On Feb. 17, Congress approved an extension of the payroll tax holiday, unemployment benefits and restored Medicare reimbursement rate provisions based on an agreement outlined in the conference committee’s Feb. 15 conference report (H.R. 3630). Unlike the previous extension passed in December 2011, this agreement will not be paid for by revenue generated through increased rates on Fannie Mae and Freddie Mac guarantee fees and FHA insurance premiums. Notably absent from the final deal is any agreement on extending tax provisions that expired in 2011, including the New Markets Tax Credit.
Tag: Fannie Mae
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Senators Questioning How Real Estate Owned (REO) Properties will be Managed to Stabilize Housing
A group of senators are asking questions about the Request for Information (RFI) issued in August by the Federal Housing Finance Agency (FHFA), the Department of Housing and Urban Development (HUD) and the Department of the Treasury regarding proposals on managing real estate owned (REO) properties.
In a letter to the Federal Housing Finance Agency (FHFA), the Department of Housing and Urban Development (HUD) and the Department of the Treasury, the senators asked the departments to “analyze, quickly and diligently, the input you have received so that all REO properties under your control may be best managed to produce the most value for Fannie Mae, Freddie Mac, and FHA. As part of this analysis, we ask that you also keep in mind the importance of looking for the most effective ways to stabilize neighborhoods and housing values.”
The following letter spearheaded by Senators Jack Reed (D-RI), Tim Johnson (D-SD), and Bob Menendez (D-NJ) was taken from Senator Jack Reed’s website:
October 27, 2011
The Honorable Timothy F. Geithner
The Honorable Shaun Donovan Secretary
The Honorable Edward J. DeMarco
Dear Secretary Geithner, Secretary Donovan, and Acting Director DeMarco:
We write regarding the Request for Information (RFI) put forward by the Department of the Treasury, the Federal Housing Administration (FHA), and the Federal Housing Finance Agency (FHFA), on innovative and efficient ways in which to sell or rent real estate owned (REO) properties owned by Fannie Mae, Freddie Mac, and FHA. We urge you to analyze, quickly and diligently, the input you have received so that all REO properties under your control may be best managed to produce the most value for Fannie Mae, Freddie Mac, and FHA. As part of this analysis, we ask that you also keep in mind the importance of looking for the most effective ways to stabilize neighborhoods and housing values.
We all know too well that our housing markets are under severe stress. With 7.5 million homes in the foreclosure process since 2007 while other homeowners find themselves very much underwater, foreclosures have taken a heavy toll on too many Americans. Owning a home has become so difficult that our nation’s homeownership rate dropped to 65.9% in the 2nd quarter of this year, which is the lowest level since 1998. At the same time, the national rental vacancy rate has decreased from 10.6% in the second quarter of 2010 to 9.2% in the 2nd quarter of this year. With 10.4 million households in jeopardy of defaulting on their mortgages at the same time that the demand for rental housing is increasing, Americans are facing pressure on all fronts in the housing market.
As Federal Reserve Board Governor Elizabeth Duke recently stated, “we, as a nation, currently have a housing market that is so severely out of balance that it is hampering our economic recovery.” It is clear that we need to gain traction in our housing market so that we can anchor a sustainable economic recovery that actually reaches and helps the middle class. We continue to believe, especially with the benefit of a recent hearing in the Senate Subcommittee on Housing, Transportation, and Community Development on “New Ideas to Address the Glut of Foreclosed Properties,” that a more efficient and effective REO management strategy will help put us on a path towards stability.
Indeed, developing a successful REO management strategy is critical given the findings of a recent evaluation by the Federal Housing Finance Agency Office of Inspector General, which stated:
“FHFA has yet to conduct a targeted examination of [Fannie Mae’s and Freddie Mac’s (collectively, the Enterprises)] management of their REO inventories, despite the surging number of foreclosures since 2007. For example, Fannie Mae’s REO inventory increased in size by more than 6 times, growing from 25,125 properties in January 2007 to 162,489 at the end of 2010. REO represents a significant financial risk to the Enterprises since they incur taxes and fees on the properties in their inventories, these costs increase the longer it takes to resell the REO, and all the while the value of the properties may be declining. FHFA cited the Enterprises’ REO management as a primary reason that it has classified operational risks at both entities as a “Critical Concern” from 2008 through early 2011. FHFA-OIG views the fact that FHFA has not examined a critical risk area like REO as indicative of the adverse impact of staffing shortages on the Agency’s examination program.”
As part of the RFI process, we urge FHFA to do everything within its powers to take this opportunity to address these concerns head on. We also ask that FHFA, Treasury, and FHA respond to these questions:
• When do you expect to finish reviewing the RFI submissions?
• Are there any particular strategies or proposals that appear promising at this moment?
• What appear to be the greatest challenges and concerns?
• Once you have finished reviewing and analyzing the RFI submissions, what is the likely next step, and when do you expect to take this next step?
We thank you for your consideration and look forward to your response. Please let us or our staffs know if we can be helpful to you or your staffs.
