Showing posts with label fas rules. Show all posts
Showing posts with label fas rules. Show all posts

Sunday, February 7, 2010

Clues to 2010 Mortgage Market

By: Diana Olick CNBC Real Estate Reporter January 27, 2010

The Federal Reserve is winding down its $1.25 trillion in agency mortgage-backed security, purchases, but it's still in there buying, and that is keeping interest rates on the 30-year fixed right around a very low 5 percent.

Despite that fact, borrowers last week pulled out of the mortgage market, specifically refinances. Part of that may be due to far higher lending standards.

Yesterday I wrote about my own refi frustrations and many of you wrote in to commiserate.

Today's FOMC statement said the following:

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

I'm mostly interested in the last bit, which clearly leaves the door open. There's been a lot of debate over whether the government can pull out of the housing market in such a large fashion, on mortgages and in the home buyer tax credit, and still expect to see a continued housing recovery over the summer.

I just spoke with Rick Sharga of the online foreclosure sale site RealtyTrac.com, regarding a report coming out tomorrow, but we also talked generally about housing recovery in 2010. He expects to see several different spikes in foreclosures over the coming year and into 2011, and he believes wholeheartedly that these foreclosures will be unavoidable and highly detrimental to a recovery in home prices.

"Even if we peak in terms of unemployment rates in the first quarter of 2010 the foreclosure activity related to those job losses probably won't peak until the end of 2010 or the first quarter of 2011," says Sharga. And he believes there will be a third wave from resets on pay option ARM loans and Alt-A loans (loans underwritten with little to no documentation).

There is more and more talk of principal write-down, as the underwater elephant in the room weighs heavily on any recovery. Today I even heard that the Hope For Homeowners program, which came into being under the Bush administration and did very little to help anyone stay in their home, may be retweaked to deal with the underwater issue (when borrowers owe more than their home is worth). Part of H4H is principal write-down, unlike the big HAMP bailout from Treasury which requires no reduction of principal.

Stay tuned folks, this is going to be a very choppy Spring season in the housing market.
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Clues to 2010 Mortgage Market

By: Diana Olick CNBC Real Estate Reporter January 27, 2010

The Federal Reserve is winding down its $1.25 trillion in agency mortgage-backed security, purchases, but it's still in there buying, and that is keeping interest rates on the 30-year fixed right around a very low 5 percent.

Despite that fact, borrowers last week pulled out of the mortgage market, specifically refinances. Part of that may be due to far higher lending standards.

Yesterday I wrote about my own refi frustrations and many of you wrote in to commiserate.

Today's FOMC statement said the following:

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

I'm mostly interested in the last bit, which clearly leaves the door open. There's been a lot of debate over whether the government can pull out of the housing market in such a large fashion, on mortgages and in the home buyer tax credit, and still expect to see a continued housing recovery over the summer.

I just spoke with Rick Sharga of the online foreclosure sale site RealtyTrac.com, regarding a report coming out tomorrow, but we also talked generally about housing recovery in 2010. He expects to see several different spikes in foreclosures over the coming year and into 2011, and he believes wholeheartedly that these foreclosures will be unavoidable and highly detrimental to a recovery in home prices.

"Even if we peak in terms of unemployment rates in the first quarter of 2010 the foreclosure activity related to those job losses probably won't peak until the end of 2010 or the first quarter of 2011," says Sharga. And he believes there will be a third wave from resets on pay option ARM loans and Alt-A loans (loans underwritten with little to no documentation).

There is more and more talk of principal write-down, as the underwater elephant in the room weighs heavily on any recovery. Today I even heard that the Hope For Homeowners program, which came into being under the Bush administration and did very little to help anyone stay in their home, may be retweaked to deal with the underwater issue (when borrowers owe more than their home is worth). Part of H4H is principal write-down, unlike the big HAMP bailout from Treasury which requires no reduction of principal.

