Government-sponsored enterprises (GSEs) Fannie Mae and Freddie Mac should be restructured as government-chartered, non-shareholder owned authorities, the National Association of Realtors® said in congressional testimony today.


“We want to ensure a flow of capital into the mortgage market regardless of the state of the market or economy,” Vince Malta, NAR vice president and liaison to government affairs, testified to the House Financial Services Committee. “The new Fannie and Freddie must ensure there is always mortgage capital available for creditworthy buyers and that taxpayer dollars are protected.”


In outlining NAR’s proposal, Malta cautioned Congress and the administration about moving too quickly in restructuring the GSEs. “The housing recovery is still too fragile for the government to completely step away, and any disruption in the marketplace now by doing something too radical would be harmful,” he said. “Our goal is to help Congress and our industry design a secondary mortgage model that will serve America’s best interest today, and in the future.”


Neither a fully privatized entity nor a fully nationalized structure for the secondary mortgage market giants effectively addresses the critical issues of loan availability and taxpayer protection, he said. A fully private entity would foster mortgage products more aligned with business goals rather than the nation’s housing policy for consumers. “In difficult markets, like today’s, private lenders have not been willing to make loans without government backing,” said Malta.


A fully federal structure would put taxpayers at risk. “We want to eliminate any scenario that would place taxpayers on the hook to protect these entities. And to combine the two, or merge them with Ginnie Mae, would remove competition in the secondary market, and the new entity could lose focus on it missions to serve low- and moderate-income families and maintain liquidity in the mortgage markets,” he said.



The new authorities should be subject to tighter regulations on products, profitability and minimal, retained portfolio practices in a way to ensure protection of taxpayer monies. The new entities would also concentrate on standard mortgage products that are the foundation of the housing finance market.


“While that might curtail some private participation and alternative products in this market, we believe privates will offer innovations that meet consumer needs. The new entities would focus on safe mortgage products, including 15- and 30-year fixed rate mortgages and traditional adjustable rate mortgages.”

NAR Urges Congress, Administration to Approach Changing FHA Slowly

The National Association of Realtors® urged Congress and the administration to move cautiously before making changes to the Federal Housing Administration program that has served the needs of millions of American families for more than 75 years without needing a federal appropriation.

FHA remains financially strong because it has taken steps to ensure solid underwriting standards and responsible lending practices, said Charles McMillan, NAR immediate past president, in testimony before the House Subcommittee on Housing and Community Opportunity today.

“As the leading advocate for housing issues, NAR believes that one of the best ways Congress can help strengthen FHA is to quickly consider and pass legislation that would make current loan limits permanent,” McMillan said. “It’s important to note that higher balance FHA loans perform better than lower balance ones. While some argue that higher balance loans put taxpayers at risk, such loans actually strengthen the program and reduce risk to the fund.”

NAR strongly supports H.R. 2483, the “Increasing Homeownership Opportunities Act.” Current FHA loan limits are as high as $729,750 in high-cost areas, and are set to expire at the end of the year and revert to lower amounts, greatly hindering the housing recovery process. A decrease of current limits would adversely affect 612 counties in 40 states and the District of Columbia.

Explaining that FHA has played an important role in the recent housing and economic crisis by filing the gap left by private lenders, McMillan said FHA insured almost 30 percent of single-family mortgages in 2009 and more than 50 percent of first-time buyer loans. “Historically, FHA’s market share has hovered between 10 and 15 percent of all loans. And when the private market is strong enough to return, we welcome a reduced FHA market share,” he said.

McMillan said NAR strongly opposes H.R. 3706 that would raise the FHA downpayment. “While that would increase an individual’s investment in the home, it would not add a penny to FHA’s reserves and would disenfranchise many FHA borrowers,” he said.

NAR also opposes a new FHA initiative that increased the up-front mortgage insurance premium (MIP) from 1.75 percent to 2.25 percent because it adds to the closing costs home buyers already face. NAR supports legislation to reasonably increase the annual MIP to replace FHA capital reserves, but in turn, FHA should reduce the up-front premium due at the closing table.

McMillan said NAR was also concerned that FHA wanted to decrease seller concessions to 3 percent. Reducing seller concessions could put homeownership out of reach for many buyers, he said, because it could require buyers to pay more at closing.

McMillan applauded FHA’s stepped up enforcement and oversight of lenders making FHA loans. In 2009, FHA removed approval of or suspended 274 lenders. “Realtors® support adding more tools to help FHA protect borrowers and taxpayers,” he said.

Real Relief for Upside Down Home Owners

RISMEDIA, March 9, 2010—Forget loan modifications, short sales, and “jingle mail”! If you are one of an estimated 50 to 60 million homeowners whose mortgage is part of a securitized pool, the law is on your side and everyday more and more people are deciding to exercise their rights with regard to the documents they signed.

There is much more contained within those documents and pooling and servicing agreements that govern the pools than just the borrowers promise to pay. And, there are laws that must be adhered to by the lender of the money.

As it turns out, virtually all of the securitized private label loans were part of a massive and ongoing fraud upon both the borrower and the investor. And, the fraud continues as the pretender lenders force more defaults, stop making payments to the pools, collect on the credit default swaps, and top it all off by seizing the underlying assets (only if they can make additional money on them) and keeping any proceeds for themselves.

What borrowers and investors agreed to and what they actually got are at odds, and these discrepancies raise serious legal issues including, but not limited to, Truth In Lending Violations, Real Estate Settlement Procedures Act Violations, Fraud, Bait and Switch, illegal kickbacks involving the borrower, and out right fraud and conversion upon the investor.

In the cases of loans such as a 2/28, pick-a-pay and option arm, their very existence is prima facie evidence of predatory lending and fraud upon the investors.