Sincerely,
Reed
Johnson
Menendez
Durbin
Schumer
Murray
Inouye
Baucus
Levin
Kerry
Harkin
Kohl
Lieberman
Akaka
Feinstein
Tester
Warner
Merkley
Brown (OH)
Hagan
Bennet
Bill Nelson
Blumenthal
Begich
Whitehouse
Sanders
Gillibrand
Shaheen
Klobuchar
Lautenberg
Casey
Leahy
Franken
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Changes to the Home Affordable Refinance Program (HARP)
The Federal Housing Finance Agency (FHFA) is modifying the Home Affordable Refinance Program (HARP) to enable more borrowers to refinance their mortgage at low interest rates.
In an effort to avoid future mortgage defaults and reduce credit losses for Fannie Mae and Freddie Mac, the Home Affordable Refinance Program (HARP) was introduced in 2009 to allow more borrowers the opportunity to refinance into a lower interest rate. The program covers mortgages sold to Fannie Mae or Freddie Mac on or before May 31, 2009. Although the Home Affordable Refinance Program (HARP) was originally expected to help 5 million borrowers, as of August 31, 2011, only 894,000 borrowers have refinanced through the program.
A significant change announced to the program is the elimination of a cap on how much a borrower owes. Previously, borrowers that owed more than 125 percent of the market value of their homes were prohibited from participating in the Home Affordable Refinance Program (HARP).
In addition the following changes were also announced:
- Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
- Eliminating the need for a new property appraisal where there is a reliable automated valuation model estimate provided by Fannie Mae and Freddie Mac; and
- Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.
The Federal Housing Finance Agency’s (FHFA) Acting Director Edward DeMarco stated “[b]uilding on the industry’s experience with HARP over the last two years, we have identified several changes that will make the program accessible to more borrowers with mortgages owned or guaranteed by [Fannie Mae and Freddie Mac]…Our goal in pursuing these changes is to create refinancing opportunities for these borrowers, while reducing risk for Fannie Mae and Freddie Mac and bringing a measure of stability to housing markets.”
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The U.S. Housing and Urban Development Department’s (HUD) New Green Refinance Plus Program
The U.S. Housing and Urban Development Department (HUD) recently announced the Green Refinance Plus program to be administered by the Federal Housing Administration (FHA) and Fannie Mae. The program, is geared to refinancing older affordable rental housing properties, such as properties that received Low Income Housing Tax Credits (LIHTC), that include funding for energy and water efficiency upgrades. The U.S. Housing and Urban Development Department (HUD) anticipates approximately $100 million in initial refinance volume with an average loan amount of $3.5 to $5 million. The Federal Housing Administration (FHA) will insure up to an additional 4-5 percent of the loan amount.
According to HUD’s website, the following are required to be eligible for the program:
• Property must be at least 10 years old, with a recorded use agreement of the affordability restrictions that extends for at least the term of the new loan to help preserve affordable housing;
• At least 5 percent of the refinance loan proceeds must be applied to property renovation or energy retrofit; and
• All rehabilitation and energy improvements must enhance value and improve property operations.
Shawn Donovan stated that “[the] program kills two birds with one stone – it preserves our affordable rental stock and it helps finance upgrades that will save energy and money over the long haul. We must make the smart investments in a more energy independent economy. These investments will strengthen our economy, create the new industries and new jobs of the future and reduce our dependence on an ever fluctuating oil market.”
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The Housing Finance Reform Act of 2011: Bipartisan Plan to Reform the Mortgage Market
Representative John Campbell (R-CA) and Representative Gary Peters (D-MI) introduced HR 1859, The Housing Finance Reform Act of 2011, that would replace the government-sponsored enterprises, Fannie Mae and Freddie Mac, with private firms that would issue federally guaranteed mortgage-backed securities.
“This is a reasonable, bipartisan approach to achieving two key goals: putting an end to taxpayer-funded bailouts and ensuring that responsible, middle class families can still achieve the dream of homeownership…” said Representative Gary Peters.
According to the Wall Street Journal, “critics say the hybrid model risks recreating the same dynamics that led Fannie and Freddie to use their government ties to take risks that cost taxpayers.”
For detailed information on the legislation:
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Obama’s Plan to Reform America’s Housing Finance Market: Phase out Fannie Mae and Freddie Mac
On Friday, the Obama administration submitted a report to Congress on reforming the housing finance market, which consists of reducing the government’s footprint in the housing market by winding down the Government –Sponsored Enterprises (GSE) Fannie Mae and Freddie Mac.
Mortgage giants Fannie Mae and Freddie Mac provide liquidity to the mortgage market by buying mortgages from lenders and packaging them into securities for investors. After the U.S. real estate bubble burst in 2008, Fannie Mae and Freddie Mac were placed into conservatorships under the Federal Housing Finance Agency (FHFA) to provide stability to the housing market.