Stay tuned folks, this is going to be a very choppy Spring season in the housing market.
Print Friendly and PDF
Posted by at
Labels: , , , , , , ,

Clues to 2010 Mortgage Market

By: Diana Olick CNBC Real Estate Reporter January 27, 2010

The Federal Reserve is winding down its $1.25 trillion in agency mortgage-backed security, purchases, but it's still in there buying, and that is keeping interest rates on the 30-year fixed right around a very low 5 percent.

Despite that fact, borrowers last week pulled out of the mortgage market, specifically refinances. Part of that may be due to far higher lending standards.

Yesterday I wrote about my own refi frustrations and many of you wrote in to commiserate.

Today's FOMC statement said the following:

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

I'm mostly interested in the last bit, which clearly leaves the door open. There's been a lot of debate over whether the government can pull out of the housing market in such a large fashion, on mortgages and in the home buyer tax credit, and still expect to see a continued housing recovery over the summer.

I just spoke with Rick Sharga of the online foreclosure sale site RealtyTrac.com, regarding a report coming out tomorrow, but we also talked generally about housing recovery in 2010. He expects to see several different spikes in foreclosures over the coming year and into 2011, and he believes wholeheartedly that these foreclosures will be unavoidable and highly detrimental to a recovery in home prices.

"Even if we peak in terms of unemployment rates in the first quarter of 2010 the foreclosure activity related to those job losses probably won't peak until the end of 2010 or the first quarter of 2011," says Sharga. And he believes there will be a third wave from resets on pay option ARM loans and Alt-A loans (loans underwritten with little to no documentation).

There is more and more talk of principal write-down, as the underwater elephant in the room weighs heavily on any recovery. Today I even heard that the Hope For Homeowners program, which came into being under the Bush administration and did very little to help anyone stay in their home, may be retweaked to deal with the underwater issue (when borrowers owe more than their home is worth). Part of H4H is principal write-down, unlike the big HAMP bailout from Treasury which requires no reduction of principal.

Stay tuned folks, this is going to be a very choppy Spring season in the housing market.
Print Friendly and PDF
Posted by at
Labels: , , , , , , ,

Clues to 2010 Mortgage Market

By: Diana Olick CNBC Real Estate Reporter January 27, 2010

The Federal Reserve is winding down its $1.25 trillion in agency mortgage-backed security, purchases, but it's still in there buying, and that is keeping interest rates on the 30-year fixed right around a very low 5 percent.

Despite that fact, borrowers last week pulled out of the mortgage market, specifically refinances. Part of that may be due to far higher lending standards.

Yesterday I wrote about my own refi frustrations and many of you wrote in to commiserate.

Today's FOMC statement said the following:

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

I'm mostly interested in the last bit, which clearly leaves the door open. There's been a lot of debate over whether the government can pull out of the housing market in such a large fashion, on mortgages and in the home buyer tax credit, and still expect to see a continued housing recovery over the summer.

I just spoke with Rick Sharga of the online foreclosure sale site RealtyTrac.com, regarding a report coming out tomorrow, but we also talked generally about housing recovery in 2010. He expects to see several different spikes in foreclosures over the coming year and into 2011, and he believes wholeheartedly that these foreclosures will be unavoidable and highly detrimental to a recovery in home prices.

"Even if we peak in terms of unemployment rates in the first quarter of 2010 the foreclosure activity related to those job losses probably won't peak until the end of 2010 or the first quarter of 2011," says Sharga. And he believes there will be a third wave from resets on pay option ARM loans and Alt-A loans (loans underwritten with little to no documentation).

There is more and more talk of principal write-down, as the underwater elephant in the room weighs heavily on any recovery. Today I even heard that the Hope For Homeowners program, which came into being under the Bush administration and did very little to help anyone stay in their home, may be retweaked to deal with the underwater issue (when borrowers owe more than their home is worth). Part of H4H is principal write-down, unlike the big HAMP bailout from Treasury which requires no reduction of principal.

