Six federal regulators, including the Federal Housing Finance Agency, re-proposed risk-retention requirements, as well as the definition for qualified residential mortgages this week, making significant changes that had been sought by lenders. The new proposal revises a proposed rule the agencies issued in 2011 to implement the risk-retention requirement of the Dodd-Frank Act. Among other things, the rule would recognize the full guaranty on payments of principal and interest provided by Fannie Mae and Freddie Mac for their residential mortgage-backed securities as meeting the risk-retention requirements while the two GSEs are in conservatorship or receivership and have capital support from the federal government.
Radian Guaranty, the nation’s second largest mortgage insurer in terms of new policies written, late this week reached an agreement with Freddie Mac, limiting its exposure on a group of 25,760 legacy loans to $840 million. In a new filing with the Securities and Exchange Commission, the publicly traded MI said it expects to record a loss of $20 million in the third quarter because of the settlement. The Radian-guaranteed mortgages were delinquent as of the end of 2011. The MI has already paid $632 million to cover loss claims on these loans through two different payments. It also had set aside $205 million in a collateral account to cover what it calls “loss mitigation activity” on the notes.
Fannie Mae is lowering its maximum loan-to-value ratio to 95 percent come November, a move that could lead to more business going to the FHA. The policy change was confirmed by the GSE when it recently sent out an update to users of its automated underwriting program, Desktop Originator. It also means that mortgage insurers could lose business at a time when many have shown a new willingness to take on more credit risk amid improving delinquencies and earnings.
The Federal Housing Finance Agency is expected to announce lower GSE loan limits by October, a move that should provide a further boost to the jumbo mortgage-backed securities market, according to housing lobbyists and other industry observers tracking the issue. However, it’s unclear how much of a reduction to the current cap of $625,500 might occur.“I think everyone in the business is anticipating this and getting ready for it,” said one mortgage insurance source. A housing lobbyist added that, “Right now it’s a matter of timing. Will it come in October or a little later than that?”
A title insurance firm is taking a close look at due diligence provider Allonhill. Meanwhile, mergers and acquisitions in the residential finance industry could explode.
Many mortgage firms are hoping that a huge surge in purchase-money deals will compensate greatly for the declining refi market and that layoffs at their shops will be avoided.
Joel Tillett and five other former employees were indicted in May on federal charges they conspired to defraud mortgage lenders by submitting loan applications that contained false information.
Mortgage income reported in bank call reports includes earnings from production, loan sales and net servicing results, so industry profits are not tied exclusively to new lending.
Radian has already paid $632 million to cover loss claims on the Freddie Mac loans through two different payments. It also had set aside $205 million in a collateral account to cover loss mitigation activity.
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