Executive Perspectives Blog
The U.S. housing market is healing, but how will we know when it's actually "healthy"? Let's use an analogy and say the patient – in this case, the housing market – was running an alarmingly high fever of 103 degrees in 2006, at the height of the boom. The patient collapsed and, after a difficult period of convalescence, now seems to be getting better. Housing starts, sales, and prices are rising, delinquencies and foreclosure inventories are trending down. The question is: What does a national housing market look like at a healthy 98.6 degrees?
To deliver the right prognosis, we need to compare the current housing market to the years before the housing peak, but not the peak itself. Let's start by reviewing the latest data on the market's condition.
Freddie Mac Multifamily’s ability to promote liquidity and stability in the rental housing market is built on effective risk management. Credit discipline helps keep that foundation strong. If we make credit too tight, we risk inadequately supporting the rental markets that we were chartered to serve. Too loose, and we risk borrowers taking on mortgages that they can’t sustain. Striking the right balance benefits our customers, the housing market, and communities across the country as well as helps protect U.S. taxpayers’ investment in Freddie Mac.
That’s why Freddie Mac Multifamily strictly adheres to a core set of credit principles when deciding whether to purchase mortgages. Borrowers must have equity in the deal, strong understanding of the local market, and a proven record of performing well in all economic cycles. Also, the properties must be well maintained and deliver positive, sustainable cash flow. And loans must have a clear path to refinancing at maturity.
Can you spot the fraud in this rental ad? It looks like your typical Internet home-for-rent ad. This one happened to be on Craigslist and the fraud could cost an unwary renter thousands of dollars. Here’s the scam: the advertiser doesn’t own the house at the address. Freddie Mac does. It was never for rent and it’s scheduled to close next month. (Craigslist immediately pulled the ad after they were notified about the problem.)
Unfortunately, we’re hearing more reports about fraudsters trying to cash in on the housing crisis’s remaining foreclosed homes by advertising them as rentals on the Internet. It works like this. Once the house is sold at foreclosure, the fraudster posts an ad online and tries to rent it before it can be sold to a new owner. People contacting the fraudster about the ad are asked to submit their personal credit information as part of the lease application plus two month’s rent.
For America’s underwater homeowners – particularly those who live in areas hit hardest by the housing crisis – the launch of “HARP 2.0” has been welcome news. The program was initially launched in 2009 to help struggling homeowners with mortgages owned by Freddie Mac or Fannie Mae refinance to more sustainable terms. In October 2011, the program was significantly enhanced, providing more homeowners with the opportunity to refinance at today’s historically low mortgage rates – even if they have little or no equity in their home. HARP 2.0 is already delivering strong results and in the first half of 2012, our purchase volume of HARP refinances increased 76 percent compared to the first half of 2011.
One of our top priorities is ensuring that America’s families have access to reliable information about HARP. We recognize that the Internet is one of the easiest and most accessible ways to provide homeowners with important tools, resources, and user-friendly guidance regarding their mortgage, and we continue to focus on FreddieMac.com to meet their needs. Today, FreddieMac.com serves as the starting point for many borrowers interested in HARP and other mortgage relief options.
Changes are afoot in the world of conforming, conventional mortgages. Under the Federal Housing Finance Agency's (FHFA) direction, we're changing our traditional approach to the "representations and warranties" lenders make that the loans they sell us comply with our Seller/Servicer Guide and business terms. Historically, these reps and warranties last for the life of the loan and are an important incentive for delivering quality mortgages to Freddie Mac. That's because rep and warranty violations can lead to a wide range of actions, from one-on-one discussions with lenders about improving their business processes to repurchase requests.
Starting next year, under FHFA’s direction, Freddie Mac will relieve lenders from certain reps and warranties involving the underwriting of borrower credit and the property securing the mortgage, if there are no delinquencies during the first 36 months and other quality performance milestones are met. In the case of Freddie Mac's Relief Refinance Mortgages, which includes Home Affordable Refinance Program (HARP) mortgages, rep and warranty relief can occur after just 12 months of consecutive, on-time mortgage payments. The new policy will apply to all single family mortgages sold to Freddie Mac on or after January 1, 2013. (For details of our new Representation and Warranty Framework, click here.)