The Federal Housing Finance Agency (FHFA) today invited investors interested in purchasing pools of Fannie Mae, Freddie Mac and FHA foreclosures in the nations hardest-hit metropolitan areas with the requirement they rent them for a period of year to pre-qualify.

The new bulk sales program, under discussion since August, will begin with a pilot program where Fannie Mae will offer for sale pools of various types of assets including rental properties, vacant properties and non-performing loans with a focus on the hardest-hit areas. The first transaction will be announced in the near-term.

The purpose of the pilot phase will be to examine investor interest in various types of assets, including the location, size, and composition of pools of assets; the ways in which investors maximize the participation of experienced local firms and organizations that can provide the types of services and support needed to ensure community stabilization; the types of structures and/or financing that improve returns to the sellers as well as home values in impacted markets; and the process by which investors are qualified to and ultimately participate in the sales transactions.

FHFA said today it is also looking at ways to improve REO sales to homeowners and small investors, enhancing the existing retail sales strategy at Fannie Mae and Freddie Mac. Both companies sell the majority of their REO properties to owner-occupants at close to market value.

“This is an important step toward increasing private investment in foreclosed properties to maximize value and stabilize communities,” said FHFA Acting Director Edward J. DeMarco. “I am grateful for the collaborative effort by the many stakeholders including investors, nonprofit organizations, and state and local government officials, who have worked together on this Initiative.”

FHFA reportedly may include as many as 500 to 1000 in the first pool of the pilot phase. The GSEs have more than one million properties in their foreclosure pipelines.

Although the FHFA has not set a timetable for beginning bulk REO sales, government officials speaking on background with Inman News columnist Ken Harney said they may launch the program with a sale of 500 to 1,000 homes as early as this month.

The announcement by FHFA came just hours before President Obama was scheduled to make a major speech on housing policy.

Obama’s expansion would allow all borrowers, not just those whose loans are held by Fannie Mae and Freddie Mac to refinance. Fannie and Freddie hold about 60 percent of the nation’s mortgages. The New York Times quotes a “senior government official” who estimated that the program could benefit two million to three million homeowners who have loans that are not guaranteed by the government, and that the program’s cost would not exceed $10 billion. When announced last September, the revised Home Affordable Refinance Program (HARP 2.0) was projected to help one million homeowners.

The President’s announcement comes after the HARP 2.0 program has been in effect only seven weeks. Initial reports suggested that key lenders-including certain megabanks-have been slow to implement changes to service borrowers applying for the program and they are also facing capacity constraints due to the ongoing mini-refinancing boom. Final rules were not announced until Novembers and reportedly many consumers and servicers were confused about whether they qualified and how to apply.

Concerns have been growing that the program would fall short of its million loan goal. The program is due to expire at the end of this year. Federal Reserve chairman Bernanke has suggested that the program be changed to mandate lenders to write down principal as well as interest . Others are recommending additional changes to reduce refinancing fees and “put-back” risk on the loans. Meanwhile, California Democrats in Congress are calling on President Obama to replace Federal Housing Finance Agency acting director Edward DeMarco, who has opposed writing down the principal of mortgages held by Fannie and Freddie.

However, recent reports suggest that interest is picking up. One source reports that 70 percent of the new loan applications at a major bank are HARP 2.0 loans. The HARP 1.0 program allowed borrowers to refinance up to 125% of the current value of the home but the HARP 2.0 will do away with that 125 percent limit.

“I’m sending this Congress a plan that gives every responsible homeowner the chance to save about $3,000 a year on their mortgage, by refinancing at historically low interest rates. No more red tape,” said President Obama last night. The program would be paid for by a new fee on banks, but details have yet to be announced and until they are, the outlook in Congress is difficult to forecast.

CoreLogic estimates flood losses in the U.S. this year at approximately $10.67 billion, three times the amount forecast for next year, based on various flooding and storm events recorded in the National Climate Data Center.

The melting of an above-average snowpack across the northern Rocky Mountains, combined with abnormally high precipitation, caused the Missouri and Souris rivers to swell beyond their banks across the upper Midwest. Record-breaking rainfall in the Ohio valley in the spring and summer, combined with melting snowpack, resulted in historical flooding along the Mississippi River and its tributaries.