The report contains three alternatives for a future housing market with varying degrees of government involvement. All three alternatives provide government support for programs that assist lower-income borrowers to secure affordable housing:
- Option 1: Privatize the housing market in which the government’s involvement is limited to programs that specifically target low and moderate-income borrowers, such as the Federal Housing Administration (FHA), the U.S. Department of Agriculture and the U.S. Department of Veterans Affairs. This option reduces taxpayer exposure and minimizes distortions in capital allocation, however, it reduces access to mortgage credit;
- Option 2: In addition to option 1, the government would also develop a backstop mechanism to ensure access to credit in the event of another housing downturn.; or
- Option 3: In addition to option 1, the government would offer an insurance backstop, through reinsurance, for mortgage-backed securities.
The administration also offers some of the following changes to immediately reduce the government’s involvement in the housing market:
- gradually increasing minimum down-payment requirements on loans guaranteed from Fannie Mae and Freddie Mac to 10 percent. Currently borrowers can make a smaller down payment if they purchase mortgage insurance;
- reduce maximum loan limits that Fannie Mae and Freddie Mac can purchase. The administration proposes to allow current maximum loan limits, which are at $729,750, to expire on October 1. This will put high-priced loans into the private market;
- gradually increase the guarantee fees so that private guarantors would be able to better compete;
- require Fannie Mae and Freddie Mac to obtain more private capital to withstand future housing downturns;
- more conservative underwriting standards that require homeowners to hold more equity in their homes;
- wind down Fannie Mae’s and Freddie Mac’s mortgage portfolios, by at least 10% per year; and
- consider merging federal mortgage agencies.
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The Obama Administration Announced New Initiatives for State and Local Housing Finance Agencies
The Obama Administration through the United States Department of Housing and Urban Development (HUD) annouced two new initiatives to help state and local housing finance agencies and the affordable housing industry.
The first initiative is the New Issue Bond Program (NIBP), whereby the United States Treasury will purchase securities of Fannie Mae and Freddie Mac backed by bonds issued under this program. The goals of the program are to help first time homebuyers and provide new rental housing units for working families.
The second initiative is the Temporary Credit and Liquidity Program (TCLP) which will enable Fannie Mae and Freddie Mac to provide replacement credit to housing finance agencies (HFA’s) to help reduce the costs of maintaining existing financing for housing fianance agencies (HFA’s).
More information found here: Obama October 2009 Initiative to Help HFA’s
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Affordable Rental Housing A.C.T.I.O.N.
Affordable Rental Housing A.C.T.I.O.N. is “a grassroots campaign led by a broad national coalition of cross industry organizations focused on stimulating investment in affordable rental housing” and is advancing a Federal legislative agenda to help secure the affordable rental housing industry going forward.
Prior to the ARRA and HERA, the tax credit program was faltering nationwide. By way of example, in 2007 over $9 Billion in capital was invested in Low Income Housing Tax Credits (LIHTC), in 2008 only $5.5 Billion in capital was invested in LIHTC and even less expected by close of 2009.
During the recent height of the demand, the price for the LIHTC was in some cases exceeding $1 for each dollar in LIHTC. Fannie Mae and Freddie Mac were purchasing 40% of the LIHTC. With the collapse of the equity markets and the decline in the economy as a whole, the demand for LIHTC has dramatically declined and, correspondingly, the price has also dropped. More specifically, there is less investment money out there and most investment companies are managing losses so they do not receive a benefit from tax credits so even if they have money to invest, investing in LIHTC is less attractive.
The HERA and ARRA were passed in an effort to save the industry, which effectively saved countless affordable homes and construction jobs. The ARRA provided (1) TCAP gap financing to all states, and (2) created the tax credit exchange program which allows tax credits to be returned in exchange for $.85 per dollar. The funds from these programs are just now starting to flow. An example in Delaware is Hollybrook Apartments. The TCAP funds expired today if not committed, i.e. unless something happens they are one time funds with many conditions to using them. The tax credit exchange program has not yet been extended so without an increase in investment funds and a corresponding increase in the price offered, it will be extremely difficult to make the developments financially feasible.
In response to this impending problem, Affordable Rental Housing A.C.T.I.O.N. has proposed the following legislative actions:
1. Extend the tax credit exchange program another year. I believe this is vital to the survival of the affordable housing industry.
2. Allow 4% LIHTC to be exchanged. The bond program has essentially stopped. Allowing 4% LIHTC would reinvigorate the bond program.
3. Allow 5 year carryback for recognizing the tax credits to increase demand. This would essentially reduce the risk to investors by allowing investors, if they are unable to recognize a benefit from using the tax credits, to apply the credits to a prior year and receive a refund if the investor also makes new investments.
4. Broaden the investor base by allowing S Corporations, Limited Liability Companies, closely held C Corporations to invest in LIHTC under certain requirements targeted at sophistication of investor.You can learn more about the legislative agenda and how you can be a part of it at www.rentalhousingaction.org. I am also attaching the organization’s official written Campaign_Legislative_Proposals_1pg_9-9-09.doc. I note that Delaware Community Investment Corporation, Volunteers of America and the Reznick Group, who have all done work here in Delaware, are all listed supporters of Affordable Rental Housing A.C.T.I.O.N.