Stay tuned folks, this is going to be a very choppy Spring season in the housing market.
Print Friendly and PDF
Posted by at
Labels: , , , , , , ,

Clues to 2010 Mortgage Market

By: Diana Olick CNBC Real Estate Reporter January 27, 2010

The Federal Reserve is winding down its $1.25 trillion in agency mortgage-backed security, purchases, but it's still in there buying, and that is keeping interest rates on the 30-year fixed right around a very low 5 percent.

Despite that fact, borrowers last week pulled out of the mortgage market, specifically refinances. Part of that may be due to far higher lending standards.

Yesterday I wrote about my own refi frustrations and many of you wrote in to commiserate.

Today's FOMC statement said the following:

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

I'm mostly interested in the last bit, which clearly leaves the door open. There's been a lot of debate over whether the government can pull out of the housing market in such a large fashion, on mortgages and in the home buyer tax credit, and still expect to see a continued housing recovery over the summer.

I just spoke with Rick Sharga of the online foreclosure sale site RealtyTrac.com, regarding a report coming out tomorrow, but we also talked generally about housing recovery in 2010. He expects to see several different spikes in foreclosures over the coming year and into 2011, and he believes wholeheartedly that these foreclosures will be unavoidable and highly detrimental to a recovery in home prices.

"Even if we peak in terms of unemployment rates in the first quarter of 2010 the foreclosure activity related to those job losses probably won't peak until the end of 2010 or the first quarter of 2011," says Sharga. And he believes there will be a third wave from resets on pay option ARM loans and Alt-A loans (loans underwritten with little to no documentation).

There is more and more talk of principal write-down, as the underwater elephant in the room weighs heavily on any recovery. Today I even heard that the Hope For Homeowners program, which came into being under the Bush administration and did very little to help anyone stay in their home, may be retweaked to deal with the underwater issue (when borrowers owe more than their home is worth). Part of H4H is principal write-down, unlike the big HAMP bailout from Treasury which requires no reduction of principal.

Stay tuned folks, this is going to be a very choppy Spring season in the housing market.
Print Friendly and PDF
Posted by at
Labels: , , , , , , ,

Clues to 2010 Mortgage Market

By: Diana Olick CNBC Real Estate Reporter January 27, 2010

The Federal Reserve is winding down its $1.25 trillion in agency mortgage-backed security, purchases, but it's still in there buying, and that is keeping interest rates on the 30-year fixed right around a very low 5 percent.

Despite that fact, borrowers last week pulled out of the mortgage market, specifically refinances. Part of that may be due to far higher lending standards.

Yesterday I wrote about my own refi frustrations and many of you wrote in to commiserate.

Today's FOMC statement said the following:

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

I'm mostly interested in the last bit, which clearly leaves the door open. There's been a lot of debate over whether the government can pull out of the housing market in such a large fashion, on mortgages and in the home buyer tax credit, and still expect to see a continued housing recovery over the summer.

I just spoke with Rick Sharga of the online foreclosure sale site RealtyTrac.com, regarding a report coming out tomorrow, but we also talked generally about housing recovery in 2010. He expects to see several different spikes in foreclosures over the coming year and into 2011, and he believes wholeheartedly that these foreclosures will be unavoidable and highly detrimental to a recovery in home prices.

"Even if we peak in terms of unemployment rates in the first quarter of 2010 the foreclosure activity related to those job losses probably won't peak until the end of 2010 or the first quarter of 2011," says Sharga. And he believes there will be a third wave from resets on pay option ARM loans and Alt-A loans (loans underwritten with little to no documentation).

There is more and more talk of principal write-down, as the underwater elephant in the room weighs heavily on any recovery. Today I even heard that the Hope For Homeowners program, which came into being under the Bush administration and did very little to help anyone stay in their home, may be retweaked to deal with the underwater issue (when borrowers owe more than their home is worth). Part of H4H is principal write-down, unlike the big HAMP bailout from Treasury which requires no reduction of principal.

Stay tuned folks, this is going to be a very choppy Spring season in the housing market.
Print Friendly and PDF
Posted by at
Labels: , , , , , , ,

Clues to 2010 Mortgage Market

By: Diana Olick CNBC Real Estate Reporter January 27, 2010

The Federal Reserve is winding down its $1.25 trillion in agency mortgage-backed security, purchases, but it's still in there buying, and that is keeping interest rates on the 30-year fixed right around a very low 5 percent.