Nor are we talking about a small amount of money or a technicality. We are talking about a complex system of deceit by financial intermediaries that can turn a single modest home loan into millions of dollars in profit for them.

The Worse the Loan the More They Can Make

Suppose a buyer actually qualifies for a $300,000 fully amortized, fixed rate loan at 5%.

But, right at the end of the process the underwriter calls the loan officer and says something like this;

“We’ve just had a change to our underwriting guidelines and we aren’t going to fund the loan.”

This is really funny because the loan is already funded. Now, it’s time to kick up the profits. Of course, the loan officer’s emotions run the full range from disbelief to anger to fear. “Why?” She pleads.

Underwriter: “His ratios. He needs a lower monthly payment. Resubmit in our new super-duper, magical flex loan with the built in implosion feature.”

Now, before we run out and lynch a bunch of loan officers, this is what they were given to work with and trained to do. They were as indoctrinated into this as if they had drunk the cool aid. If it makes you feel better, they got pushed into these loans too. I get a lot of email from loan originators and real estate agents who often feel embarrassed about their choices, but back then we didn’t know that it was just a giant Ponzi scheme.

The loan product is determined by an underwriter. The perception is that the only purpose for underwriting is to determine the credit worthiness of the borrower and the value of the security. But, the underwriting process actually yields far more valuable information. It also reveals the borrower’s default probability and numerous details about their behavior. Knowledge of the borrower’s behavior combined with negative features in the loan allowed insiders to project when the loan would default.

Armed with this information, the underwriter is able to “tweak” the loan to increase the Yield Spread Premium and the Service Release Premium, as well as, increase the likelihood of collecting on the credit default swaps. That is the process of putting you into the most profitable loan possible. And, it is where the real predatory lending takes place.

Back to our borrower. By bumping our highly qualified borrower from 5% to 8%, they only increase the likelihood of default; they are able to extract an enormous undisclosed Service Release Premium and a Yield Spread Premium. The Yield Spread Premium is supposed to be disclosed, but often isn’t.

The Service Release Premium is where the real money is, and it’s hidden. The investor provides $480,000 to the financial intermediary in exchange for a five percent annual return of $24,000 plus a guaranteed return of principal.

The financial intermediary only loans our borrower $300,000, but when the rate adjusts to 8%, the investor has his $24,000 annual income, the financial intermediary pockets a $180,000 Service Release Premium, makes up the initial shortfall in the pool payments and buys credit default swaps.

So this is where we really are.

They are not banks. They call themselves banks, but they aren’t banks.

They did not lend you any money. They loaned you someone else’s money.

You don’t owe them any money. Maybe you owe a pension fund or something, maybe not.

You may not owe anyone any money. If the investors recouped their losses from TARP funds, you no longer owe them anything.

They may owe you money. If you were the victim of predatory lending, your damages could be into the hundreds of thousands of dollars, plus legal expenses

They may have no legal right to foreclose on you.

You have a legal right under the terms of your loan agreement and common law to raise the above issues with the true holder of the original note you signed.

Why? Because securitized loans presented an opportunity to commit fraud on both the true lender by skimming, and the borrower by convincing him he should accept a far more expensive loan than the one for which he qualified.

The financial intermediary wrote the pooling and servicing agreements and the credit default swaps. The terms of the pooling and servicing agreement allow the financial intermediary to stop making payments on all loans in the pool and keep the revenue stream from the performing loans when a default occurs within the pool. It also allows the financial intermediary to collect on the credit default swap on the entire pool which is multiples of the loan value of the entire pool.

The game was rigged, but they overlooked one little thing; The Uniform Commercial Code, Chapter 3, 47-3110. The Uniform Commercial Code is replicated in virtually every state, and this section governs who may enforce a note.

Look at this a different way. Suppose you wanted to pay off your loan, but you wanted to be absolutely certain that the money would go to the rightful party so that you would not be subject to someone showing up later claiming you never paid off your note. You have a legal right to know who that party is.

If they cannot satisfy this provision of the UCC, they cannot proceed to foreclose. If you wanted to take the fight to them and see if they can produce the note, this is the law you need to pursue.

As compared to the past 30 years, current mortgage rates are at historic lows, but always talk with multiple home loan lenders to learn what interest rates are available to you. Mortgage Interest rates change on a daily basis and working with the best lenders will help you know when to take advantage of the lowest rates available for you.

Your credit report and credit score will greatly affect your ability to get a home loan in Nashville as well as get a low mortgage rate. With so many changes in the Mortgage Industry, banks and mortgage companies have a more difficult time getting money or credit to help borrowers with low credit scores. If you have a low credit score, especially lower than 600, you may want to quickly get a copy of your credit report and see where you can improve your score. You can do this yourself, or look to Credit Improvement companies who will legally help you remove old accounts, mistakes, and other problems off your credit report and help you increase your credit scores.

For a Free Credit Report, we recommend you visit GoFreeCredit.com
For help with improving your Credit Score, you can visit GoLookOnline.com

One of the most confusing aspects of Mortgage rates is understanding the difference between an advertised Interest Rate and the APR, or annual percentage rate. The APR is the actual interest rate that you will pay on a mortgage loan including fees. This makes it easier to compare rates that do not have fees with rates that may include fees or points. The APR was intended to make this comparison simpler, but instead, it often adds to the confusion. Just keep in mind, that the Annual Percentage Rate is likely to be different than the advertised mortgage rate because of the additional fees.

The overall range of mortgage rates are determined by the interest rate Mortgage Bonds or Mortgage Backed Securities. Mortgage rates are based on long-term investment strategies. The supply and demand of the Mortgage Bonds and Securities are the strongest factor for influencing the overall range of the rates. The lower the demand, the higher the supply and the lower the rates.