Fannie, Freddie May Waive Appraisals for Refinancings (Update1)
By Dawn Kopecki
Dec. 10 (Bloomberg) -- Fannie Mae and Freddie Mac, the mortgage-finance companies seized by the U.S. government, are considering waiving a requirement for new appraisals on refinanced loans, their regulator said.
“If they refinance someone, rather than doing a loan mod, do they need a new appraisal if they already have the credit?” Federal Housing Finance Agency Director James Lockhart told reporters after a speech in Washington today. “That’s an issue that’s being discussed. They’re looking at it.”
Fannie and Freddie, which own or guarantee $5.3 trillion of the $12 trillion U.S. home loan market, have accelerated anti- foreclosure efforts and are now debating how to deal with delinquent borrowers who owe more than their homes are worth. The S&P/Case-Shiller home-price index dropped 17.4 percent in September from a year earlier after a 16.6 percent decline in August. The gauge has fallen every month since January 2007.
“An upside down mortgage is a difficult thing to deal with,” Lockhart said. Whether the new loans would require or could even get mortgage insurance is a consideration, as well as accounting issues surrounding the valuation of the refinanced loan on the companies’ balance sheets, he said.
“That’s why it’s hard to make a decision,” Lockhart said.
Washington-based Fannie and McLean, Virginia-based Freddie accounted for 73 percent of all new mortgages in the first nine months of this year as private sources of financing contracted, Lockhart said.
A Freddie spokeswoman, Sharon McHale, didn’t have an immediate comment. Brian Faith, a Fannie spokesman, wasn’t immediately available to respond.
Mortgage Insurance
Lockhart also said today the Federal Housing Administration will likely supplant Fannie and Freddie as the largest source of new home loans as borrowers find it harder to obtain the mortgage insurance necessary to qualify for non-government financing.
FHA, a government agency that insures loans for private lenders, will probably overtake Fannie and Freddie within the next quarter, Lockhart said in his speech to the Women in Housing & Finance, a society of industry professionals.
“You will probably see in the next quarter the Fannie and Freddie lines going down and FHA coming up,” Lockhart said. “Fannie and Freddie are so dependent on mortgage insurers because they can only buy loans with 80 percent loan-to-value ratios and they aren’t able to do as much.”
FHA has taken a larger role in helping troubled homeowners refinance their mortgages partly because of the higher standards that Fannie and Freddie require of lenders to buy or guarantee their loans. Those standards have become more of an obstacle as mortgage insurers including PMI Group Inc. and Radian Group Inc. are now charging higher prices and being more selective in their coverage to curb losses stemming from a surge in foreclosures.
To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.net.
Last Updated: December 10, 2008 15:02 EST
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