Despite that fact, borrowers last week pulled out of the mortgage market, specifically refinances. Part of that may be due to far higher lending standards.

Yesterday I wrote about my own refi frustrations and many of you wrote in to commiserate.

Today's FOMC statement said the following:

To provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the Federal Reserve is in the process of purchasing $1.25 trillion of agency mortgage-backed securities and about $175 billion of agency debt. In order to promote a smooth transition in markets, the Committee is gradually slowing the pace of these purchases, and it anticipates that these transactions will be executed by the end of the first quarter. The Committee will continue to evaluate its purchases of securities in light of the evolving economic outlook and conditions in financial markets.

I'm mostly interested in the last bit, which clearly leaves the door open. There's been a lot of debate over whether the government can pull out of the housing market in such a large fashion, on mortgages and in the home buyer tax credit, and still expect to see a continued housing recovery over the summer.

I just spoke with Rick Sharga of the online foreclosure sale site RealtyTrac.com, regarding a report coming out tomorrow, but we also talked generally about housing recovery in 2010. He expects to see several different spikes in foreclosures over the coming year and into 2011, and he believes wholeheartedly that these foreclosures will be unavoidable and highly detrimental to a recovery in home prices.

"Even if we peak in terms of unemployment rates in the first quarter of 2010 the foreclosure activity related to those job losses probably won't peak until the end of 2010 or the first quarter of 2011," says Sharga. And he believes there will be a third wave from resets on pay option ARM loans and Alt-A loans (loans underwritten with little to no documentation).

There is more and more talk of principal write-down, as the underwater elephant in the room weighs heavily on any recovery. Today I even heard that the Hope For Homeowners program, which came into being under the Bush administration and did very little to help anyone stay in their home, may be retweaked to deal with the underwater issue (when borrowers owe more than their home is worth). Part of H4H is principal write-down, unlike the big HAMP bailout from Treasury which requires no reduction of principal.

Stay tuned folks, this is going to be a very choppy Spring season in the housing market.
Print Friendly and PDF
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Labels: , , , , , , ,

How Will New Accounting Rules Impact the GSEs?

Posted by Joe Murin January 27, 2010

I think all of us would agree that the Housing Finance System in this country is broken. The ability for the once powerful secondary marketing vehicles to provide liquidity to the housing industry is at risk. Private securitization has been out of business for over two years, the agency markets required the Federal Reserve to step in to support it, and Ginnie Mae is struggling to cope with volumes four to five times the norm under the restrictions of a charter that is outdated for the times. And if this isn’t enough, the new FAS 166 & 167 rulings could strike a blow to restrict investor participation to an already embattled agency market.

Effective January 1, 2010 the GSE’s were required to place on balance sheets all loans currently in securities that have historically been carried off balance sheets. This action could have many unintended consequences, but the one that stands out is the potential harm it could have to the investor markets.

Historically, under GSE policies a seriously delinquent loan must be bought out of a pool when certain events occurred. This policy required agencies to buy the loan out of said pool when it reached 90-days; however, this policy did not obligate the buyout to occur. The reason being any loan bought out of the pool would have to appear on the balance sheet but not at par, rather at 40% of par. This discount caused by NPV calculations required the GSE’s to borrow funds from the Treasury, and that capital was expensive. Therefore, until an event occurred, the GSE’s typically allowed 90-day plus loans to stay in the pools since it was cheaper to continue to pay the investor the principle and interest then it was to borrower capital to buy the loan out of the pool.

Now FAS 166 & 167 requires all loans that the GSE’s are guaranteeing to the investor community to be boarded onto their balance sheets. This event would be cataclysmic if the GSE’s were not under conservatorship and would be required to follow regulatory capital guidelines however the boarding of approximately five trillion of assets on to their balance sheets maybe more detrimental to the bond buying community then to the GSE’s.

