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Fannie Mae Moving to Limit Turmoil in Subprime Market
Fannie Mae last week indicated that it is moving to help limit turmoil in the subprime mortgage market and provide more stable financing alternatives for subprime borrowers in the future.
In testimony on April 17 before the U.S. House Committee on Financial Services, Daniel Mudd, Fannie Mae’s president and CEO, noted that the company’s “disciplined approach” to the subprime market had protected its lenders and borrowers and also “given us some room to support the market, as Congress intended.” He noted that Fannie Mae’s exposure is relatively minimal, with less than 2.5% of its business in what can be defined as subprime lending.
However, Fannie Mae is not going to walk away from the problem, Mudd said. “We are concerned about a liquidity crunch in the subprime market — the risk that as the turmoil shakes out, the flow of capital to finance subprime lending could slow to a trickle.”
Mudd said that his company currently is focusing its efforts on helping borrowers who are facing imminent “payment shock” from adjustable-rate loans that are scheduled to reset at higher rates. “We believe the best way to influence the subprime market, and be part of the solution, is to stay engaged and provide funding for conventional loans to these borrowers that are affordable over the long term.”
A new company initiative called HomeStay has three components to help subprime borrowers, he said:
- Focusing solely on helping people who are falling behind on their mortgage payments to avoid default, Fannie is working with its lenders or loan services to offer borrowers a range of workout solutions. Last year, the company worked out 27,000 loan modifications, and it is also able to provide lenders with systems that help them identify borrowers most likely to default so that they can be helped early in the process.
- Lending options for subprime borrowers are being expanded so that lenders can help them refinance out of high-reset ARMs or other loans that “are a struggle” for them. “Right now, on a $200,000 mortgage, the monthly payment difference from a short-reset ARM to a safer, 30-year HomeStay loan is about $90 — significant, but not insurmountable,” Mudd said.
Fannie is adjusting its credit requirements so that more home owners facing payment shock can qualify for the HomeStay loan without first having to clear up unpaid bills on their credit reports. It is also making it available to about 2,000 of its lenders nationwide, up from 500, and it is stretching the maximum loan term from 30 to 40 years, which will shave the monthly payment by about 5%.
“Our message to lenders with borrowers facing resetting ARMs is this, ‘If your home owner has managed his credit over the past 12 months, there’s a good chance Fannie Mae can help.’” Mudd added that about 1.5 million home owners who are facing resetting ARMs and potential payment shock this year and next could be eligible for Fannie Mae loan options.
- Fannie Mae is working with its housing partners to help counsel future home owners so that they will know what to do well before payment shock hits and avoid choosing the wrong mortgage in the first place.
For information on mortgage finance resources available from NAHB, e-mail Bill Renner, or call him at 800-368-5242 x8597.
 How Deep Is the Correction? Attend Construction Forecast Conference on April 26
Will housing demand outweigh affordability hurdles, inventory overhangs and the retreat of investors? Where are home prices headed?
Get the answers to these and other questions at the Construction Forecast Conference — Spring 2007 on Thursday, April 26 in Washington, D.C.
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The conference is also available via Webcast. For Webcast information, visit www.nahb.org/cfcwebcast.
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 NAHB Kit Gives Builders Back-to-Basics Tips in Cooling Market
With the current cooling of the nation’s housing market expected to persist into next year, NAHB has developed a comprehensive online toolkit geared to providing association members with information that will help them prosper in today’s changing business environment.
To access the “Back to Basics” toolkit, you must be an NAHB member and have a login to www.nahb.org. To create a login, go to www.nahb.org/login or click on the log-in button on the main menu bar.
For assistance, call the NAHB Member Service Center at 800-368-5242.
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