As Congress grapples with extending the life of the current program, CoreLogic suggests that flood insurance coverage to be expanded to protect more territory. The floods of 2011 heightened awareness of the flood risk outside of the FEMA 100-year flood zones, the report states. There has also been an emphasized need to raise current flood protection standards for the critical and strategic infrastructures in the U.S.

Based on the trend pattern, 2012 should not be an extreme flood year - in fact, there should be several more years before the next extreme flood loss year. U.S. flood loss in 2012 is projected at approximately $3.53 billion.

“The natural disasters felt throughout the country this year will undoubtedly shape the nation’s response to these events in 2012,” said Dr. Howard Botts, executive vice president and director of database development for CoreLogic Spatial Solutions. “The catastrophes we experienced as a nation have already impacted and will continue to impact the policies, procedures and safety measures in place for many homes and businesses. The year 2011 was a year that informed the general understanding of risk and, hopefully, will lead to improved preparedness for years to come.”

Even as the $10 billion bill for 2011 was reported, the future of flood insurance remains up in the air after a debate Congress that began in September. Earlier this fall lawmakers extended the program temporarily to December 16 after the previous federal program expired in September. A September 2009 report by the Government Accountability found that the government overseers had no way of knowing how much profit their insurance partners were making and whether the amounts were appropriate. Last summer members of Congress recommended a complete repeal or overhaul because the program was more than $18 billion in debt; it has yet to recover from claims following Hurricane Katrina.

On December 4, the Senate passed a five year extension of the current program that includes reforms like higher risk-based premiums and private market involvement. Now the House must act and the President must sign the extension into law by midnight Friday or homeowners living in flood zones will not be able to buy or sell their homes.

Before the federal program was launched in 1968, few private carriers provided flood insurance because of the cost and destructive power of floods. Under the program, homeowners in FEMA flood zones are required to buy policies from insurance companies — about 90 provide it — and the government pays for flood damage with federal funds collected largely from homeowner premiums.

This year’s big losses could drive the program further into the red, or it could underscore the need to continue and possibly expand the program to protect property that does not qualify for coverage today.

Can more widespread use of computer-driven valuations by programs called Automatic Valuation Models. or AVMs, in mortgage origination be far behind?

Millions of homeowners use AVMs to check the value of their homes on a half dozen web sites.  Even though more sophisticated versions have been developed for professional use, AVMs have seldom been sanctioned to valuate properties for mortgage approvals.

In its new HARP 2.0 refinancing program the Federal Housing Finance announced two weeks ago, the Administration approved valuations by “reliable” automated valuation models provided by Fannie Mae and Freddie Mac to determine the value of the property. Where a “reliable” AVM is not available, however, they must use an appraisal.  Using AVMs for valuation will save homeowners the cost of a professional appraisal and speed the refinancing approval process.

Actually, lenders refinancing loans through Freddie Mac are allowed on a limited basis to value the home using Freddie’s Home Value Explorer AVM. HARP 2.0 may bring Fannie Mae’s AVM usage more in line with Freddie Mac’s.

Jonathan Miller, President/CEO of the Miller-Samuel appraisal firm and a leading critic of AVMs as well as the appraisal management companies (AMCs) that have emerged in recent years to provide lower cost appraisals than traditional appraisal practices, attacked the policy last week.

“There are no reliable AVMs I am aware of, the quality of appraisers working for AMCs is very poor, most AMCs have AVMs and AMC’s dominate the mortgage appraiser space. Banks will likely choose only based on cost since that’s all they ever do and both valuation services, AMC appraisers and AVMs, provide crappy reliability.

“An AVM costs something like $7 today and a bank appraiser for an AMC is $200 (50 percent of market rate). Since both stink, banks will go with the cheaper version,” wrote Miller on his Web site.

Even Fannie Mae, whose automated underwriting system Desktop Underwriter® was one of the first widespread applications of automated valuation models, states on its Web site, “At present, we believe AVMs have generally not evolved sufficiently to fully replace traditional appraisals and human judgment for the origination of first lien mortgages. In addition, Fannie Mae does not approve or endorse third party AVMs or insured or warranted property valuation products.”

