BluefoxToday blog : Fannie Mae makes news with Alt-A adjustments

Fannie Mae makes news with Alt-A adjustments

Fannie Mae, the giant player in the secondary mortgage market where it buys loans and either keeps them in its own books or packages them for resale, just announced a hefty second quarter loss of $2.3 billion. A loss was expected but this was much more than what experts had anticipated. Anyway, that's one thing. The other is that this will result in some painful adjustments to its lending practices toward Alt-A loans.

Alt-A mortgage falls in between the prime and subprime products and is normally applied for by borrowers with a nice credit background but can't or won't disclose income or assets, or both. Now, Alt-A amounted to about 11% of Fannie Mae's mammoth portfolio of single-family loans, a whopping $2.7 trillion, by the end of June, 2008, and the killer is that almost half of the second quarter losses came from Alt-A alone. And that spurred company executives to action.

The changes start with an increase in fees for these mortgage loans Fannie Mae will buy in the future. That's a standard response nowadays when something like this happens. The fees can range from .25% to over 1.00% per home loan, depending on the down payment and the borrower's credit score and other criteria. The bottom line is that money is becoming more expensive for Alt-A. And come January 2009, Fannie Mae will cease buying them altogether. This will definitely take a decent share of liquidity out of the market, but won't necessarily wipe it out. 

Alt-A's decline will hurt all sorts of buyers, as if they weren't squeezed enough already. Second and vacation home shoppers often liked to use Alt-A and now the remaining options they'll find on the market will become more expensive. People with generous tip income, like many in Las Vegas have, will also discover fewer choices and higher costs. As is obvious, the mortgage market continues to be volatile and that slows the nice recovery momentum everybody is looking forward to.

 

 

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Provided by: 

Esko Kiuru
Mortgage, real estate and apartment industry analyst 

www.BluefoxToday.com - syndicated mortgage, housing and property management blog

eskokiuru@gmail.com
My cell: 702-499-1006

Comment balloon 18 commentsEsko Kiuru • August 09 2008 08:38PM

Comments

Yes They expect big defaults in Alt-A next.  Almost anybody that has an arm has a good chance of defaulting because they most likely can't refinance because of falling home values.

Posted by Russ Ravary ~ Metro Detroit Realtor call (248) 310-6239, Michigan homes for sale ~ yesmyrealtor@gmail.com (Real Estate One) about 10 years ago

Esko,

What Alt A loans are we speaking of? I do not know of any Alt A loan programs still being purchased.

And I am a little caught off guard hearing that FNMA had such exposure to Alt A losses. I guess I was naive, not knowing that they were purchasing and  guaranteeing Alt A loans.

I will need to study some more on this. It does explain a question I have asked frequently about the reason for FNMA and Freddie losses. I assumed that they guaranteed conventional loans.

Richard

Posted by Richard Byron Smith, NMLS #184479, Mortgage Loan Officer (Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289) about 10 years ago

Esko I am surprised that you guys were still able to do Alt-A Loans out there, because they have been just about dead over here for almost a year now.  There might have been some Lenders here that were still doing them, but I do not know of any. 

Enjoy them while you still have them :)

Posted by George Souto, Your Connecticut Mortgage Expert (George Souto NMLS #65149 FHA, CHFA, VA Mortgages) about 10 years ago

The impending Alt-A loan crisis will be worse than the subprime loan crisis.  Sadly it seems that many people our unaware of the wide reach of these loans and the severe toxicity of there programs.

Kansas City Real Estate

Posted by Justin Ukaoma, Kansas City Real Estate Investments (Vizion KC) about 10 years ago

Esko,

Did a little bit of research last night on FannieMae's business mix. I was surprised, and a little upset, to learn how much they are involved in Alt A, and even in subprime. I guess they could not resist jumping into the higher yields.

I found a piece explaining how their Alt A portfolio balance was so well managed - it is quite an ironic read.

I did not know. Now I fully agree that the GSE folks need a babysitter. I had actually thought that the Fannie and Freddie were struggling because of conventional defaults.

Richard

Posted by Richard Byron Smith, NMLS #184479, Mortgage Loan Officer (Mortgage Loan Officer, Fairway Independent Mortgage Corporation NMLS #2289) about 10 years ago

Esko,

Correct me if I'm wrong...it sounds like this isn't going to help matters. I keep hearing about correction and repair but now people are crying because their is a loss? Of course there is...so will this hurt people caught in a bad situation? Doesn't sound good.

Posted by Neal Bloom, Realtor CRS-Weston FL Real Estate (eXp Realty) about 10 years ago

Thanks for the great information.  I am also reading that due to loses incurred that interest rates will be rising.  Is that so?

Posted by Jim Crawford, Jim Crawford Atlanta Best Listing Agents & REALTOR (RE/MAX Paramount Properties) about 10 years ago

This, along with FHA's changes are, will help us continue down the path of correction.  I still don't think we have hit bottom and that is very scary.

Posted by Robert Lowery NMLS 211598 (Prosperity Mortgage) about 10 years ago

Russ,

Falling values is a major problem right now.

Posted by Esko Kiuru about 10 years ago

Richard,

Fannie has a sizable exposure to Alt-A.

Posted by Esko Kiuru about 10 years ago

George,

Alt-A is pretty extinct nowadays here, too.

Posted by Esko Kiuru about 10 years ago

Justin,

Let's see if it gets real ugly.

Posted by Esko Kiuru about 10 years ago

Richard,

Fannie liked the yields everyone else was getting, so they jumped in, too.

Posted by Esko Kiuru about 10 years ago

Neal,

This Fannie action on Alt-A will restrict loan program availability on the conventional side.

Posted by Esko Kiuru about 10 years ago

Jim,

The Alt-As they are still doing will be more expensive. The losses could even affect other programs.

Posted by Esko Kiuru about 10 years ago

Bob,

This correction will take some more time before normalcy returns.

Posted by Esko Kiuru about 10 years ago

are you expecting a reversal or revison of the Dow payment assistance

Posted by James Wexler (wexzilla.com) about 10 years ago

James,

If you are referring to the down payment programs, yes, the seller-paid ones are pretty much being phased out. Cities and states will have some kind of programs, but they all vary by location.

Posted by Esko Kiuru about 10 years ago

Participate