After reading bits and pieces of the Securities and Exchange Commission‘s complaint against the former heads of Fannie Mae and Freddie Mac one thought comes to mind: what exactly is a subprime loan again? The SEC accuses Dan Mudd, Richard Syron and others of underreporting the GSEs’ subprime exposure. In the Fannie suit, the SEC says that at Dec. 31, 2006 Fannie had subprime exposure through its “Expanded Approval” program of $43.3 billion, but in a public filing the GSE said that the exposure was just $4.8 billion. Could it be that Fannie felt that EA loans were not really subprime? In other words, understanding subprime is a matter of semantics. One man’s subprime is another’s prime. But as we all know it should boil down to FICO scores and debt-to-income ratios – shouldn’t it?

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Paul, totally agree with you

Posted by Jorge Rawicz on December 21, 2011 at 12:27 PM EDT #

Yes that and verified income and assets

Posted by John K. on December 21, 2011 at 12:31 PM EDT #

understating of loan risk is one of the major factors that lead to artificial low rates. Proper risk exposure and disclosure by the GSE’s, sub prime lenders and rating agencies would have led to higher rates for the higher risk products. Higher rates would have caused both higher returns for higher risk AND lower consumer demand and fewer loans when consumers were faced with the true cost of the loans they were being offered.Intentional mistatement of risk is fraud and should be prosecuted. Correcting this issue is a better solution that creating onerous underwriting guidelines for good credit borrowers that makes home buying more difficult in our already depressed housing market.

Posted by Eric White on December 21, 2011 at 12:41 PM EDT #

No, Fico scores were the bigest cause the problem. Underwriting elements were overlooked, oversight compared to now was virtually non-existant, and this lazy way of allowing loans to be valued and purchased dawned the beginning of a crisis that will not be resolved in our life times.

Posted by Vince on December 21, 2011 at 12:46 PM EDT #

Nope. Both Prime and Subprime are defined by the exceptions made for previous payment habits.
Prime – no past dues in the previous 12 months, no unpaid collections, judgements or tax liens, no bankruptcies in previous 3 yrs, 2yr employment in same line of work, verified income and assets sufficient to support the requested transaction, and compliance with debt to income ratios. FICO score exceptions were and are made based upon the whole body of credit practices. Subprime – no outstanding liens, collections or judgements that affect title if not paid prior to closing. Sufficient income and assets to cover requested loan transaction, meet debt to income ratios, compliance with FICO score requirements. Review the whole body of previous credit use with credible explanations.

Posted by Skip Miller on December 21, 2011 at 01:01 PM EDT #

Those old EA products (I, II, and III)were for people that just missed the standard approve eligible per FNMA. They were also risk priced up in rate. I believe it’s unfair to completely categorize those programs as subprime because if you opened some of those old files, you would be baffled to see loans that looked like a prime loan all day long, but would come out as EA I or II and others that seemed destined for EA programs and ended up getting an automated approve eligible. And yes, we believe we were very accurate in our automated submissions since the tiniest of details could sometimes change the automated outcome.

Posted by Keith Lowry on December 21, 2011 at 01:04 PM EDT #

My take is even if the SEC is correct and subprime exposure was $43B and they all defaulted – it was still a very managable situation. Sub-Prime gets blamed for the housing crisis but clearly there were other culprits – like leverage ratios of 70 to 1.

Posted by Darin Chase on December 21, 2011 at 01:33 PM EDT #

Some REO/ BPO web sites are stating a BPO report is a mini Appraisal. If the reader of the BPO report assumes this is true would the BPO report be required to
comply to the FINANCIAL INSTITUTION REFORM,RECOVERY ENFORCEMENT ACT OF 1989?

Posted by Jack Schlenk on December 21, 2011 at 01:36 PM EDT #

Article source: http://www.nationalmortgagenews.com/blogs/hearing/fannie-freddie-subprime-1027972-1.html

The Consumer Financial Protection Bureau had so far limited its complaint process to just credit cards. But CFPB began taking complaints related to home mortgages as of Dec. 1.

Article source: http://www.nationalmortgagenews.com/columns/cfpb-mortgage-complaints-1027830-1.html

Craig Cole, a former mortgage production chief who recently retired from Union Bank, San Francisco, has launched a new consulting firm to advise clients on their jumbo lending and execution strategies.

The San Diego area-based company is called Emerald Consulting LLC.

Over the past three years very few jumbo MBS deals have come to market, but several investors continue to toy with the idea of launching nonconforming conduits.

For the past decade Union has been one of the nation’s largest jumbo originators, funding loans through both retail and wholesale outlets. Instead of selling production into the secondary market, Union keeps mortgages on its balance sheet.

Cole retired from the bank in late October. During his long career in mortgages he has worked at Freddie Mac and other companies.

In terms of originations, Union is having one of its best years ever.

Daily Briefing | Friday, December 9, 2011

• Fannie Demands Immediate Notification on MI Rescissions

  Fannie Mae recently told its seller/servicers that all mortgage insurance rescissions, cancellations and claim denials tied to loans it bought must be reported to the agency immediately.

• Another Increase in Market Share for Loan Brokers

  Perhaps the future for loan brokers isn’t so bleak after all. Wholesale lenders table funded almost $33 billion of loans in the third quarter, giving the channel a 9.2% market share, according to new figures compiled by National Mortgage News and the Quarterly Data Report.

• KBW: Treasury Can’t Stop Mortgage Rates from Rising in 2012

  Even with the housing market stabilizing and a settlement between megaservicers and state AGs on the horizon, the mortgage industry shouldn’t expect an increase in originations next year, according to a new forecast from Keefe, Bruyette Woods.

• Arch Bay Tests Use of Borrower Rewards

  An industry hedge fund that selectively trades distressed mortgage assets is testing the use of borrower rewards for timely payment, with the aim of driving better performance, refinancing or modifications.

• Warehouse Commitments at MetLife Bank Top $900 Million

  Although insurance giant MetLife Inc. is contemplating bids for its banking and mortgage divisions, the company’s warehouse lending unit is nearing the $1 billion mark in terms of commitments.

• Friday Deadline for MISMO Leadership Nominations

  The deadline to nominate industry professionals to serve on MISMO’s residential governance committee is today.

• Isakson Bill Would Liquidate Fannie and Freddie, Create New Agency

  The federal government should create an entirely new secondary market agency for “high quality” private mortgages that would replace Fannie Mae and Freddie Mac, according to Sen. Johnny Isakson, R-Ga.

• In War Over CFPB, Democrats Jockey for Political Advantage

  Just seven months ago, Democrats appeared to be boxed in, unable to confirm a leader to the Consumer Financial Protection Bureau without agreeing to demands from Senate Republicans to overhaul the agency’s structure.

Article source: http://www.nationalmortgagenews.com/dailybriefing/2010_493/former-production-chief-at-union-launches-consulting-firm-1027800-1.html