HARP 2.0’s expectations modest-refinancing of one million loans or so-but the program’s changes in the way loans are originated, including appraisals, could be more significant over time:

“While we recognize that the GSEs (Freddie and Fannie) have developed their own AVMs, it is our understanding that until now, they have been primarily utilized as a check on the collateral valuations accompanying mortgages offered for sale to the Enterprises. Under the HARP Phase II changes, it appears that AVMs will now become a primary tool - rather than a backup or limited use one - to value collateral for mortgages eligible for refinancing under the program. As a consequence, we believe it is essential that effective quality control standards are in place at the GSEs so as to reduce the possibility that unreliable AVMs are utilized in significant numbers of refinance transactions, with the inevitable accompanying risk of a further weakening of the Enterprises financial viability,” wrote Jack Washbourn, president of the American Society of Appraisers.

That’s the bottom line in a new report by The New Bottom Line, a nationwide campaign representing 1,000 faith-based and community organizations that seeks to hold Wall Street accountable and find solutions for struggling and middle-class families.

Grassroots organizations across the country aligned with The New Bottom Line campaign are calling on State Attorneys General who are investigating the banks for foreclosure fraud to stand firm for a settlement agreement that (1) includes large-scale principle reduction for underwater borrowers; and (2) does not release the banks from claims beyond the robo-signing scandal.

“Homeowners across the nation are struggling to pay their boom-era mortgages with their recession-era salaries and the economy is suffering for it. Writing down the principals and interest rates on all underwater mortgages to market value would serve as the second stimulus that America so desperately needs, only without added costs to taxpayers,” according to the report entitled “The Win/Win Solution: How Fixing the Housing Crisis Will Create One Million Jobs.”

The plan would lower homeowners’ mortgage payments by an average of more than $500 per month or $6,500 per year.  Six billion dollars per month that is currently going to mortgage payments would instead go toward buying groceries, school supplies, and other household necessities.

As consumer demand picked up, businesses would start hiring again.  For example, the plan would inject an annual stimulus of $20.5 billion in California and 300,000 jobs per year; $1.64 billion in Ohio and 24,000 jobs; and $12 billion in Florida and almost 180,000 jobs.

Last year, the nation’s top six banks paid out more than twice the cost of the plan ($71 billion per year) in bonuses and compensation alone ($146 billion in 2010), the report says.  Currently, the nation’s banks are sitting on a historically high level of cash reserves of $1.64 trillion.

Usually by August, the program, which has become extraordinarily popular since the demise of private no-down financing, runs out or money and applications are put hold until more money becomes available with the beginning of a new federal fiscal year October 1.

This year, however, the program is enjoying a windfall, the result of a continuing resolution signed by President Obama April 15 that doubled the size of the USDA’s Rural Development Service’s Section 502 single family guaranteed loan program from $12 to $24 billion.  Some $12 billion has been allocated over the past three months.

Founded in 1949 to spur home sales and development in rural areas, the US Department of Agriculture’s popular direct and guaranteed rural housing loans today are one of the few places in America you can still get a mortgage with no money down at competitive rates.

Borrowers don’t have to be lower income; in fact they can make slightly more than the median.  To qualify for the government guaranteed loans, borrowers can earn up to 115 percent of the median income for the area.  Nor do they have to buy in rural area.  They can live relatively close to a major urban area or in a popular resort community, however qualifying areas were recently redrawn to comply with the program’s rural mandate.

Best of all, no down payment is needed to get financing through approved lenders, which makes the USDA program more attractive to borrowers who qualify that FHA.

Effective October 1 the USDA will begin collecting a monthly mortgage insurance of .3 percent, but their up front mortgage insurance will be reduced from 3.5 percent to 2 percent. On a $200,000 purchase with a USDA guaranteed mortgage at 5 percent, a buyer’s current mortgage payment will increase $34/month under this new split premium mortgage insurance structure, which could potentially make it more difficult for some buyers to get financing.

The U.S. Department of Housing and Urban Development (HUD) in conjunction with NeighborWorks America launched a new Emergency Homeowners’ Loan Program (EHLP) today to help homeowners who are at risk of foreclosure in 27 states across the country and Puerto Rico.

