The Sticking Point on GSE Refis: Reps and Warrants

The Obama Administration’s efforts to expand a GSE refinancing program and reach a large number of underwater borrowers will depend on how far the Federal Housing Finance Agency will go in providing lenders relief from loan buy-backs, according to industry officials and analysts watching the effort.

Currently, the White House is working with FHFA to revamp the Home Affordable Refinancing Program, making it more accessible for borrowers with negative equity.

But to get there, lenders will need relief from representations and warranties that entitle Fannie Mae and Freddie Mac to be reimbursed for losses on poorly underwritten loans that default.

Under these ‘reps and warrants’ Fannie and Freddie are currently collecting $1 billion to $2 billion a quarter from lenders.

While the objective of the refinancing effort is aimed at GSE borrowers with negative equity who are still current on their mortgages, lenders will remain reluctant to participate if they are assuming another lender’s buy-back risk. 

Today, servicers only refinance underwater GSE loans that are in their portfolios.  RW relief might encourage other lenders to refinance the servicer’s loans.

Federal Reserve Board governor Elizabeth Duke recently said the risk that Fannie and Freddie will require lenders to buy back the loan and reimburse the GSEs’ for any losses is one of the major “frictions” impeding HARP refinancings. 

“Perhaps competition among potential lenders could be increased if a minimum number of timely payments could be used as a proxy for sound original underwriting to relieve the liability of the refinancing lender,” Duke said at a Fed sponsored housing conference.

Friedman, Billings Ramsey policy analyst Edward Mills said RW relief is “key” to a successful refinancing program that will reach a large number of borrowers with high loan-to-value ratios.

He suggested that RWs could be waived if the borrower has been current on their existing mortgage for a certain period of time. Or it could be on a forward-going basis, where the RWs expire after the borrower complete three years of timely payments on the new loan.

That would provide “some certainty” for lenders to refinance these GSE loans, Mills said.

The HARP program has refinanced over 700,000 borrowers with LTVs greater than 80% and up to 105% since the refinancing program was launched in April 2009.

When it comes to Fannie and Freddie mortgages with LTVs greater than 105% and up to 125%, only 62,400 of those underwater loans have been refinanced so the borrower can take advantage of low mortgage rates and get some payment relief.

The Obama administration wants to expand the HARP and eliminate the 125% LTV cap. Lenders are okay with that – but fear they could be hammered by buybacks if the mortgages eventually go bad.

Negotiations with FHFA over the HARP program have been going on for a few weeks. 

Treasury secretary Timothy Geithner told the Senate Banking Committee Thursday that the White House refi plan should be unveiled in the next couple of weeks.

“I think it can make a big difference,” Geithner said. “And you’re going to see from the FHFA director, maybe in the next couple weeks, very detailed proposals.”

Daily Briefing | Thursday, October 6, 2011

  • Thirty-Year Drops Below 4% for First Time

    The 30-year fixed-rate mortgage, continuing to test new lows, dropped below 4% for the first time in modern history to 3.94% during the week ending Oct. 6, according to Freddie Mac’s weekly survey.

  • Congressman to Meet with FHFA Chief on White House Refi Plan

    Rep. Elijah Cummings, D., Md., ranking member of the House Oversight Committee, and other members of Congress are set to meet with GSE regulator Ed DeMarco Thursday afternoon to discuss President Obama’s yet-to-be released refinancing plan.

  • HAMP Modifications Begin to Flag

    Servicers completed only 25,400 HAMP modifications in August — the lowest number of monthly completions this year, according to new figures released by the Treasury Department.

  • Distressed RE Looms Large in Next Year

    Three quarters of commercial real estate executives surveyed by KPMG LLC said distressed real estate would have an impact on their investment strategies over the next 12 months.

  • More than One-in-Three Prime PL MBS Loans Now Underwater

    Fitch Ratings has found more than one-third of loans underlying prime private-label mortgage-backed securities are now underwater, and it could get even worse.

  • Underwater VA Borrowers Offered Loan Payment Rewards

    GMAC Mortgage LLC, Fort Washington, Pa., and Loan Value Group, Rumson, N.J., have partnered in an effort to provide cash incentive rewards to certain VA borrowers who are under water on their loans, make timely and consistent payments on their mortgages and meet other criteria.

  • Walter May Get More Servicing

    An analyst for FBR Capital Markets thinks Walter Investment Management could see the servicing rights for more loans coming to it from the Bank of America/Fannie Mae transaction.

  • Witnesses: Now Not Time to Drop the Mortgage Interest Deduction

    The tax code may be broken, but now’s not the time to fix it, at least as it pertains to the mortgage interest deduction and other write-offs afforded home owners, witnesses testified at a Senate hearing on tax reform options.

  • FHA Launching Probe of HECM Program

    The Federal Housing Administration, facing a dramatic increase in technical defaults on reverse mortgages, will launch a major review of its program with a possible overhaul coming down the road.

  • CoreLogic: Home Values Continue Their Downward Drift

    Home prices in the U.S. decreased 0.4% in August on a sequential basis, the first monthly decline in four months, according to new figures released by CoreLogic.

  • Senate Panel Sets Vote on CFPB Chief for Thursday

    The Senate Banking Committee will vote Thursday morning on the nomination of Richard Corday to be the first director of the Consumer Financial Protection Bureau.

  • Senate Banking Committee Approves CFPB Chief Along Party Lines

    The Senate Banking Committee Thursday voted 12-10 to approve the nomination of Richard Cordray to be the first director of the Consumer Financial Protection Bureau.

Article source: http://www.nationalmortgagenews.com/dailybriefing/2010_448/sticking-point-gse-refis-reps-warrants-1026873-1.html

Leave a Reply

WP2Social Auto Publish Powered By : XYZScripts.com
Bunk Beds