The action required by the new FAS rules has provided an opportunity for the GSE’s to buy loans that reach the 90-day delinquent status out of pools without penalty related to capital borrowings. Since the loans in question are required to be placed on the balance sheet, there is no need to discount them to the 40% NPV level. Rather, any loan bought of the pool would only require the standard loan loss reserve to be setup against any potential loss. This requirement is far less expensive then the requirement prior to new FAS ruling.

So what does this mean for the investor? It may mean that new conditions now exists that enable the GSE’s to buy loans out of the pools, without penalty, sooner versus later. If this occurs and it could; prepayment speeds would increase causing the investor to experience a material impact on the value of their investment. Leaving some to ponder at the end of the day…do we really need another blow to the investor marketplace???
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Labels: , , , ,

How Will New Accounting Rules Impact the GSEs?

Posted by Joe Murin January 27, 2010

I think all of us would agree that the Housing Finance System in this country is broken. The ability for the once powerful secondary marketing vehicles to provide liquidity to the housing industry is at risk. Private securitization has been out of business for over two years, the agency markets required the Federal Reserve to step in to support it, and Ginnie Mae is struggling to cope with volumes four to five times the norm under the restrictions of a charter that is outdated for the times. And if this isn’t enough, the new FAS 166 & 167 rulings could strike a blow to restrict investor participation to an already embattled agency market.

Effective January 1, 2010 the GSE’s were required to place on balance sheets all loans currently in securities that have historically been carried off balance sheets. This action could have many unintended consequences, but the one that stands out is the potential harm it could have to the investor markets.

Historically, under GSE policies a seriously delinquent loan must be bought out of a pool when certain events occurred. This policy required agencies to buy the loan out of said pool when it reached 90-days; however, this policy did not obligate the buyout to occur. The reason being any loan bought out of the pool would have to appear on the balance sheet but not at par, rather at 40% of par. This discount caused by NPV calculations required the GSE’s to borrow funds from the Treasury, and that capital was expensive. Therefore, until an event occurred, the GSE’s typically allowed 90-day plus loans to stay in the pools since it was cheaper to continue to pay the investor the principle and interest then it was to borrower capital to buy the loan out of the pool.

Now FAS 166 & 167 requires all loans that the GSE’s are guaranteeing to the investor community to be boarded onto their balance sheets. This event would be cataclysmic if the GSE’s were not under conservatorship and would be required to follow regulatory capital guidelines however the boarding of approximately five trillion of assets on to their balance sheets maybe more detrimental to the bond buying community then to the GSE’s.

The action required by the new FAS rules has provided an opportunity for the GSE’s to buy loans that reach the 90-day delinquent status out of pools without penalty related to capital borrowings. Since the loans in question are required to be placed on the balance sheet, there is no need to discount them to the 40% NPV level. Rather, any loan bought of the pool would only require the standard loan loss reserve to be setup against any potential loss. This requirement is far less expensive then the requirement prior to new FAS ruling.

So what does this mean for the investor? It may mean that new conditions now exists that enable the GSE’s to buy loans out of the pools, without penalty, sooner versus later. If this occurs and it could; prepayment speeds would increase causing the investor to experience a material impact on the value of their investment. Leaving some to ponder at the end of the day…do we really need another blow to the investor marketplace???
Print Friendly and PDF
Posted by at
Labels: , , , ,

How Will New Accounting Rules Impact the GSEs?

Posted by Joe Murin January 27, 2010

I think all of us would agree that the Housing Finance System in this country is broken. The ability for the once powerful secondary marketing vehicles to provide liquidity to the housing industry is at risk. Private securitization has been out of business for over two years, the agency markets required the Federal Reserve to step in to support it, and Ginnie Mae is struggling to cope with volumes four to five times the norm under the restrictions of a charter that is outdated for the times. And if this isn’t enough, the new FAS 166 & 167 rulings could strike a blow to restrict investor participation to an already embattled agency market.