The program will assist homeowners who have experienced a reduction in income due to Involuntary unemployment, underemployment, economic conditions or medical condition.

Congress provided $1 billion dollars to HUD, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, to implement the program.  Qualified homeowners could receive interest-free loans; payment of a portion of a monthly mortgage for up to two years, or up to $50,000, whichever comes first; payment of a portion of monthly mortgage, including missed mortgage payments or past due charges including principal, interest, taxes and insurance.   The program is expected to aid up to 30,000 distressed borrowers, with an average loan of approximately $35,000.

The help to home owners will be offered only in the following states: Alaska, Arkansas Colorado, Hawaii, Iowa, Kansas, Louisiana, Maine, Massachusetts, Minnesota, Missouri, Montana, Nebraska, New Hampshire, New Mexico, New York, North Dakota, Oklahoma, South Dakota, Texas, Utah, Vermont, Virginia, Washington, West Virginia, Wisconsin, and Wyoming and Puerto Rico.

Three of the four companies won’t receive payment for servicing loan modifications this month until they address all areas of non-compliance, Treasury announced yesterday.

The four lenders are Bank of America, NA; J.P. Morgan Chase Bank, N.A.; Ocwen Loan Servicing, LLC; and Wells Fargo Bank, N.A. Treasury is not withholding payments to Ocwen this quarter as their compliance results were substantially and negatively affected by a large servicing portfolio acquired during the compliance testing period.

Reviews conducted through the first quarter focused on identifying and contacting homeowners; homeowner evaluation and assistance; and program reporting, management and governance.

In addition to the four lenders in serious need of improvement, Treasury said  six servicers have been identified as needing moderate improvement.

Under HAMP more than 4.8 million modification arrangements were started between April 2009 and the end of March 2011. While some homeowners may have received help from more than one program, the total number of agreements offered more than doubled the number of foreclosure completions for the same period (2 million). In April, 29,000 homeowners received a trial HAMP modification, and 29,000 additional homeowners received a permanent modification with a median payment reduction of 37 percent-or more than $500 every month.

On March 30, the House voted to end HAMP, the last of the Administration’s four programs to reduce foreclosures.

While slashing funds for disability, elderly, homelessness and Native American housing programs, Congress has doubled the funding for a USDA housing program that may cost the government $4 billion in defaulting loans because over a third of the government-guaranteed rural home loans in its portfolio may be ineligible for the program.

On April 15, President signed into law the continuing resolution to fund the government that, despite concern over the deficit, included increased funding for the USDA’s Rural Development Service’s Section 502 single family guaranteed loan program from $12 to $24 billion annually for the current year as well as the next Federal fiscal year.   

In January, an inspector general’s report discovered that the government may have given out more than $4 billion in stimulus housing loans to ineligible borrowers.  An IG’s audit found that among 100 randomly selected government-guaranteed rural home loans across the country, 28 loans lenders had not fully complied with federal regulations in determining borrower eligibility.

The audit report found borrowers with annual income over the program’s limits, borrowers with questionable ability to repay the loan, borrowers who didn’t need the government loan guarantee and borrowers who purchased homes with swimming pools, which is strictly prohibited by the program’s rules. Some borrowers had debt-to-income ratios that were too high because lenders accepted unstable or inconsistent earnings or used only recent earnings. Several borrowers were, or had been, delinquent on their loans. One was over 180 days delinquent. Another had defaulted and the lender had filed a loss claim.  USDA officials agreed that 10 of the 28 borrowers were ineligible.

Although the auditors looked at only a tiny sample of the 133,053 loan guarantees made in 2009, they estimated that tens of thousands might have been done improperly and warned that a wave of defaults might be looming.

Analysts said the problems echoed those exposed earlier in the mortgage crisis, with banks seemingly eager to collect fees for loans in which they retained little or no risk.  The findings of the audit have raised concerns that the program, which features 90 percent government guarantees, could lead to widespread defaults.

“In a couple years, when these loans are going bad, everybody’s going to say, ‘Oh me, oh my, how did this happen?’ ” Christopher Whalen, managing director of Institutional Risk Analytics, a bank rating and consulting firm, told the New York Times. “There’s no surprises here.”

 Founded in 1949 to spur home sales and development in rural areas, the US Department of Agriculture’s popular direct and guaranteed rural housing loans today are one of the few places in America you can get a mortgage with no money down at competitive rates.   

Borrowers don’t have to be lower income; in fact they can make slightly more than the median.  Nor do they have to buy in rural area.  They can live relatively close to a major urban area like Loudon County, VA, Half Moon Bay, CA or parts of Westchester County, NY.  Or, in a popular resort community like Naples, FL, Aspen or Vail, CO, or Cape Cod, MA.  To qualify for the government guaranteed loans, borrowers can earn up to 115 percent of the median income for the area.

In recent years, Congress has rushed through legislation to increase funding for the program when it has run out of money part way through the year.

The value of USDA-backed loans has soared, from $3.7 billion in 2007 to about $16.8 billion last year. 

With strong support among both housing and farm state interests, the 100 percent increase in the troubled USDA program sailed through untouched even as other housing programs, including support for low income disabled and elderly renters and grants for Native American housing, homeless assistance and public housing were cut in the final congressional negotiations.  A companion direct loan program, which is limited to lower income home buyers, was not increased.

Lenders, home builders and real estate agents fighting a new regulation that could significantly raise down payments and loan-to-value ratios are gaining support from an unlikely quarter.

Consumer and liberal organizations concerned about the ramifications of high down payments on access to homeownership for lower income and minority populations are joining the industry-led chorus of opposition to the regulation, formally proposed last week by the Federal Housing Finance Administration.  The regulation would create “qualified residential mortgages” that would be exempt from risk retention requirements by lenders, but borrowers would be required to pay a 20 percent down payment for new mortgages and meet a 75 percent loan-to-value ratio for refinances.

As the Administration and ultimately Congress decide the issue over the next few months, the liberal opposition could play a decisive role among Democrats on the Hill and in the White House.  Potentially the opposition could unseat the bi-partisan alliance of Democratic senators Mary Landrieu of Louisiana and Kay Hagan of North Carolina and Republican Sen. Johnny Isakson of Georgia that wrote the QRM exemption into financial reform legislation last year.

“We have learned a great deal in the last 20 years about how to finance sustainable homeownership without requiring unreasonably high down payments. Turning back the mortgage clock to sometime in the 1980’s by raising down payment requirements to an arbitrary level is unjustified and will close the door to responsible homeownership for too many American working families” said Barry Zigas, Director of Housing Policy for Consumer Federation of America in January.

The CFA and the Center for Responsible Lending, the two leading consumer groups in mortgage finance, signed on to a letter opposing the regulation with the National Association of Realtors and the National Association of Home Builders.

“We argue that this would make buying a home more costly, lock out many first-time homebuyers, and short-circuit a recovery of the housing market,” said
CRL in a statement on their web site.

The Center for American Progress, a non-profit group founded by former Clinton Chief of Staff John Podesta, published a widely circulated critique of the proposal written by Ellen Seidman, former director of the Office of Thrift Supervision in the Clinton Administration.

“Done badly, the rule could essentially lock first-time homebuyers in particular out of all but the government-insured mortgage market. This would further increase wealth inequality in general, and especially across racial lines,” she wrote. 

“Of more direct interest to those concerned about housing policy, the QRM definition may also influence the availability, price, and terms of mortgages that do not carry a direct federal guarantee. For instance, it is likely that non-QRM mortgages-those requiring risk retention-will be more expensive for borrowers than those within the QRM definition. Non-QRM mortgages also may be less generally available, and may carry more risky product structures, although they conversely may well be subject to less-restrictive underwriting standards,” she said.

The QRM definition may also have an impact on the willingness of any originator-especially a bank subject to regular examinations-to make any mortgage that doesn’t meet the QRM definition-even if the bank initially intends to hold that mortgage in its portfolio. Will bank examiners explicitly or implicitly look upon non-QRM loans as “unsafe” even if the lender is keeping 100 percent of the risk on its books? In particular, if the regulators-contrary to the apparent intent of the statute-define QRM to require a 10 percent or 20 percent down payment, will anyone be willing to originate an affordable low-down-payment loan not insured or guaranteed by the FHA, VA, or USDA?” she said.  “The rule’s unintended consequences may well be its most important,” she concluded.