Effective January 1, 2010 the GSE’s were required to place on balance sheets all loans currently in securities that have historically been carried off balance sheets. This action could have many unintended consequences, but the one that stands out is the potential harm it could have to the investor markets.

Historically, under GSE policies a seriously delinquent loan must be bought out of a pool when certain events occurred. This policy required agencies to buy the loan out of said pool when it reached 90-days; however, this policy did not obligate the buyout to occur. The reason being any loan bought out of the pool would have to appear on the balance sheet but not at par, rather at 40% of par. This discount caused by NPV calculations required the GSE’s to borrow funds from the Treasury, and that capital was expensive. Therefore, until an event occurred, the GSE’s typically allowed 90-day plus loans to stay in the pools since it was cheaper to continue to pay the investor the principle and interest then it was to borrower capital to buy the loan out of the pool.

Now FAS 166 & 167 requires all loans that the GSE’s are guaranteeing to the investor community to be boarded onto their balance sheets. This event would be cataclysmic if the GSE’s were not under conservatorship and would be required to follow regulatory capital guidelines however the boarding of approximately five trillion of assets on to their balance sheets maybe more detrimental to the bond buying community then to the GSE’s.

The action required by the new FAS rules has provided an opportunity for the GSE’s to buy loans that reach the 90-day delinquent status out of pools without penalty related to capital borrowings. Since the loans in question are required to be placed on the balance sheet, there is no need to discount them to the 40% NPV level. Rather, any loan bought of the pool would only require the standard loan loss reserve to be setup against any potential loss. This requirement is far less expensive then the requirement prior to new FAS ruling.

So what does this mean for the investor? It may mean that new conditions now exists that enable the GSE’s to buy loans out of the pools, without penalty, sooner versus later. If this occurs and it could; prepayment speeds would increase causing the investor to experience a material impact on the value of their investment. Leaving some to ponder at the end of the day…do we really need another blow to the investor marketplace???
Print Friendly and PDF
Posted by at
Labels: , , , ,

How Will New Accounting Rules Impact the GSEs?

Posted by Joe Murin January 27, 2010

I think all of us would agree that the Housing Finance System in this country is broken. The ability for the once powerful secondary marketing vehicles to provide liquidity to the housing industry is at risk. Private securitization has been out of business for over two years, the agency markets required the Federal Reserve to step in to support it, and Ginnie Mae is struggling to cope with volumes four to five times the norm under the restrictions of a charter that is outdated for the times. And if this isn’t enough, the new FAS 166 & 167 rulings could strike a blow to restrict investor participation to an already embattled agency market.

Effective January 1, 2010 the GSE’s were required to place on balance sheets all loans currently in securities that have historically been carried off balance sheets. This action could have many unintended consequences, but the one that stands out is the potential harm it could have to the investor markets.

Historically, under GSE policies a seriously delinquent loan must be bought out of a pool when certain events occurred. This policy required agencies to buy the loan out of said pool when it reached 90-days; however, this policy did not obligate the buyout to occur. The reason being any loan bought out of the pool would have to appear on the balance sheet but not at par, rather at 40% of par. This discount caused by NPV calculations required the GSE’s to borrow funds from the Treasury, and that capital was expensive. Therefore, until an event occurred, the GSE’s typically allowed 90-day plus loans to stay in the pools since it was cheaper to continue to pay the investor the principle and interest then it was to borrower capital to buy the loan out of the pool.

Now FAS 166 & 167 requires all loans that the GSE’s are guaranteeing to the investor community to be boarded onto their balance sheets. This event would be cataclysmic if the GSE’s were not under conservatorship and would be required to follow regulatory capital guidelines however the boarding of approximately five trillion of assets on to their balance sheets maybe more detrimental to the bond buying community then to the GSE’s.

The action required by the new FAS rules has provided an opportunity for the GSE’s to buy loans that reach the 90-day delinquent status out of pools without penalty related to capital borrowings. Since the loans in question are required to be placed on the balance sheet, there is no need to discount them to the 40% NPV level. Rather, any loan bought of the pool would only require the standard loan loss reserve to be setup against any potential loss. This requirement is far less expensive then the requirement prior to new FAS ruling.

So what does this mean for the investor? It may mean that new conditions now exists that enable the GSE’s to buy loans out of the pools, without penalty, sooner versus later. If this occurs and it could; prepayment speeds would increase causing the investor to experience a material impact on the value of their investment. Leaving some to ponder at the end of the day…do we really need another blow to the investor marketplace???
Print Friendly and PDF
Posted by at
Labels: , , , ,

How Will New Accounting Rules Impact the GSEs?

Posted by Joe Murin January 27, 2010

I think all of us would agree that the Housing Finance System in this country is broken. The ability for the once powerful secondary marketing vehicles to provide liquidity to the housing industry is at risk. Private securitization has been out of business for over two years, the agency markets required the Federal Reserve to step in to support it, and Ginnie Mae is struggling to cope with volumes four to five times the norm under the restrictions of a charter that is outdated for the times. And if this isn’t enough, the new FAS 166 & 167 rulings could strike a blow to restrict investor participation to an already embattled agency market.

Effective January 1, 2010 the GSE’s were required to place on balance sheets all loans currently in securities that have historically been carried off balance sheets. This action could have many unintended consequences, but the one that stands out is the potential harm it could have to the investor markets.

Historically, under GSE policies a seriously delinquent loan must be bought out of a pool when certain events occurred. This policy required agencies to buy the loan out of said pool when it reached 90-days; however, this policy did not obligate the buyout to occur. The reason being any loan bought out of the pool would have to appear on the balance sheet but not at par, rather at 40% of par. This discount caused by NPV calculations required the GSE’s to borrow funds from the Treasury, and that capital was expensive. Therefore, until an event occurred, the GSE’s typically allowed 90-day plus loans to stay in the pools since it was cheaper to continue to pay the investor the principle and interest then it was to borrower capital to buy the loan out of the pool.

Now FAS 166 & 167 requires all loans that the GSE’s are guaranteeing to the investor community to be boarded onto their balance sheets. This event would be cataclysmic if the GSE’s were not under conservatorship and would be required to follow regulatory capital guidelines however the boarding of approximately five trillion of assets on to their balance sheets maybe more detrimental to the bond buying community then to the GSE’s.

The action required by the new FAS rules has provided an opportunity for the GSE’s to buy loans that reach the 90-day delinquent status out of pools without penalty related to capital borrowings. Since the loans in question are required to be placed on the balance sheet, there is no need to discount them to the 40% NPV level. Rather, any loan bought of the pool would only require the standard loan loss reserve to be setup against any potential loss. This requirement is far less expensive then the requirement prior to new FAS ruling.

So what does this mean for the investor? It may mean that new conditions now exists that enable the GSE’s to buy loans out of the pools, without penalty, sooner versus later. If this occurs and it could; prepayment speeds would increase causing the investor to experience a material impact on the value of their investment. Leaving some to ponder at the end of the day…do we really need another blow to the investor marketplace???
Print Friendly and PDF
Posted by at
Labels: , , , ,

How Will New Accounting Rules Impact the GSEs?

Posted by Joe Murin January 27, 2010

I think all of us would agree that the Housing Finance System in this country is broken. The ability for the once powerful secondary marketing vehicles to provide liquidity to the housing industry is at risk. Private securitization has been out of business for over two years, the agency markets required the Federal Reserve to step in to support it, and Ginnie Mae is struggling to cope with volumes four to five times the norm under the restrictions of a charter that is outdated for the times. And if this isn’t enough, the new FAS 166 & 167 rulings could strike a blow to restrict investor participation to an already embattled agency market.

Effective January 1, 2010 the GSE’s were required to place on balance sheets all loans currently in securities that have historically been carried off balance sheets. This action could have many unintended consequences, but the one that stands out is the potential harm it could have to the investor markets.

Historically, under GSE policies a seriously delinquent loan must be bought out of a pool when certain events occurred. This policy required agencies to buy the loan out of said pool when it reached 90-days; however, this policy did not obligate the buyout to occur. The reason being any loan bought out of the pool would have to appear on the balance sheet but not at par, rather at 40% of par. This discount caused by NPV calculations required the GSE’s to borrow funds from the Treasury, and that capital was expensive. Therefore, until an event occurred, the GSE’s typically allowed 90-day plus loans to stay in the pools since it was cheaper to continue to pay the investor the principle and interest then it was to borrower capital to buy the loan out of the pool.

Now FAS 166 & 167 requires all loans that the GSE’s are guaranteeing to the investor community to be boarded onto their balance sheets. This event would be cataclysmic if the GSE’s were not under conservatorship and would be required to follow regulatory capital guidelines however the boarding of approximately five trillion of assets on to their balance sheets maybe more detrimental to the bond buying community then to the GSE’s.

The action required by the new FAS rules has provided an opportunity for the GSE’s to buy loans that reach the 90-day delinquent status out of pools without penalty related to capital borrowings. Since the loans in question are required to be placed on the balance sheet, there is no need to discount them to the 40% NPV level. Rather, any loan bought of the pool would only require the standard loan loss reserve to be setup against any potential loss. This requirement is far less expensive then the requirement prior to new FAS ruling.

So what does this mean for the investor? It may mean that new conditions now exists that enable the GSE’s to buy loans out of the pools, without penalty, sooner versus later. If this occurs and it could; prepayment speeds would increase causing the investor to experience a material impact on the value of their investment. Leaving some to ponder at the end of the day…do we really need another blow to the investor marketplace???
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How Will New Accounting Rules Impact the GSEs?

Posted by Joe Murin January 27, 2010

I think all of us would agree that the Housing Finance System in this country is broken. The ability for the once powerful secondary marketing vehicles to provide liquidity to the housing industry is at risk. Private securitization has been out of business for over two years, the agency markets required the Federal Reserve to step in to support it, and Ginnie Mae is struggling to cope with volumes four to five times the norm under the restrictions of a charter that is outdated for the times. And if this isn’t enough, the new FAS 166 & 167 rulings could strike a blow to restrict investor participation to an already embattled agency market.

Effective January 1, 2010 the GSE’s were required to place on balance sheets all loans currently in securities that have historically been carried off balance sheets. This action could have many unintended consequences, but the one that stands out is the potential harm it could have to the investor markets.

Historically, under GSE policies a seriously delinquent loan must be bought out of a pool when certain events occurred. This policy required agencies to buy the loan out of said pool when it reached 90-days; however, this policy did not obligate the buyout to occur. The reason being any loan bought out of the pool would have to appear on the balance sheet but not at par, rather at 40% of par. This discount caused by NPV calculations required the GSE’s to borrow funds from the Treasury, and that capital was expensive. Therefore, until an event occurred, the GSE’s typically allowed 90-day plus loans to stay in the pools since it was cheaper to continue to pay the investor the principle and interest then it was to borrower capital to buy the loan out of the pool.

Now FAS 166 & 167 requires all loans that the GSE’s are guaranteeing to the investor community to be boarded onto their balance sheets. This event would be cataclysmic if the GSE’s were not under conservatorship and would be required to follow regulatory capital guidelines however the boarding of approximately five trillion of assets on to their balance sheets maybe more detrimental to the bond buying community then to the GSE’s.

The action required by the new FAS rules has provided an opportunity for the GSE’s to buy loans that reach the 90-day delinquent status out of pools without penalty related to capital borrowings. Since the loans in question are required to be placed on the balance sheet, there is no need to discount them to the 40% NPV level. Rather, any loan bought of the pool would only require the standard loan loss reserve to be setup against any potential loss. This requirement is far less expensive then the requirement prior to new FAS ruling.

So what does this mean for the investor? It may mean that new conditions now exists that enable the GSE’s to buy loans out of the pools, without penalty, sooner versus later. If this occurs and it could; prepayment speeds would increase causing the investor to experience a material impact on the value of their investment. Leaving some to ponder at the end of the day…do we really need another blow to the investor marketplace???
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